Identifying Chart Patterns with

Technical Analysis
 Getting Started with Technical Analysis
Learn the assumptions that guide technical analysis, and get
to know the basics of trend trading.

Understanding Indicators in Technical Analysis

Identify the various types of technical indicators, including trend,
momentum, volume, volatility, and support and resistance.

Technical Identifying Chart Patterns with Technical Analysis

Analysis Use charts and learn chart patterns through specific examples of
important patterns in bar and candlestick charts.
Webinar
Series Managing Risk with Technical Analysis
Manage your trading risk with a range of confirmation methods.

1
 Charles D. Kirkpatrick II, CMT
Charles D. Kirkpatrick II, CMT, is president of Kirkpatrick & Company, Inc., a technical
analysis research firm that publishes the Market Strategistinvestment newsletter. A
past instructor in finance at the School of Business Administration at Fort Lewis College
and adjunct professor of finance at Brandeis University International Business School,
he is a two-time winner of the Chartered Market Technicians Association’s prestigious
Charles H. Dow Award for research in technical analysis, winner of the MTA Annual
Award in 2008 for “Outstanding Contributions to the Field of Technical Analysis,” and
winner in 2012 of the Mike Epstein Award from the MTA Educational Foundation for
“Long-Term sponsorship of Technical Analysis in Academia.”

About Our He is a Chartered Market Technician, a past member of the board of directors of the
Market Technicians Association, past editor of the Journal of Technical Analysis, past

Coauthor board member and vice president of the CMT Association Educational Foundation and
a member of the American Association of Professional Technicians (AAPTA). He
coauthored Technical Analysis: The Complete Source for Financial Market Technicians,
the primary textbook for the CMT program and for university graduate courses on
technical analysis, authored Beat the Marketand, most recently, Time the Markets:
Using Technical Analysis to Interpret Economic Data.
He is a graduate of Phillips Exeter Academy, Harvard College (AB), and the Wharton
School (MBA) and lives with his wife in Maine.

2
 Techniques for
Trading Patterns

Understanding Construction
Patterns and of Common
Their Limits Chart Patterns

Agenda

3
Understanding
Patterns and
Their Limits
 BROKERAGE: TECHNICAL ANALYSIS

Defining Patterns

•A pattern is bounded by at least two trend lines (straight or curved)

•All patterns have a combination of entry and exit points

•Patterns can be continuation patterns or reversal patterns

• Patterns are fractal, meaning that they can be seen in any charting
period (weekly, daily, minute, etc.)
•A pattern is not complete or activated until an actual breakout occurs

5
 BROKERAGE: TECHNICAL ANALYSIS

The Limits of Patterns

Keep in Mind
Some of our human tendencies can be
dangerous for investors.
• See patterns where there aren’t any

•Believe “market lore,” technical and fundamental, without evidence

• Look backwards rather than forward

• Stick with original price targets of patterns after conditions have

changed

6
Techniques for
Trading
Patterns
 BROKERAGE: TECHNICAL ANALYSIS

Techniques for Trading Patterns

• Breakouts
• Entry Stops

•Protective Stops

•Retracements

8
 BROKERAGE: TECHNICAL ANALYSIS

Breakouts

Violation of Trend Line,

Support or Resistance, or
previous reversal point
It signifies that a change Resistance Breakout
in buyer and seller
behavior and signals
the beginning or end
of a trend.

Price

9
 BROKERAGE: TECHNICAL ANALYSIS

Confirmation Filters

Types of Filters
Confirmation
• Intrabar

Filters •Multiple closes

Apply a confirmation filter to • Time

determine whether a breakout •Percentage or point
has taken place.
• Money

10
 BROKERAGE: TECHNICAL ANALYSIS

Entry Stops

Entry Stops
Buy stop orders are used to
enter trades once the price
breaks out.

