However, if you are someone who prefers to look for major developing trends (ie early stages of a bull or bear market), then you should look out for some major reversal chart patterns that formed after an extended up or downtrend. These patterns usually takes weeks or months to form and confirm.
Here are some some major bottoming or topping patterns that I look out for:
- Head & Shoulders
- Double or Triple Top/Bottom
- Adam & Eve
1. Header & Shoulders
Below is what happened to Dow Jones in 2008 (Subprime crisis). The warnings were there in its chart pattern months before sub-prime became daily headlines news .
Sometimes, a chart that has broken below the neckline could "recover" to retest the neckline. Should it falter here, it is the last chance for investors to get out.
After a major decline in 2008, Dow Jones began to show a bullish reversal H&S by July 2009. The headlines all over were still extremely gloomy but if you had sported this inverted H&S, you would have seen "opportunity" instead!
2. Double Tops or Bottoms
In March 2009, STI retested and bounced off the low that occured in October 2008. This formed a double bottom (a major one as it was after an extended downtrend and took months to form). The astute trader could enter as soon as they see a strong rejection of the last low while the conservative traders would wait for a confirmation to form (ie a break above the neckline) before staking. Still plenty of upside from there.
Double Bottom
Double Top
3. Adam & Eve
Adam & Eve Top/Bottom is the modified version of a Double Top/Bottom, with the retest of the 1st top/bottom being a more gradual and rounded formation. Sometimes the pattern is more apparent on the weekly (rather than daily) chart.
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