CHART PATTERNS

(PART I)
 WHAT IS TRADING WITH THE TREND?
Trading with the trend is a strategy in which traders make trading decisions
aligned with the prevailing direction of market movement. This involves
identifying and capitalizing on sustained upward (uptrend) or downward
(downtrend) price movements in a given financial instrument, such as a
stock.

Traders seek to enter trades in the direction of the trend, aiming to ride the
momentum and capture potential profits as long as the trend persists. This
strategy often involves using technical analysis tools and indicators to
confirm the trend strength and identify optimal entry and exit points.

The goal of trading with the trend is to take advantage of the higher
likelihood that prices will continue moving in the established direction,
while minimizing the risk of trading against the prevailing market
momentum.
ADVANTAGES OF TRADING WITH THE TREND?
1) Higher Probability of Success: Trading with the trend increases the likelihood of
profitable trades since the market tends to move in the direction of the trend more
often than not. Trends can persist for extended periods, allowing traders to
capture multiple profitable moves.
2) Less Stress and Emotional Trading: Following the trend helps reduce emotional
trading decisions. Traders may feel more confident and disciplined when trading
with the prevailing market momentum, leading to fewer impulsive and emotional
decisions.
3) Potential for Trend Extension: In some cases, trends can extend beyond what
might be initially expected. Trading with the trend can allow traders to capture
these extended moves, leading to potentially higher profits.
4) Objective Decision-Making: Trading with the trend provides traders with a
clear and objective framework for decision-making. The focus is on
following the prevailing market direction rather than making subjective
predictions.
 CONTINUATION PATTERNS
A continuation pattern in the financial markets is an indication that
the price of a stock or other asset will continue to move in the same
direction even after the continuation pattern completes.

There are several continuation patterns that technical analysts use as

signals that the price trend will continue. Examples of continuation
patterns include triangles, flags, pennants, and rectangles.
 ASCENDING TRIANGLE
An ascending triangle is formed when there is
an uptrend in the market during a series of
high lows and relatively equal highs. When the
uptrend consolidates, a horizontal line can be
drawn across the highs, which acts as the
resistance level. A rising trendline connecting
the higher lows represents the upward
momentum, indicating a bullish movement.
Trading Model
Entry: When the resistance is broken
Stop Loss: Just below the slope of the triangle
Profit: Equal to the the width of the triangle
 DESCENDING TRIANGLE
When there is a downtrend in the market
during a series of low highs and relatively equal
lows, it is a descending triangle pattern. Upon
consolidation, the equal low points mark the
support level. This is the horizontal line of the
descending triangle. The downward momentum
is indicated by the falling trendline connecting
the low highs, mainly caused by the selling
pressure.
Trading Model
Entry: When the support is broken
Stop Loss: Just above the slope of the triangle
Profit: Equal to the width of the triangle
 SYMMETRIC TRIANGLE
In this continuation pattern, there is balance
between the buyers and sellers—two
converging trendlines, one ascending and
one descending, create the triangle. The
upper trendline connects the lower highs,
while the lower trendline connects the higher
lows, implying that volatility is reducing. You
enter the tarde when either of the trendline is
broken.
Trading Model
Entry: When either line is breached
Stop Loss: Just above the slope of the
triangle
Profit: Equal to the width of the triangle
 BULLISH POLE N’ FLAG PATTERN
This pattern is formed after an uptrend,
during the consolidation. As the name
suggests, it resembles a flag on a
flagpole— the flagpole is the sharp rally
and the flag is a rectangular shaped
continuation of the trend. Two parallel lines
form the flag, where the upper one acts as
resistance while the other, support.
Trading Model
Stop Loss: Where the flag's lower trend line
reaches its lowest point
Profit: Equal to the the length of the pole
 BEARISH POLE N’ FLAG PATTERN
In direct contradiction to a bullish flag
pattern, a bearish flag continues a
downtrend, consolidating the price
movements. After a sharp correction,
represented by the flagpole, prices move in a
narrow range which is indicated by the
support and resistance lines of the bearish
flag.
Trading Model
Stop Loss: Where the flag's upper trendline
reaches its highest point
Profit: Equal to the the length of the pole
 PENNANT
Pennant is a short term continuation pattern. It has two converging
trendlines with a support (Upward slope) and resistance (Downward slope)
forming a triangle. This pattern determines the direction of trend
movement by price breaking:
If in a downtrend the price falls below
the support line a sell signal arises.
If in an uptrend the price rises above
the resistance line a buy signal arises.
Here place your stop loss on the other
side (Support or resistance trendline)
and the target will be equal to the
length of the pole.
 CHANNELS
These are the extensions of Trendlines.
A parallel combination of 2 trendlines is
said to form a Channel. The upper
trendline serves as the Resistance
whereas the lower trendline serves as
the Support. Note that when you are
trading channels you should keep you
stop loss on the opposite side of your
tarde and the target is same as the
width of the channel. Rules of target
and stop loss is same for all types of
channels.
 HORIZONTAL CHANNEL
This price pattern shows the equal forces
of buyers and sellers in the market. Due
to this, the price moves sideways. The
breakout of trend channels predicts the
direction of the price trend. A bearish
trend occurs if the support zone breaks,
while a bullish trend forms if the
resistance zone breaks.
In the horizontal trend channel, price
moves in the form of swings making
highs and lows. It is also called the
ranging market.
 BEARISH RECTANGLE
(HORIZONTAL CHANNEL)
Bearish rectangle pattern is a
trend continuation pattern which is
usually formed in a downtrend and
signals the trend’s direction. It is
characterized by support and
resistance levels which connect
recent lows and highs of the price.
If the price falls below the support
line a sell signal appears.
 CUP AND HANDLE
The Cup with Handle is a bullish continuation as
well as a reversal pattern that marks a
consolidation period followed by a breakout. The
pattern consists of two components, the handle
and the cup, as suggested by its name. The cup
takes shape following an advance and has a
bowl-like or rounded bottom. The handle forms
when the cup is finished, and a trade range
appears on the right side. When the handle breaks
out of its trading range again, the previous rise will
continue. When you are trading this pattern keep
your stop loss below the handle and the target
should be same as the dept of the cup.
 INVERTED CUP AND HANDLE
The inverted cup and handle pattern is a
bearish continuation as well as a reversal
pattern that appears in an downward
price trend. The pattern is considered
valid when a downward breakout occurs
and the price closes below the support or
neckline. This upside-down cup pattern
works the same way as the cup and
handle pattern, except that the breakout
direction is downward instead of upward.
When you are trading this pattern keep
your stop loss above the handle and the
target should be same as the depth of
the cup.