Resistance Breakout

Trend Line Breakout

11
 BROKERAGE: TECHNICAL ANALYSIS

False and Failed Breakouts

False Breakout
Breakout False Breakout (return
Price breaks out but almost Resistance through breakout level)
immediately returns back Line
through its breakout price. Failed Breakout

Failed Breakout
(Trap)
False breakout occurs and
the price then breaks out in
the opposite direction.

Trend Line

12
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 BROKERAGE: TECHNICAL ANALYSIS

Protective Stops

Protects Capital
Determines the amount of
capital risk before entry

Types of
placement Breakout
Resistance Line
• Filters, such as percent,
points, or money

• Trend line, support or

resistance level with filter Protective Stop

13
 BROKERAGE: TECHNICAL ANALYSIS

Trading False Breakouts Using Protective Stops

Example
False Breakout Protective sell stop and sell
• Enter on breakout short entry stop

• Place protective stop

outside breakout bar
opposite from breakout
direction

• Place entry stop at same Failure

level (called a “stop and
reverse” order)

• If price continues in
direction of breakout, profit
from breakout entry

• If breakout is false, profit

from stop and reverse

14
 BROKERAGE: TECHNICAL ANALYSIS

Retracements

Counter Trend
Correction Retracement (pullback)

Types
• Pullback (on breakout
• down) Throwback (on
breakout up)
Waiting for Trend Line Breakout
• Don’t always occur
• Performance can suffer
when they do

15
Construction of
Common Chart
Patterns
 BROKERAGE: TECHNICAL ANALYSIS

Common Chart Patterns

Multi-Bar Candlestick Short-Term

Patterns Patterns Patterns
Horizontal Congestion • Doji • Pennant/Flag
• Double and Triple • Harami • Gaps
Tops/Bottoms • Hanging Man/Hammer • Pipe Bottom
• Rectangles • Shooting Star/Inverted • Narrow
Hammer Range
Triangles • Engulfing
• Symmetrica • Dark Cloud/Piercing
• Ascending and Descending
• l Wedges

Other
• Head and
• Shoulders Cup and
Handle
17
 BROKERAGE: TECHNICAL ANALYSIS

Horizontal Congestion: Double Top

Characteristics: Double Top

(breakout down) Double Top
• Two successive peaks separated
by an opposite reversal point
Resistance Line

• Either rounded or pointed peaks

that are usually at roughly the same Entry Pullback
price (resistance level)
Breakout

• Price must break out of middle Support

Breakout
Line
reversal point

Price

Calculate target price:

Taking the height from the highest peak to the trough and
then subtracting the amount from the breakout price to the
downside.

18
nd
 BROKERAGE: TECHNICAL ANALYSIS

Horizontal Congestion: Double Bottom

Characteristics: Double Bottom

(breakout up)
• Two successive troughs separated
by a peak
Breakout
Breakout
• Either rounded or pointed troughs Resistance line
that are usually at roughly the same
price (support level)
Entry
Throwback
• Price must break out of
middle peak Double Bottom
Support line
Price

Calculate target price:

Taking the distance from the troughs to the peak and
then adding that amount from the breakout price to the
upside.

19
*Source: Technical Analysis: the Complete Resource for Financial Market Technicians, 2 nd ed.
 BROKERAGE: TECHNICAL ANALYSIS

Horizontal Congestion: Triple Top

Characteristics: Triple Top

(breakout down)
• Three distinct peaks at roughly the Triple
Top
same price level separated by two
intermittent troughs Resistance line

• Breakout occurs when price exceeds Pullback

Breakout
the extreme of the intermittent
trough or a trend line connecting Support line
those points
Entry Breakout
Price

Calculate target price:

Take the height from the highest peak to the lowest trough
in the pattern. Then subtract that amount from the lowest
trough in the pattern to generate a price target.

