Technical Analysis Fundamentals

Head and shoulders (H&S) and double top chart patterns are used in TA to indicate potential trend reversals.

The H&S pattern consists of three peaks: a central high peak (the head) and two lesser peaks on each side (the shoulders). A neckline is created by joining the swing lows between the shoulders. If the price falls sharply below this neckline, it's considered a break-out and a potential trend reversal signal.

Double tops are a simpler pattern with two consecutive highs of roughly equal height.

Similar to H&S, a neckline is drawn to link the low point between the two peaks. A breakout occurs when the price falls below this neckline, suggesting the uptrend may be ending and that price will decline.

Inverse versions

As seen in the photos above, there are inverse versions of both H&S and double top patterns, which indicate probable trend reversals from downtrend to uptrend.

Triangles and Wedges

Triangles and wedges are simple and dependable continuation patterns, particularly on longer-term charts (1 - 3 months). The patterns are made up of converging support and resistance lines. A right-angled triangle may be formed by a sequence of lower highs that form a resistance line and bounce off a horizontal support. Using a 4-hour or daily chart, the trader may buy at the support and sell at the resistance, placing stops below the support and above the resistance.

Fibonacci

Triangles and wedges are simple and dependable continuation patterns, particularly on longer-term charts (1 - 3 months). The patterns are made up of converging support and resistance lines. A right-angled triangle may be formed by a sequence of lower highs that form a resistance line and bounce off a horizontal support. Using a 4-hour or daily chart, the trader may buy at the support and sell at the resistance, placing stops below the support and above the resistance.