Head and Shoulders Pattern

1. Pattern Description

• Head and Shoulders (H&S) is a classic reversal pattern in technical analysis, signaling the end of an uptrend and the potential start of a downtrend.

• The pattern consists of three consecutive peaks:

• Left Shoulder: Price rises to create the first peak, then slightly declines.

• Head: Price continues to rise above the left shoulder's peak to create a higher peak, then declines.

• Right Shoulder: Price rises again but only reaches a lower level than the head and approximately the left shoulder, then continues to decline.

• The pattern's shape resembles a head with two shoulders on either side.

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1. Pre-pattern Trend: The trend must be upward.

2. Peak 1: Price reaches the first peak and then slightly decreases.

3. Peak 2: Price returns to the old peak area but cannot break through.

4. Neckline: Drawn horizontally across the intermediate dip between two peaks.

5. Pattern Confirmation: When price breaks down below the neckline.

Double Bottom:

1. Pre-pattern Trend: The trend must be downward.

2. Dip 1: Price touches the first dip and then slightly recovers.

3. Dip 2: Price returns near the old dip but does not penetrate.

4. Neckline: Drawn horizontally across the intermediate peak between two dips.

5. Pattern Confirmation: When price breaks up above the neckline.

3. Trading Significance

• Double Top:

• Signals that buying power has been exhausted, with sellers dominating.

• When price breaks the neckline, the probability of price decrease is high.

• Often accompanied by decreasing volume at the second peak.

• Double Bottom:

• Signals that selling pressure has weakened, with buyers beginning to take control.

• When price breaks the neckline, the probability of price increase is high.

• Often accompanied by increasing trading volume at the second dip.

Triangle Pattern

1. General Concept

The triangle pattern is a continuation pattern in technical analysis, representing the tug-of-war between buyers and sellers. When price accumulates within the narrowing range of a triangle, a breakout from the pattern usually leads to a strong price movement.

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Pennant Pattern

Pennant shows that the market is temporarily pausing to gather momentum, preparing for a subsequent breakout in the same direction as the initial trend.

2. Detailed Structure of Pennant

Consists of 3 main parts:

1. Flagpole:

• An extremely strong price movement, usually with a steep slope and accompanied by a strong increase in trading volume.

• This is the "explosion" phase signaling a clear change in supply and demand.

Pennant (Pennant Body):

• Price enters an accumulation phase in a small triangle pattern:

• Subsequent peak is lower than the previous peak.

• Subsequent dip is higher than the previous dip.

• Both trendlines gradually converge, creating a shape like a pennant tail.

Breakout:

• After the accumulation phase, price breaks out of the pattern in the same direction as the flagpole.

• Strong breakout with a sudden increase in trading volume.

Structure of Pennant Pattern

3. Trading Significance of Pennant Pattern

• Market Psychology:

• After a strong movement, the market temporarily "rests".

• The dominant side (buying or selling) is consolidating strength before continuing to push prices in the previous direction.

• Trading Strategy:

• Buy if Pennant forms after an uptrend and price breaks out upward.

• Sell if Pennant forms after a downtrend and price breaks out downward.