Pattern or figure – it is the specific sequence of candles or the model of price behaviour (price model), using that we can understand about price movement. For example: "Head and shoulders", "Double top", "Adam and Eve", "triangle", "Flag". Such sequences are identified on the basis of statistics. Basicly that used as an helpfull mechanizm for the basic strategy and as the confirming mechanism.
Figures are divided on two types: figures of trend reverse and figures of trend continue:
- figures of trend continue characterise situation of temporary indecision about the prices on the market – pause before next trend movement; such figures are short in time;
- figures of trend reverse characterise situation on the market, when with high probability trend would reverse direction. Time to form this figure is more long.
Basic figures of technical analysis:
«Triangle» – There are four kinds of triangle in analysis:
The common rule of the breakthrough of the triangle is that the height of it is not less than foundation of triangle. Triangles consider as figures that continue the trend, but there may be cases where the breakthrough of triangle leads to a reversal of the trend. In general, the breakthrough of these figures in the opposite on the trend with high probability can mean a reversal of the trend.
Ascending triangle – is the rarely occuring figure. Usually it is a growth figure, that begins or continue up trand
Descending triangle usually it is figure, breakthrough of it in down direction begins down trend, unlike of that on the picture below this triangle break out into the up direction.
Extending triangle – unlike of other kinds of triangles is the figure of indecision. There are no certain predictions during building of this figure, so it is important to know this figures and to have skills to detect it. Trades must be opened carefully in this period.
«Flag», «pennant» - are also figures of trend continue, pennant is similar triangle, but it is forming in more short period
«Head and shoulders» - is the figure of reversal, it consists of three consecutive maximums, second of that is more higher than other. «Neck line» is the support line, intersection of it means trend reversal. Good signal of reversal confirmation is the test of neck line after breakthrough of the right shoulder. It means that the figure was formed and down trend begins. For down trend change it possible to identify inverted «Head and shoulders»
«Double top» (up-trend reversal), «Double bottom» (down-trend reversal) – are the figures of reversal. This figure consist of support (resistance) line and two extremums. Breakthrough of support (resistance) line after figure was formed means trend reversal.
«Triple top» (up-trend reversal), «Triple bottom» (down-trend reversal) –are the figures of reversal. This figure consist of support (resistance) line and three extremums. Breakthrough of support (resistance) line after figure was formed means trend reversal.