The formation chart can help us spot the different conditions where the market is ready to explode. They can also tell us if the price will continue in its current direction or vice versa.
Don’t worry; we’ll help you remember all these patterns and the strategies to have!
Here is the list of graphic models that we will cover:
- Bull trap candlestick pattern
- Double Top and Double Bottom,
- Heads and shoulders
Bull trap candlestick pattern
Bull trap candlestick pattern is a term for a false trade signal, misleading the trader that the downtrend is over and the uptrend is coming back, causing the trader to step in and trade in the direction of price increases. In fact, after the bull trap, the price goes down immediately, causing the trader who bought to lose.
Bull trap – also known as false breakout – false breakout, false breakout.
Bull here is representing the financial bull market. The trap is a trap.
The double top is a reversal figure, appearing after a bullish phase; it announces a downward acceleration of the course. Under its most beautiful features, it is also called an “M.” Moreover, it shows us the inability of prices to mark higher and higher highs.
As we said before, the interest here is to be able to place the exit of our trades according to the theoretical objectives. Quite simply, we see that the bulls are showing signs of weakness, with prices stuck below resistance, providing an opportunity for the bears to take things into their own hands. We notice the presence of a pullback (small return of prices on a straight line after its breakout) which occurs very frequently. In this figure, the objectives are equal to the gap between the resistance and the neckline, and this is carried over to the level of the breakout.
Double Top and Double Bottom
The double top is a reversal figure, appearing after a bullish phase. It announces a downward acceleration of the course. Under its most beautiful features, it is also called an “M.” Moreover, it shows us the inability of prices to mark higher and higher highs.
Quite simply, we see that the bulls are showing signs of weakness, with prices stuck below resistance, providing an opportunity for the bears to take things into their own hands. We notice the presence of a pullback (small return of prices on a straight line after its breakout) which occurs very frequently. As we said before, the interest here is to be able to place the exit of our trades according to the theoretical objectives. In this figure, the objectives are equal to the gap between the resistance and the neckline, and this is carried over to the level of the breakout.
Heads and shoulders
A very famous reversal figure, forming after an uptrend, indicates a high probability of a decline. However, it can also materialize in the form of a continuation pattern and in which case it will be found in a bearish phase. That being said, it is relatively rare.