20
*Source: Technical Analysis: the Complete Resource for Financial Market Technicians, 2 nd ed.
 BROKERAGE: TECHNICAL ANALYSIS

Horizontal Congestion: Triple Bottom

Characteristics: Triple Bottom

(breakout up)
• Three distinct troughs at roughly the
same price level separated by two
intermittent peaks at any level Entry Breakout
Breakout
Resistance line
• Breakout occurs when price exceeds
the extreme of the intermittent peaks
or a trend line connecting those Throwback
points Triple
Botto
Best performance may be after a Support line Price m
•
sustained decline*

An average performance, but watch

• Calculate target price:
for failures*
Take the height from the highest peak to the lowest trough
in the pattern. Then add that amount to the highest peak
in the pattern to generate a price target.

21
*Source: Technical Analysis: the Complete Resource for Financial Market Technicians, 2 nd ed.
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 BROKERAGE: TECHNICAL ANALYSIS

Horizontal Congestion: Rectangles

Characteristics: Rectangle
(entry up, breakout up) Resistance Zone
• Trading range with support and
resistance levels bounding price Entry Throwback
action Support Zone
Shortfall Breakout
Breakout
• Slight tilt, similar to horizontal
Resistance line
channel

• Often has many false

Support line
Price
• breakouts* Things to consider:
‐ Confirm a breakout
‐ “Shortfall” often indicator of eventual
breakout direction Calculate target price:
Take the height from the resistance line to the support line. Then
• Best occurrence may be bottom either add that amount to the resistance line to generate a price
breaking upward* target for an upside breakout, OR subtract that amount from
the support line to generate a price target for a downside
breakout.

22
*Source: Technical Analysis: the Complete Resource for Financial Market Technicians, 2 nd ed.
 BROKERAGE: TECHNICAL ANALYSIS

Triangle: Symmetrical

Characteristics: Symmetrical Triangle

(breakout up)
• Bounded by a downward sloping
upper trend line and an upward
sloping lower trend line. Each bound Throwback

is a straight trend line Breakout

Target Line
• Prices must touch each bound at
Entry
least twice. Many false breakouts.
Moderately successful in
performance Cradle
Price
• Things to consider:
‐ Confirm a breakout
Calculate target price:
• Best occurrence may be upward Take the height from the highest peak in the pattern to the
breaking out –above average for lowest trough in the pattern. Then either add it (for upward
all patterns* breakouts) to the breakout price or subtract it (for downward
breakouts) from the breakout price to generate a price target.

23
*Source: Technical Analysis: the Complete Resource for Financial Market Technicians, 2 nd ed.
 BROKERAGE: TECHNICAL ANALYSIS

Triangle: Ascending

Characteristics: Ascending Triangle

(breakout down)
• Bounded by a horizontal upper trend
line and an upward sloping lower Pullback
Resistance line
trend line. Each bound is a straight Target
trend line Line
Entry

• Prices can break in either direction,

but more commonly upward* Support line
Breakout

• Breakout usually occurs in pattern. Uptrend Line

Price
About average failure rates but many
small false breakouts*

• Post breakout performance average Calculate target price:

on upside but above average on Take the height from the highest peak in the pattern to the
downside* lowest trough in the pattern. Then either add it (for upward
breakouts) to the breakout price or subtract it (for downward
breakouts) from the breakout price to generate a price target.

24
*Source: Technical Analysis: the Complete Resource for Financial Market Technicians, 2 nd ed.
 BROKERAGE: TECHNICAL ANALYSIS

Triangle: Descending

Characteristics: Descending Triangle

(breakout down)
• Bounded by two trend lines; the
lower is horizontal and the upper
Resistance line
slopes downward
Downtrend
Line Pullback
• Prices can break in either direction Entry

but most commonly downward*

Support line
• Above-average performance on Breakout Down
Breakout
upside break; retracements occur
Price
often*

Calculate target price:

Take the height from the highest peak in the pattern to the
lowest trough in the pattern. Then either add it (for upward
breakouts) to the breakout price or subtract it (for downward
breakouts) from the breakout price to generate a price target.

