The triangle itself shows a pause in the underlying trend but may indicate a reversal or a continuation. The pennant is a neutral formation the interpretation of it heavily depends on the context of the pattern.Ī triangle is a chart pattern that’s characterized by a converging price range that’s typically followed by the continuation of the trend. Pennants are basically a variant of flags where the area of consolidation has converging trend lines, more akin to a triangle. The bear flag happens in a downtrend, follows a sharp move down, and it’s typically followed by continuation further to the downside. The bull flag happens in an uptrend, follows a sharp move up, and it’s typically followed by continuation further to the upside. Ideally, the impulse move should happen on high volume, while the consolidation phase should have lower, decreasing volume. The volume accompanying the pattern is also important. It looks like a flag on a flagpole, where the pole is the impulse move, and the flag is the area of consolidation.įlags may be used to identify the potential continuation of the trend. As technical patterns aren’t bound by any scientific principle or physical law, their effectiveness highly depends on the number of market participants paying attention to them.Ī flag is an area of consolidation that’s against the direction of the longer-term trend and happens after a sharp price move. Why is that? Isn’t trading and investing about finding an edge in something that others have overlooked? Yes, but it’s also about crowd psychology. These are some of the most well-known patterns out there, and many traders see them as reliable trading indicators. Some of the most common examples of these patterns are collectively referred to as classical chart patterns. Candlestick patterns can tell a useful story about the charted asset, and many traders will try to take advantage of that in stock, forex, and cryptocurrency markets. The idea is that by studying the historical price action of an asset, recurring patterns may emerge. Some traders will use indicators and oscillators, while others will base their analysis only on price action.Ĭandlestick charts present a historical overview of prices over time. ABCD ExtensionĬD should be either 127.2% or 161.8% of AB.There are many different ways to analyze the financial markets using technical analysis (TA). Classic ABCDĬD should be either 127.2% or 161.8% of BC. The three major patterns include:īoth the time and length of AB equal the time and length of CD.
Because of this, some experimentation may be necessary. Technical analysis such as this is simply not an exact science.
It is important to note that it would be extremely rare for line lengths and ratios to ever be exactly equal. These patterns can be either bullish or bearish. Therefore, the three previously mentioned legs (AB, BC, CD) represent different trends or price movements which move in opposite directions.Īs a result there are three major ABCD chart patterns that are most common. The three legs are referred to as AB, BC, and CD.Įach of the four points (ABCD) represent a significant high or low in terms of price on the chart. The ABCD points create three separate legs which combine to form chart patterns. Users can manually draw and maneuver the four separate points (ABCD). The ABCD Pattern drawing tool allows analysts to highlight various four point chart patterns.
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