Introduction to Reversal Patterns and Continuation Patterns V-VIII

Chart Patterns V: Triple Tops and Bottoms

A triple top is the same charting pattern as the double top with an extra relative high that touches the same resistance level. A triple top creates a strong resistance level and a neckline connecting the two relative lows in the middle of the pattern. A trader should enter a short position when the daily candle closes below the neckline of the triple top.
The entry point should be set a few points beneath the low of the candle that first closed below the neckline.

The triple bottom is similarly an extension of the double bottom. It simply contains an additional relative low on the chart that touches the same price as the two that preceded it. The triple bottom is a solid support level and can be a basis for entering a long position if it holds for a third time – particularly if there are additional indicators confirming a reversal at the triple bottom. Alternatively, a more conservative trader could also wait until the price closes above the neckline and buy when the following candle surpasses the high for the first candle. This is essentially the same logic utilized in trading the triple top, whereby traders place short orders to sell an asset at a few points beneath the low of the first candle that closes beneath neckline.

Chart Patterns VI: Saucers

The Saucer Bottom is a very slow developing pattern that does not have a clear entry point in most cases. It becomes the foundation for a long term uptrend, but it often gives no direct signal to buy. The saucer represents a gradual loss of momentum in a downtrend, followed by consolidation in a sideways market, and an eventual return of the trend higher. A saucer may only be visible on a weekly chart, because the time it takes to develop is so long.
Because the saucer offers little in the way of a precise signal to enter a trade, and because it operates over such a long period of time, it is necessary to rely on other technical analysis to determine an entry point following a saucer formation. The saucer simply provides a foundation for a further move upwards, letting the trader know that the long-term bias will likely be to the upside.
One exception to this is the cup and handle pattern, which is demonstrated fairly closely above in the large saucer followed by a smaller saucer at the same horizontal level. In this case, once the smaller handle breaks above the high point at the end of the first saucer, a buy signal is generated. This pattern does not use any new principles, rather it is based on the relative high as a resistance level and the price breaking through resistance signaling a buy.

Chart Patterns VII: Triangles

Continuation Patterns are patterns that exist within a trend at prices where the market consolidates before moving on in the direction of the original trend. There are several main consolidation patterns, all of which follow the same simple rules.

• The price will move decisively in one direction before running into support/resistance
• The price will consolidate for a time and create the continuation pattern
• The price will break through the support/resistance and signal a continuation of the previous trend.

There are several continuation patterns and the articles would start from the Triangles.
Triangles
Triangles can best be defined as converging trendlines. Based on this fact alone, traders can draw two immediate conclusions regarding triangles:

1. As they converge, volatility contracts; this suggests a breakout is on the horizon.
2. Once one of the triangle's trend lines is broken, traders can expect the market to breakout in that direction.

Triangles can be divided into three main types: ascending, descending and symmetrical.

Chart Patterns VIII: Descending and Ascending Triangles

Descending Triangles
The descending triangle is a triangular consolidation zone that has a hypotenuse sloping downward at the top of the triangle. Beneath the hypotenuse is a straight trend line. Generally, when the market breaks through this trend line, it is seen as a signal that sellers have the momentum in the market, and that shorting may be a good opportunity as a result. Accordingly, it can reasonably be stated that the descending triangle usually appears in a downward trending market and signals a continuation of the downward trend.

Ascending Triangles
As you might expect, the ascending triangle usually appears in an upward trend - and signals the continuation of the upward trend. The ascending triangle is essentially an inverted descending triangle; it has a hypotenuse that moves upward with time, above which is a straight trend line that traders are eyeing carefully as a key resistance point. When this confirmation of that resistance has broken is received, it can be a signal that buyers have taken control of the market - hence making it an ideal time to buy.
In the chart below, USD/CHF formed an ascending triangle over 5 days before the release of an important economic data. The price tested the resistant level 1.2545 for three times before breakthrough. On the hypotenuse side, the buying momentum pushed the support level further up which formed the converging ascending triangle. Once the economic data was released, the price broke the resistance and shot further up.

The converging triangles, no matter descending or ascending, represents the psychology of traders on the market. Before the breakout, traders are not sure which direction the price will go, they are trading with great caution, and thus, reflected by the narrow trading range before the breakout. The range will get narrower as traders are getting more cautious before the final breakout. Once the direction of breakout is conformed, the followers will enter the market following the direction, which forms the strong momentum after the breakout.
Ultimately, the important signal provided by the triangle is not the shape, though. The signal is provided by the direction of the breakout from the triangle, which signals a continuation or sometimes a reversal of the trend.