25
*Source: Technical Analysis: the Complete Resource for Financial Market Technicians, 2 nd ed.
 BROKERAGE: TECHNICAL ANALYSIS

Triangle: Wedge

Characteristics: Rising Wedge

(breakout down from climax peak)
• Bounded by two trend lines, each
headed in the same direction; Price Climax
Pullback
must touch a trend line at least five
times (3 times on one and 2 times on
the other) before a breakout
Breakout
• Often occur following a panic
Entry
(declining wedge) or bubble
(rising wedge)
Price
• Performance in both types is below
average, and retracements are
very common* Calculate target price:
For downward breakout, the lowest trough in the pattern is the
price target. For upward breakouts, take the height from the
highest peak in the pattern to the lowest trough in the pattern
and add that amount to the breakout price for a price target.

26
*Source: Technical Analysis: the Complete Resource for Financial Market Technicians, 2 nd ed.
 Also We have 31 Best Premium
Trading Ebooks
👉All books are highly rated and
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price and rating one by one
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 BROKERAGE: TECHNICAL ANALYSIS

Head and Shoulders: Top

Characteristics: Head

• Three peaks with center peak higher

than the other two Left Shoulder
Right Shoulder
Breakout
• Shoulders should be at approximately
the same level and the head higher

• Line connecting the two throughs

Neckline
between the peaks is called
the “neckline”

• Pattern is only complete on breaking

the neckline Target

• Target is the distance from the head to

the neckline projected from the neckline

• This is a standard pattern for tops and

has one of the lowest failure rates

27 *Source: Technical Analysis: the Complete Resource for Financial Market Technicians, 2 nd ed.
 BROKERAGE: TECHNICAL ANALYSIS

Head and Shoulders: Bottom (Inverse)

Characteristics:
• Inverted but otherwise Head and Shoulders Bottom
identical to a top pattern (breakout up)
except not as profitable*
Price

Breakout Breakout

Neckline
Neckline

Entry Throwback

Right Shoulder Left Shoulder

Left Shoulder Right
Shoulder
Head Head

28
*Source: Technical Analysis: the Complete Resource for Financial Market Technicians, 2 nd ed.
 BROKERAGE: TECHNICAL ANALYSIS

Cup and Handle (also “Saucer”)

Characteristics: Rounding Bottom

(breakout up)
• Pattern consists of a rounded
bottom (not a “V” bottom), two “lips” Price Breakout
at each end, and a “handle” (similar
Entry Breakout Lip
to a flag pattern) from the handle

• Pattern is complete with breakout Lip

above both lips Throwback

Breakout
Down
• Often have a throwback Handle
Cup or Bowl

• The pattern’s performance ranks

about average for bottom patterns*
Calculate target price:
Take the height of the right cup lip to the bottom of the
cup, then add that amount to the breakout price.

29
*Source: Technical Analysis: the Complete Resource for Financial Market Technicians, 2 nd ed.
 BROKERAGE: TECHNICAL ANALYSIS

Trading with Patterns

= Buy Wedge

= Stop Wedge

= Exit
Triangle

Triangle

Rectangle

*Source: Technical Analysis: the Complete Resource for Financial Market Technicians, 2 nd ed.
30
 BROKERAGE: TECHNICAL ANALYSIS

Best Multi-Bar Patterns

Upward Signals Downward Signals

• Descending • Flag
Triangle
• Head and
• Rectangle Shoulders top
• Pipe Bottom • Island Reversal

31
 BROKERAGE: TECHNICAL ANALYSIS

General Information about a Candlestick

Characteristics:
• Traditionally, candlestick patterns are reversal patterns, meaning
they are used to identify when a trend is ending

• Candlestick patterns are often used with longer-term trends, thus,

upward reversal patterns after a correction in a longer upward trend
show the best performance, and vice versa for downward reversal
patterns in a long downward trend
Be careful not to act on a perceived candle pattern until the pattern
•
has formed and is activated by a breakout in a certain direction

32
 BROKERAGE: TECHNICAL ANALYSIS

Doji

Characteristics: Doji
• A one-candle pattern formed when the open
and close are the same price, and the high
and low are roughly equidistant from the
open and close

