Introduction to Chart Patterns - III

Introduction to Chart Patterns - III

We have covered basic chart patterns in my earlier blog. Kindly visit Chart Patterns - An Introduction and Introduction to Chart Patterns II to have a peep into Head and Shoulders, Double Top and Double Bottom, Triple Tops and Bottoms, Symmetrical Triangle, Ascending Triangle, Descending Triangle and Cup with Handle. Here we will have a look into:

• Falling Wedges
• Rising Wedges
• Rectangles 

Falling Wedges

Wedges mean a thick area on one end and tapering towards a thin edge. This is similar to Symmetrical Triangle pattern. Only difference here is the triangle is tapering downwards. This is considered as a bullish pattern. If you look closely it creates lower tops and lower bottoms.

Stock creates lowers tops (A-B- C) creating a resistance level  and lower lows (D-E-F) creating a support level. If the stock breaks the resistance level (G) which it will generally do, the stock is expected to rise. An Investor can invest in this stock by having a strict stop loss at support level. This also happens even if this pattern occurs in a downtrend.

Rising  Wedges

Rising wedges is a Bearish trend. Here the formation of the triangle is upwards. Pattern creates higher tops and higher bottoms. Level of resistance A-B-C is created and is difficult to break, whereas a support Level D-E-F is a rising support level. When stock breaches the support (D-E-F) it is expected to go further down, at least to a level of ‘D’ ad further down later. A trader can short sell the stock at point ‘F’ with a strict stop loss of level ‘C’. Trader can book the profits at level ‘D’ and might hold for more profits.  Same results occur even if this pattern occurs in uptrend or downtrend.