He has consulted with multinational firms on FX hedging and lectured at Duke Law School on FX derivatives. The weekly chart of the Russell 2000 (/RTY) from mid-2022 to late-2023 displays this pattern:Ĭhristopher Vecchio, CFA, tastylive’s head of futures and forex, has been trading for nearly 20 years. So, the price goes up and down within the range, without breaking out either way.

The range, or rectangle, usually happens when investors are not sure about the future direction of a security. The top and bottom lines are the resistance and support levels, which are parallel to each other and look like a rectangle. Rectangles and rangesĪ rectangle is a shape that shows when a market is moving within a range that has a flat top and bottom. The sign that the market is going up is when the price breaks above the high point between the two lows, called the neckline. The price then goes up sharply from this point. The price cannot go lower than the low, which means that the sellers are losing power, and the buyers are taking over. The price goes down to a new low and then bounces back up a little bit before going down again to the same low. The double-bottom pattern is a shape that shows that the market is about to go up it is the opposite of a double top. The daily chart of the Australian dollar (/6A) in mid-2023 shows this pattern: This means that the market is losing strength and is ready to fall. After the first peak, the price goes down and then up again, but not as high as the first peak. The drop shows that the price has trouble going higher than the peaks. It has two peaks that are close in price, with a drop in between. The double-top pattern is a shape that shows that the market is about to go down. The pattern is complete when the price breaks below the bottom line and follows the trend. This means that sellers are stronger than buyers and keep pushing the price down. It has a flat bottom line that acts as a support and a falling top line that shows lower price highs. The descending triangle is a sign that the trend is going down and will continue to do so. The weekly chart of the S&P 500 (/ES) in late-2022 through mid-2023 showcases this pattern: The pattern is complete when the price breaks above the top line and follows the trend. This means that buyers are stronger than sellers and keep pushing the price up. It has a flat top line that acts as a resistance and a rising bottom line that shows higher lows. The ascending triangle is a sign that the trend is going up and will continue to do so. Ascending triangles and descending triangles But no matter where the falling wedge is, traders should always remember that this pattern means that price is likely to go up. It is a bullish pattern that can show either a reversal or a continuation of the trend, depending on where it appears and how the trend is going. It is a shape that forms when price moves between two downward sloping trend lines. The falling (or descending) wedge pattern is the opposite of the rising wedge. The daily chart of the Nasdaq 100 (/NQ) in late-2023 displays this pattern: But no matter where the rising wedge is, traders should always remember that this pattern means that prices are likely to go down. It is a bearish pattern that can show either a reversal or a continuation of the trend, depending on where it appears and how the trend is going. The rising wedge (or ascending wedge) pattern is a shape that forms when price moves between two upward sloping trend lines. The inverse head and shoulders pattern makes higher lows, which means the price does not go as low as before. The pattern has four parts: the left shoulder, the head, the right shoulder, and the neckline. It looks like an upside-down head with two shoulders on each side. It shows that a trend is about to change from bearish to bullish. The inverse head and shoulders shape is the opposite of the topping pattern. The daily chart of the S&P 500 (/ES) in mid-2023 displays this pattern: The target is the distance from the head to the neckline, subtracted from the neckline. It looks like a head with two shoulders on each side. The head and shoulders chart pattern signals that a trend is about to change from bullish to bearish. Head and shoulders and inverse head and shoulders In this article, we’ll review five common chart patterns that technical traders can use to identify opportunities in markets.

Analysts often use chart patterns with candlestick charts, which make it easier to see the previous opens and closes of the market. Different chart patterns work better for different situations, depending on the market, the volatility, and the trend.

Falling wedge trading pattern