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Risk

Trading Futures, Options on Futures, and retail off-

exchange foreign currency transactions involves

substantial risk of loss and is not suitable for all

investors. You should carefully consider whether

trading is suitable for you in light of your

circumstances, knowledge, and financial resources. You

may lose all or more of your initial investment.

Opinions, market data, and recommendations are

subject to change at any time. The lower Day Trade

margin the higher the leverage and riskier the trade.

Leverage can work for you as well as against you. It

magnifies gains as well as losses. Past performance is

not necessarily indicative of future results.

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Table of Contents

Introduction……………………………………………………………….4

Head and Shoulder Top….…………………………………….………..8

Head and Shoulders Bottom………………………….……….…..…..10

Ascending Channel ……………………………………….……………12

Descending Channel……………………………………………………14

Ascending Triangle ………..…………….……………….…………….16

Descending Triangle..…………………………………………….…….18

Double Top………………………………………………………………..20

Triple Top.………………………………………………………………...21

Cup and Handle …………………………………………………………23

Pennant………………………………………………….…………….….25

Volume……………………………………………….……………………27

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Why Chart Patterns?

Where most indicators are good for measuring a trend or

telling you when to get into a trend . . .

Chart patterns give you a heads up if the trend is likely to

continue or if a reversal is potentially about to happen.

Chart patterns also clue you in where we are in the fear/greed

cycle of human emotions.

And it’s fear and greed that move prices . . .

These chart patterns don’t form all the time – but when they

do, they are powerful.

The key is to not get overwhelmed – You don’t need to know

them all!

Just focus on the most powerful patterns.

And of course – understand how to use them.

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You need to know and understand how to use:

-Triangles

-Channels

-Topping Patterns

-Cup and Handle

-Pennants

-Wedges

-Head & Shoulders

As well as understanding how volume plays an important role.

Let’s dive in and take a look at the basics:

Chart Pattern Basics

In many ways, chart patterns are simply more complex

versions of trend lines and support/resistance.

Chart patterns are the best way to make both short and long

term forecasts – provided you know what to look for.

They are so powerful that hedge funds create them on purpose

to sucker people into trades . . .

Indicators combined with the right chart patterns have the

best chance of making money.

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With the Right Tools …

Once you are able to identify patterns, the key from there is to

assemble tools to give you an edge as to “if it is for real and

strong” or if it is a complete fake out.

It is also important to realize that the larger the time frame,

the larger the move.

The good news? It is easy to tell if a pattern break will result

in a larger term move or a shorter term fake out fairly quickly,

no matter what time frame you are trading. Think “6”

Chart Patterns

Chart patterns are a powerful and consistent source of trade

setups – and they form an important base in every successful

traders plan.

But first we must ask ourselves, why are these important to

know?

The main reason is that the stock market, like history, repeats

itself over and over again.

A chart pattern is a map of human emotions: Fear, greed,

worry, joy. It maps them all.

These “emotional patterns” lead the markets down a path –

either the continuation of the current trend, or the end of the

current trend and the start of a reversal

The frustration with chart patterns comes with the realization

that it is not an exact science.

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In fact, it’s often viewed as more of an art form than a science.

However, once the basics of charting are understood, the

quality of chart patterns can be significantly enhanced and

understood by looking at volume and key indicators.

It is also important to understand that a chart pattern is

“simply” a more complex version of trendlines and

support/resistance.

A pattern is, in effect, a specific combination of support and

resistance levels and trendlines, designed to give traders a

clean understanding of “what process is happening” that tends

to lead to a specific result.

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Head and Shoulders Patterns

Head and Shoulders Top

The Head and Shoulders pattern is generally regarded

as a reversal pattern and it is most often seen in uptrends.

This pattern is most reliable when found in the midst of an

uptrend.

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Eventually, after an uptrend, the market begins to slow

down and the forces of supply and demand are generally

considered in balance. Sellers come in at the highs to take

profits (left shoulder) and the downside is probed (beginning

neckline.)