• Extremely common

• Indicates indecision in the marketplace and

thus is a possible warning of price change

33
*Source: Technical Analysis: the Complete Resource for Financial Market Technicians, 2 nd ed.
 BROKERAGE: TECHNICAL ANALYSIS

Harami

Characteristics: Harami
• A two-candle pattern of a large body of either Top Bottom
color followed by a small body of the opposite
color; The second body is completely within
the body of the large body and is called a
“spinning top”

• Although common belief is that the haramiis

a reversal pattern, many report that is has the
potential of breaking either way

• A variation that has a dojiinstead of a spinning

top as the second candle has equally average
performance and random breakout*
Candle body can
be Black or White

34 *Source: Technical Analysis: the Complete Resource for Financial Market Technicians, 2 nd ed.
 BROKERAGE: TECHNICAL ANALYSIS

Hanging Man and Hammer

Characteristics: Hanging Man —Hammer

• One-candle patterns differentiated by the color Top Bottom
of the body. Each pattern has a high that
coincides with either the opening or closing
price

• Hanging man, thought to be a continuation

pattern, actually breaks in either direction
randomly with a slight upward bias. Its overall
performance is below average*
Hammers occur relatively frequently but have
•
below-average performance*

35
*Source: Technical Analysis: the Complete Resource for Financial Market Technicians, 2 nd ed.
 BROKERAGE: TECHNICAL ANALYSIS

Shooting Star and Inverted Hammer

Characteristics: Shooting Star and

Inverted Hammer
• A one-candle inverted hanging man or hammer Top Bottom
pattern. Hammers by themselves have white
bodies and shooting stars have black bodies

• As a one-candle pattern, the shooting star has

Either Can Be
average performance. The same is true for the Black or
single inverted hammer* White

36
*Source: Technical Analysis: the Complete Resource for Financial Market Technicians, 2 nd ed.
 BROKERAGE: TECHNICAL ANALYSIS

Engulfing

Characteristics: Engulfing
• A two-bar pattern in which the second bar Top Bottom
body completely engulfs the first bar body*

• A bottom engulfing pattern, with a short black

body followed by a tall white body, is thought
to be an upward reversal pattern and actually
has very good performance on a downward
breakout in a downward trend*

37
*Source: Technical Analysis: the Complete Resource for Financial Market Technicians, 2 nd ed.
 BROKERAGE: TECHNICAL ANALYSIS

Dark Cloud Cover and Piercing Line

Characteristics: Dark Cloud Cover

and Piercing Line
• The dark cloud cover is a two-bar pattern Top Bottom
where the second bar closes higher than the
first and
is black versus white in the first bar
•
The piercing line is the opposite of the dark
cloud cover in that the second bar is white and
lower than the first bar which is black
•
The dark cloud is thought to be a downward
reversing pattern
•
The piercing line pattern is thought to be an
upward reversing pattern*

38
*Source: Technical Analysis: the Complete Resource for Financial Market Technicians, 2 nd ed.
 Also We have 31 Best Premium
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price anywhere else but we are
giving 31 books only $4.99

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 BROKERAGE: TECHNICAL ANALYSIS

Pennant/Flag

Characteristics:
• Flag and Pennant
Pennant and flag patterns are
in upward trend Flag Pennant
variations of the same pattern

• These patterns are often preceded by

a steep, sharp price change, up or
down, and form a short consolidation Price
that appears like a triangle or flag.
Generally, the pattern slopes slightly
in the direction opposite from the
trend

• The breakout in either direction is

often followed by a move that equals Calculate target price:
the earlier steep, sharp price change Take the height from the start of the "flag pole” to the
highest peak in the pennant. Add that amount to the
into the pattern bottom of the pennant for an upward price target.

