Reversal, Continuation and Bilateral

Proper identification of an ongoing trend can be a tremendous asset to the trader. However, the trader must also learn to recognize recurring [rɪ'kɜːrɪŋ] (періодичний) chart patterns that disrupt [dɪs'rʌpt] the continuity [ˌkɔntɪ'njuːətɪ] (неперервність) of trendlines. Broadly speaking, these chart patterns can be categorized ['kætəg(ə)raɪz] as reversal [rɪ'vɜːs(ə)l] patterns and continuation [kənˌtɪnju'eɪʃ(ə)n] patterns.

Reversal Chart Patterns:

Reversal patterns are important because they inform the trader that a market entry point is unfolding (розвертається) or that it may be time to liquidate an open position.

Slides 22 and 23illustrate the most common reversal patterns & their trading targets:

Continuation & Bilateral Chart Patterns:

A continuation pattern implies that while a visible trend was in progress, it was temporarily interrupted, and then continued in the direction of the original trend. The most common continuation and bilateral patterns & their trading targets are shown in Slides 24-26:

The proper identification of a strong continuation patterns may prevent the trader from prematurely [ˌpremə'tjuəlɪ] liquidating an open position that still has profit potential.

5. Candlestick Charts & Patterns

These charts have found great popularity with traders. Candlestick charting is usually credited to the Japanese rice trader Munehisa Hom(n)ma(also known as Sokyu Hom(n)ma) in the early eighteenth century, though many references indicate that this method of technical analysis probably existed as early as the 1600s.

Steven Nison of Merrill Lynch is credited with popularizing candlestick charting in Western markets and has become recognized as the leading expert on their interpretation.

The Japanese Candlestick charting is another method of graphic representation of the open, high, low, and closing price of the period. The elements of a candlestick bar are shown in Slides 27-29:

The rectangular portion of the candle, or the body, represents the range between the opening and the closing prices. If the closing price is higher than the opening price, the body is white (not filled). If the closing price is lower than the opening price, the body is black (filled).

A candle consists of either just a body or a body with an upper and/or a lower shadow. A candle with an opening and closing price at almost the same price level is called a doji (See Slide 30-31):

The candlewicks are called shadows, and they extend up to the highest price and down to the lowest price of the related period.

Candlestick charts can be used in any time frame, including minutes, hours, days, weeks, or months (See Slide 32):

The candlesticks in Slides 33-34 demonstrate the psychological trading that takes place during the period represented by a single candle:

The nomenclature [nəu'meŋkləʧə] used to identify individual or consecutive [kən'sekjutɪv] combinations of candlesticks is rich enough. For example: Hammer, hanging man, dark cloud cover, morning star, three black crows, three mountains, three advanced white soldiers, and spinning tops are only a few of the candlestick patterns that have been categorized and used in technical analysis (See Slides 35-36).

Candlestick chart patterns are formed by one or more candles; they indicate a short-term trend reversal or a trend continuation. You must always take into account the previous trend when interpreting candlestick patterns. Candlestick patterns do NOT give price targets! (See Slides 37-…).

CANDLESTICK’S BASIC PATTERNS

Different basic patterns offer an indication about what kind of price evolution can be expected.

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