Buyers soon return to the market and ultimately push

through to new highs (head.) However, the new highs are

quickly turned back and the downside is tested again

(continuing neckline.)

Tentative buying re-emerges and the market rallies once

more, but fails to take out the previous high. (This last top is

considered the right shoulder.) Buying dries up and the

market tests the downside yet again.

Your trendline for this pattern should be drawn from the

beginning neckline to the continuing neckline.

Volume has a greater importance in the head and

shoulders pattern in comparison to other patterns. Volume

generally follows the price higher on the left shoulder.

However, the head is formed on diminished volume indicating

the buyers aren't as aggressive as they once were. And on the

last rallying attempt-the right shoulder-volume is even lighter

than on the head, signaling that the buyers may have

exhausted themselves.

New selling comes in and previous buyers get out. The

pattern is complete when the market breaks the neckline.

Volume should increase on the breakdown.

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Head and Shoulders Bottom

The Head and Shoulders pattern can sometimes be

inverted. The inverted head and shoulders are typically seen in

downtrends.

What's noteworthy about the inverted head and shoulders

is the volume aspect.

The inverted left shoulder should be accompanied by an

increase in volume as visible here in DIA. The inverted head

should be made on lighter volume as once again visible here.

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The rally from the head however, should show greater volume

than the rally from the left shoulder. Ultimately, the inverted

right shoulder should register the lightest volume of all.

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Channel Patterns

Ascending Channel

An Ascending Channel is the price action contained

between upward sloping parallel lines as visible above in the

example of ABT. Higher pivot highs and higher pivot lows are

technical signals of an uptrend. Trendlines frame out the price

channel by drawing the lower line on pivot lows, and the upper

line is the channel line drawn on pivot highs. Price is not

always perfectly contained but the channel lines show areas of

support and resistance for price targets. A higher high above

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an ascending channel can signal continuation. A lower low

below the low of an ascending channel can signal trend change.

Price channels show trend. A trader can trend trade in a

channel or swing trade from support to resistance and back to

support. In an uptrend, start with the lower trendline drawn

on pivot lows and add a parallel channel line to complete the

formation.

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Descending Channel

A Descending Channel or downtrend is the price action

contained between two downward sloping parallel lines as

shown above in DDD. Lower pivot highs and lower pivot lows

are a bearish signal. In a downtrend, a trade might be entered

at the trendline and exited at the channel line. A lower low

below a Descending Channel can signal continuation. A

higher high above the low of an ascending channel can signal

trend change.

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Price channels show trend direction. The slope of the

channel shows momentum. Here is a simple technical edge:

start the down trendline using two lower pivot highs and stay

short below the trendline.

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Triangle Patterns

Ascending Triangle

An Ascending Triangle is a bullish chart pattern used

in technical analysis that is easily recognizable by the distinct

shape created by two trendlines. In an ascending triangle, one

trendline is drawn horizontally at a level that has historically

prevented the price from heading higher, while the second

trendline connects a series of increasing troughs. Traders enter

into long positions when the price of the asset breaks above the

top resistance.

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An Ascending Triangle is most commonly considered to

be a continuation pattern, meaning that it is usually found

amid a period of consolidation within an uptrend. Once the

breakout occurs, buyers will aggressively send the price of the

asset higher, usually on high volume. The most common price

target is generally set to be equal to the entry price plus the

vertical height of the triangle.

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Descending Triangle

A Descending Triangle is a bearish chart pattern that

connects a series of lower highs and a second trendline that

has historically proven to be a strong level of support, as show

in the image above. Traders watch for a move below support,

as it suggests that downward momentum is building. Once the

breakdown occurs, traders may establish short positions and

aggressively push the price of the asset lower.

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This is a very popular tool among traders because it

clearly shows that the demand for an asset is weakening, and

when the price breaks below the lower support, it is a clear

indication that downside momentum is likely to continue.

