Rising Wedge & Falling Wedge

The rising wedge pattern is a technical bearish chart pattern that indicates a forthcoming downside breakout. As and when the price consolidates between upward sloping support and resistance lines, a rising wedge is formed. Depending on where it appears on a price chart, the wedge pattern can be used as a continuation or reversal pattern.

The support line has a sharp slope than the resistance line. This suggests that higher lows are forming faster than higher highs. If the rising wedge appears after an uptrend, it is typically a bearish reversal pattern. Price action forms new highs, but at a much slower rate than price action forms higher lows.

If it forms during a downtrend, it may indicate that the downtrend will continue. Price began in a downward trend before consolidating and drawing higher highs and even higher lows. The price broke lower, and the downtrend continued. That is why it is known as a continuation signal.

A Falling Wedge is a technical bullish chart pattern that forms during an upward trend, with the lines sloping downward. Depending on where it appears on a price chart, the falling wedge can also be used as a continuation or reversal pattern.

The falling wedge is a reversal pattern that appears during a downtrend. It happens when the price makes lower highs and lower lows, forming two contracting lines. The falling wedge usually precedes an upward reversal, which means you can look for potential buying opportunities.

Head-and-Shoulders & Inverse Head-and-Shoulders

The Head and Shoulders pattern is a bullish-to-bearish price chart pattern that assists traders recognize when a trend is about to reverse.

This pattern is ascertained when a security’s price action exhibits the following characteristics:

• The pattern forms after long bullish trends in which the price rises to a peak and then falls to form a trough.
• The price again rises to form a second high that is significantly higher than the initial peak, and then falls again.
• The price finally rises for the third time, but only to the level of the previous peak before falling again.

The shoulders are formed by the first and third tops, while the head is formed by the second peak. The neckline is defined as the line connecting the first and second troughs. The head and shoulders pattern has historically proven to be fairly reliable. It’s also one of the most well-known chart patterns. No chart pattern is perfect, but when the head and shoulders pattern correctly signals a major trend change, it represents a correspondingly large profit opportunity.

The Inverse Head and Shoulders pattern is similar to the standard Head and Shoulders pattern, but it is inverted. The inverse head and shoulder chart pattern is used to forecast downtrend reversals.

This pattern is ascertained when a security’s price action exhibits the following characteristics:

• The pattern begins with a long downtrend, then the price starts rising to form a peak.
• The price falls again, forming a second trough significantly below the initial low, before rising again.
• The price falls a third time, but only to the level of the first trough, before rising again and reversing the trend.
• Finally, after the completion of an Inverse Head and Shoulders pattern indicates a bullish trend reversal.

The shoulders are formed by the first and third troughs, while the head is formed by the second peak. A move above the resistance, also known as the neckline, is interpreted as a signal for a sharp upward move. Many traders look for a significant increase in volume to confirm the validity of the breakout. Volume is typically highest during the first two declines, and then decreases through the right shoulder. In an ideal world, the two shoulders would be the same height and width.

Flag Formation

It is a trend continuation pattern that gets its name from its visual resemblance to a flag on a flagpole. The pattern begins with a pole formation, which represents a nearly vertical and steep price move. Following the steep rise, candlesticks contained in a small parallelogram by forming a flag pattern. It is a consolidation zone characterised by a counter-trend move that follows after a sharp price movement. When the trendline resistance is broken, the stock enters the next leg of the trend move, and then the stock continues forward. The pattern is made up of five to twenty candlesticks.

Bearish Flag formation

A bear flag pattern can be seen in a down trending stock. It is a continuation pattern in which the previous drop is only slightly retraced. This shows that there are more selling pressure pushing prices down rather than up, and that the downward trend will continue. When the lower trendline breaks, panic sellers emerge