Technical Analysis Price Patterns Part 4

Reversing/Continuation Patterns

Some of the patterns we consider can appear as a reversal or as a continuation pattern.

Rounding Top as a Reversing Pattern

A rounding top pattern (inverse rounded bowl shape) appears on daily and weekly bar charts.

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Figure 4.60: Rounding top reversal pattern.

A rounding top starts with a steep rising trendline (figure 4.60) which with time becomes increasingly flat. Rounding tops as a reversing pattern break to the down side and lead to a farther move down 90% of the time. The pattern confirms when the price closes below the left-hand border or with a saucer lip when breaking the right-hand side of the border.

Rounding Top as a Continuation Pattern

A break to the upper side of the saucer gives, on average, less profit than a break to the lower side. This is simply because, as a continuation pattern, part of the up-move already has been completed.

Figure 4.61: Rounding top continuation pattern.

A rounding top as a continuation pattern is confirmed when the price moves above the highest point of the rounding top (figure 4.61).

Diamond Formation

The diamond formation is a combination of two triangles. The left is an inverted broadening triangle; the right side is a symmetrical triangle. Together they make up a diamond formation.

This pattern is most common as a continuation pattern, but it can be a top or bottom reversal pattern as well.

Diamond Formation as a Continuation Pattern

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Figure 4.62 shows a diamond continuation pattern.

Diamond Formation as a Reversal Pattern

Top Reversal

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Figure 4.63 shows a diamond top reversal pattern.

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