Chart Patterns are something every trader should know so you can recognize what is happening to the price of a stock. It can show you which way the price could potentially move when it breaks the pattern. Here are 3 of the most popular patterns you can use in your trading.
Bull Pennant / Bear Pennant
A Pennant Pattern is when two lines form a meeting point. It shows a consolidation area that happens most of the time after a large move in the price where it will consolidate before moving in the direction it breaks out of the pennant.
Here is an example of a Bull Pennant on the Dow Jones Industrial Average ETF.
Head and Shoulders / Reverse Head and Shoulders
The Head and Shoulders Pattern forms a head in the middle with two shoulders on the side. The Head represents the peak and the 2nd shoulder shows that the price is stalling and can’t reach the previous high. This can show a reversal of the price.
Here is an example of a Head and Shoulder Pattern on Carnival Corporation Stock.
Double Bottom / Double Top
A double bottom looks exactly how it sounds it is when the price hits a bottom bounces then retests that bottom and bounces again. It can be found at the end of a downtrend and can signal a bullish reversal. Double Top is the same thing except it forms after an uptrend. A double top is considered a bearish Signal.
Here is an example of a Double top on the QQQ ETF.