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Bullish Patterns
Symmetrical Triangles
Ascending Triangles
Rectangles
Pennants
Flags
Wedges
Head & Shoulder Bottom
Cup & Handle
Trendlines

Neutral Patterns
Symmetrical Triangles
Rectangles

Bearish Patterns
Symmetrical Triangles
Descending Triangles
Rectangles
Pennants
Flags
Wedges
Head & Shoulder Top
Trendlines

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Trendlines

We classify trendlines as being either continuation patterns or reversal patterns.

Small trendlines that form after a nice advance are continuation patterns that definitely have a bullish bias. Although the stock doesn't exactly fit the bullish flag, pennant, or wedge patterns, it still remains a strong stock in an uptrend that is temporarily “resting” before continuing its upward movement. These trendlines shall be played the same as the continuation patterns previously discussed. This is to say a volume surge is needed to confirm the breakout and the pricing action after the breakout should mirror the move into the pattern.

Bullish trendlines also appear after a stock has suffered a big drop and is forming a base. The pattern must be long and drawn out. This requirement allows time for mad stockholders to sell their positions and be replaced by new stockholders who aren't so upset and won't sell at the first sign of strength. Like the head & shoulders bottom reversal pattern, there really needs to be a massive amount of buying to be considered valid. Remember, an attempt is being made to reverse a large downtrend, and that takes great effort.



After gapping down and basing for 5 months with easily defined resistance, DCN broke out on steady volume that lasted well over a month. Maybe you can call it a head & shoulder pattern with two shoulders on each side…it doesn't matter. The only important features are the size of the base (5 months) and the volume on the breakout. We got both, so it doesn't matter what you call the pattern.



AXL was generally trading neutral with easily defined trendline resistance overhead. Until the stock breaks out on volume, there isn't much to do from a “chart pattern” standpoint other than play the range. But once resistance is taken out on big volume, the stock become playable to the upside.



CNX is another simple example of a trendline being used to determine entry on a trade. Resistance is formed by a couple touches, and volume pops on the breakout. Notice how the pricing action on the rally after the breakout is very similar to the pricing action on the move up into the pattern.



IMAX didn't really fit well into the bullish wedge, flag or pennant patterns, but the pattern was too good to ignore. In this case we just plop it into our bullish trendline category and play the volume breakout like any other continuation pattern.


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