39
*Source: Technical Analysis: the Complete Resource for Financial Market Technicians, 2 nd ed.
 BROKERAGE: TECHNICAL ANALYSIS

Gaps

Characteristics
• Definition –no trading (gap)
at specific prices

• Gaps can be considered

“up” or “down”
Gaps are caused by
•
appreciable changes
in supply and demand
from one close to the
following open

Gap Up

40
*Source: Technical Analysis: the Complete Resource for Financial Market Technicians, 2 nd ed.
 BROKERAGE: TECHNICAL ANALYSIS

Gaps

Characteristics
•
Gaps are generally profitable on
breakouts from patterns, trends,
support or resistance

• A method of trading a gap is the

“explosion gap pivot.” It assures Breakout
that the gap is valid

• After the gap, wait for

“throwback.” If throwback “covers”
the gap, no action. If the
throwback stops, this is called the
“pivot low.” Place buy entry above
high of the gap bar
“Pivot” is the lowest level of the
Gap Pivot
Pivot Lo
Low

•
post-gap breakout
• Protective stops initially placed at
gap low and then below pivot low
41
*Source: Technical Analysis: the Complete Resource for Financial Market Technicians, 2 nd ed.
 BROKERAGE: TECHNICAL ANALYSIS

Two-Bar Reversal Button or Pipe Bottom

Two-Day Reversal Bottom

Characteristics: (or Pipe Bottom)
• Two bars and occurs at the end of a large
trend, up or down trend. Ideally, the first bar,
in a bottom pattern, closes at the low, and the
second bar
It is more closes in
reliable in weekly
the upper
datahalf of the range.

• Bar ranges are larger than preceding

bar ranges

• Action occurs on breakout through second bar

Calculate target price:

Take the height from the taller of the two bars to the lower
of the two bars. Add that amount to the taller of the two
bars to get a price target.

42
*Source: Technical Analysis: the Complete Resource for Financial Market Technicians, 2 nd ed.
 BROKERAGE: TECHNICAL ANALYSIS

Volatility Patterns

Characteristics: Inside Bar

• Dull activity is known as “low volatility.” New
trends often begin from periods of low volatility Buy next bar
at opening
above inside
• One way to look at volatility is to observe the bar close
relationship between price bars

• “Range” is the spread between high and low in

a price bar

• If a bar is followed by a bar with less range,

volatility is declining; the second bar is called a Sell next bar
at opening
“narrow range” bar below inside
bar close
• When this second bar’s range is contained
within the range of its preceding bar, it is called
an “inside bar.”

43
*Source: Technical Analysis: the Complete Resource for Financial Market Technicians, 2 nd ed.
 BROKERAGE: TECHNICAL ANALYSIS

Narrow Range

Characteristics: NR4
• One low volatility pattern is called a “Narrow
Range” pattern and consists of a bar with a Range on day 4 less
range narrower than its preceding bars than days 1-3

• The graph shows a four-bar, Narrow Range

pattern (NR4) with four bars, the fourth bar Buy
having a narrower range than the preceding
three bars

• The breakout occurs on a break above or below

the high or low of the narrow range

Sell

44
*Source: Technical Analysis: the Complete Resource for Financial Market Technicians, 2 nd ed.
 Getting Started with Technical Analysis
Learn the assumptions that guide technical analysis, and get
to know the basics of trend trading.

Understanding Indicators in Technical Analysis

Identify the various types of technical indicators including, trend,
momentum, volume, and support and resistance.

Technical Identifying Chart Patterns with Technical Analysis

Analysis Use charts and learn chart patterns through specific examples of
important patterns in bar and candlestick charts.
Webinar
Series Managing Risk with Technical Analysis
Manage your trading risk with a range of confirmation methods.

45
 Also We have 31 Best Premium
Trading Ebooks
👉All books are highly rated and
written by over 30+ years of
experienced traders.

👉These all-book totals must be

over $500.

👉but we are adding only $4.99

to our service charge.

👉10000% worth to your

money

👉You can't get a book at this

price anywhere else but we are
giving 31 books only $4.99

👉You can check every book

price and rating one by one
outside.

click here to download all 31 books