Stock Market Patterns: Flags and Pennants

Triple Tops and Bottoms

• Triple tops are bearish reversal patterns and triple bottoms are bullish reversal patterns.
• They form as the price hits a support or resistance level three times before the price turns around and moves in the opposite direction.
• Triple tops/bottoms usually form over longer periods of time.

Continuation Patterns

• Continuation patterns give an advanced warning when a stock price is likely to resume its trend after a short consolidation period and how far the stock price is likely to move in that direction.
• They are not infallible, but they do put the odds of success in the favor.

Rectangle

• Rectangle is a continuation pattern.
• It forms as the price of a stock pulls back from the predominant trend in a parallel channel.

Flag

• Flags are continuation patterns that form as the price of a stock pulls back from the predominant trend in a parallel channel.
• They can be either bullish or bearish, depending on what the trend was before the flag began to form.
• If a stock price was in an up trend before the flag began to form, it is a bullish continuation pattern.
• If a stock price was in a down trend before the flag began to form, it is a bearish continuation pattern.
• Flags usually form over shorter periods of time.

Head and Shoulder

• Head-and-shoulders top is a reversal pattern that forms as the price hits a resistance level, then breaks through the first resistance level and hits a higher resistance level, and then hits the first resistance level again.
• Head-and-shoulders bottom is a reversal pattern that forms as the price hits a support level, then breaks through the first support level and hits a lower support level, and then hits the first support level again.
• Volume characteristics are of critical importance in assessing the validity of these patterns.
• Activity is normally heaviest during the formation of the left shoulder and also tends to be quite heavy as prices approach the peak.

Pennant

• Pennants are continuation patterns that form as the price of a stock moves into a tighter and tighter consolidation range.
• They can be either bullish or bearish, depending on what the trend was before the pennant began to form.
• If a stock price was in an up trend before the pennant began to form, it is a bullish continuation pattern.
• If a stock price was in a down trend before the pennant began to form, it is a bearish continuation pattern.
• Pennants usually form over shorter periods of time.

Triangle

• Triangles are continuation patterns that form as the price of a stock hits a flat level of support or resistance and begins moving into a tighter and tighter consolidation range.
• They can be either bullish or bearish, depending on what the trend was before the wedge began to form.
• If a stock price was in an up trend before the triangle began to form, it is a bullish continuation pattern.
• If a stock price was in a down trend before the triangle began to form, it is a bearish continuation pattern.
• Triangles usually form over longer periods of time.

Types of Triangles

• Symmetrical triangle is a pattern in which two trendlines converge toward each other.
• There are also ascending and descending triangles.