Orthodox Patterns: Range-Trading Within the Pattern, Trend-Trading After Breakout

• Ascending triangles
  • Generally bullish, range-bound regime within triangle and switches to a trending regime at breakout.
• Descending triangles
  • Generally bearish.
• Symmetrical triangles
  • Psychology is one of complete uncertainty.
• Rectangles
  • Buyers and sellers in fierce competition within the rectangle range
• Flags
  • Scaled down rectangles. Range-trading regime that comes after a strong trending move, and that normally leads to a continuation of the trend.
• Pennants
  • Scaled down symmetrical triangles.
• Broadening patterns
  • Good opportunity to trade the range.
  • Edwards and Magee point out that broadening bottoms do not occur in stocks because the psychology behind the pattern is suited only to tops (i.e. a very excited public getting involved near the top of a trend). The eventual break (to the downside for a broadening top) should provide for quite a strong trending regime.
• Head and shoulders
  • Trend exhaustion and reversal pattern at the end of an uptrend.
  • Period when the H&S pattern is forming, is more often than not a range-trading regime.
• Reverse Head and Shoulders
  • Trend exhaustion and reversal pattern at the end of a downtrend.
• Double tops and bottoms
  • Signals an important trend reversal that will usually be accompanied by a strong trending regime.
• Rising wedge
  • Market is fighting for its life to delay the inevitable decline. It becomes harder and harder for the market to rally but it does continue to make slight new highs.
  • Usually occurs around major turning points and at the end of long trends.
• Falling wedge
  • Opposite of rising wedge. Demanders eventually win out against the powerful but ultimately limited suppliers.