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Ascending Tops

Similar to 3 ascending mountain peaks, this pattern is characterised by three distinct peaks within a candlestick chart with each peaking progressively higher than the last. A horizontal line is drawn along the top of each peak to show that they are moving progressively higher.

This chart pattern is used to measure the price variations in a stock over a given period of time.

Double Top

This pattern can easily be identified as it consists of two distinct peaks. The pattern looks similar to a capital M. The two peaks are approximately equal with a distinct trough in between.

The double top is to be considered to be a key reversal pattern, this forms after a prolonged upward trend. This chart pattern is a clear indicator that the market has changed from bullish to bearish however the reversal cannot be confirmed until the downward trend breaches the support line between the two peaks. The breach of the support line is usually accompanied by an increase in volume.

Evening Star

This is a charting pattern consisting of three candlesticks. The first candlestick is a long blue candlestick with a long real body indicating an uptrend. The second candlestick is a small bodied candlestick that closes above the blue candlestick. The third candlestick is a large red candlestick that opens below the middle candlestick and closes near the centre of the first blue candlestick.

This pattern is used by traders and analysts to predict the possibility of a reversal in the upward trend. This pattern is commonly used in conjunction with other indicators and oscillators to confirm that market direction.

Head & Shoulders Patterns

Similar to the Triple Top, this charting pattern contains three distinct peaks with the middle peak rising above the two outside peaks. The two outside peaks are approximately equal.

To determine if a candlestick pattern is a true head and shoulders, you need to confirm that the middle peak is above the two outside peaks and that the downward trend from the 3rd peak has breached the neckline.

The neckline is the line drawn between the first and third peaks (see the graphic). The neckline can be horizontal or on an angle. The angle of the neckline will determine the degree of the downward trend a downward sloping neckline is considered to be more bearish than an upward sloping neckline.

Once the trend breaks through the neckline it has confirmed the head and shoulders pattern and also confirmed that the stock will continue on a downward trend. It is very common for there to be an increase in volume once the stock breaks through the neckline.

After breaking through the neckline, the projected downward decline is found by measuring the distance from the neckline to the top of the head. This distance is then subtracted from the neckline to reach a price target. Any price target should serve as a rough guide, and other factors should be considered as well. These factors might include previous support levels, Fibonacci retracements, or long-term moving averages.

This pattern is considered to be one of the most reliable patterns to predict a trend reversal.

Three Black Crows

Three black crows consist of three consecutive long real body candlesticks. The pattern shows that each candlestick has closed lower on each consecutive day and that the opening price on each day is within the real body of the previous day’s candlestick.

This pattern clearly shows that the bulls are losing confidence in the market and the current upward trend. It is nearly the exact opposite of the three white soldiers and signals‚ bad luck for the day’s stock. The Japanese believe that black crows bring bad luck hence the name of this candlestick pattern.

Traditionally the three black crows pattern is followed by a prolonged downward trend or falling prices.

Triple Top

Named for the 3 peaks that form at nearly the same price level, this pattern is used to predict the reversal of an ongoing upward trend. By the time the pattern has formed the third peak it is losing momentum it is very rare for a fourth peak to form as the stock generally continues a downward trend after the third peak.

This pattern is similar to the head and shoulders however the middle peak in this pattern is similar or equal to the first and third peaks. With a head and shoulders pattern the middle peak is clearly higher than the first and third peak.

Traditionally this pattern takes 3 or more months to form.