Descending Triangles give technical traders the opportunity

to make substantial profits over a brief period of time. The

most common price targets are generally set to equal the entry

price minus the vertical height between the two trendlines.

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Topping Patterns

Double Top

A Double Top is a term used in technical analysis to

describe the rise of a stock, a drop, another rise to the same

level as the original rise, and finally another drop.

The double top looks like the letter "M". The twice

touched high is considered a resistance level.

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Triple Top

A Triple Top pattern is used in technical analysis to

predict the reversal of an extended uptrend. This pattern is

identified when the price of an asset creates three peaks at

nearly the same price level. The bounce off the resistance near

the third peak is a clear indication that buying interest is

becoming exhausted. It is used by traders to predict the

reversal of the uptrend.

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The three consecutive tops make this pattern visually

similar to the head and shoulders pattern but, in this case, the

middle peak is nearly equal to the other peaks rather than

being higher. Many traders will enter into a short position

once the price of the asset falls below the identified support

level (shown by the black line in the chart above)

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Cup and Handle

A Cup and Handle is a unique pattern that resembles

just that, a cup with a handle. The cup is in the shape of a "U"

and the handle has a slight downward drift. The right-hand

side of the pattern has low trading volume. It can be as short

as seven weeks and as long as 65 weeks.

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As the stock comes up to test the old highs, the stock will

incur selling pressure by the people who bought at or near the

old high. This selling pressure will make the stock price trade

sideways with a tendency towards a downtrend for four days to

four weeks... then it takes off.

A couple points on trying to detect cup and handles:

Length - Generally, cups with longer and more "U" shaped

bottoms, the stronger the signal. Avoid cups with a sharp "V"

bottoms. Depth - Ideally, the cup should not be too deep. Also,

avoid handles which are too deep since the handles should

form in the top half of the cup pattern. Volume - Volume

should dry up on the decline and remain lower than average in

the base of the bowl. It should then increase when the stock

finally starts to make its move back up to test the old high.

Retest (of old high) - doesn't have touch or come within a few

ticks of old high. However, the further the top of the handle is

away from the highs, the more significant the breakout needs

to be.

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Pennant Pattern

A continuation pattern in technical analysis formed when

there is a large movement in a stock, the flagpole, followed by

a consolidation period with converging trendlines, the

pennant, followed by a breakout movement in the same

direction as the initial large movement, the second half of the

flagpole.

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Pennants, which are similar to flags in terms of structure,

have converging trendlines during their consolidation period

and they last from one to three weeks. The volume at each

period of the pennant is also key. The initial move must be met

with large volume while the pennant should have weakening

volume, followed by a large increase in volume during the

breakout.

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Volume

If, on the break of a pattern, volume goes above its 50

period “average” volume, then the pattern has a high

probability of success.

If the break happens on low volume, it is just a probe and will

most likely fail quickly. From a trading perspective, I get in

early – and then watch. If the breakout happens on low volume

then I can just take a small profit and move on.

Chart patterns are the results of human emotions in the

markets. These patterns are so powerful because they

represent the averages of how people react in the markets.

Like anything, the more time you spend reviewing charts the

more you’ll be trained to recognize these patterns at just a

glance and be ready for the next big move.

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Here’s the next step…

Now that you’re familiar with the basics of chart patterns, you

should have a solid foundation to start trading. But if you’re

serious about trading, then THIS is the logical next step:

“The Most Profitable Stock Trading Patterns”

In this course, John F. Carter shares:

How to identify the most profitable stock trading

patterns in today’s market and speed up your trading in

2015

How to use chart patterns to make money right now

– no matter the current market condition

The step-by-step rules for profiting from chart patterns

The science of chart reading so you can spot major

turns in the market

How to identify when hedge funds create a pattern to

trick you into buying into a bad trade

This course was and is still offered on our site for $297, but

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