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Chart Patterns Part 2

Descending Triangles

A descending triangle is a triangle with a flat bottom and a descending top. It’s generally regarded as a bearish pattern.

Below is an example in Amazon.com (AMZN):
Descending Triangles   

Fig 2.6 Click to Enlarge.

From April to late June, buyers kept up a steady support level around $42, while sellers became more and more anxious, selling sooner and sooner, causing the price to go further and further down. Finally in late June, selling pressure mounted until the stock broke down.

Symmetrical Triangles

Symmetrical triangles aren’t regarded as bullish or bearish; they’re simply regarded as continuation patterns.

Below is an example in Exxon Mobil (XOM):

Symmetrical Triangles   

Fig 2.7 Click to Enlarge.

Both buyers and sellers became more anxious from Sept 2001 until February 2002 as the price action become tighter and tighter. Finally XOM breaks out like a coiled spring to the upside.

A Final Note on Triangles: While ascending triangles are generally regarded as bullish, and descending triangles are generally regarded as bearish, what’s more important is the direction of the breakout. If a stock breaks out to the upside, it’s bullish. Forget what kind of triangle it was. The same goes for downside breaks.

Double Bottom Patterns

Double bottoms are regarded as reversal patterns, meaning that when they occur, the trend is likely to reverse.

In a double bottom, a downtrend is halted by two support levels. These bottoms indicate that there is strong support to protect against any further downside.

In Fig 2.8 below, the Dow Jones Industrial Index was in a down trend from July 1998 until October 1999 when the second bottom occurred. After that point, the trend reversed and an up trend began.

Double Bottom Patterns   

Fig 2.8 Click to Enlarge.

Helpful Hint: Double bottoms are sometimes called “W” patterns because of an upswing in between the two bottoms, like in the chart above.


Chart Patterns Part 3 | Part 1

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