" Five Chart Patterns You Need to Know"

Three Simple Steps to Stock Profits.

Discover How To:
1. Identify profitable stock patterns
2. Minimize your risk
3. Maximize your return in up and down markets

Symmetrical Triangle
(Profitable Pattern Number One)

The Symmetrical Triangle: A Reliable Workhorse

You will recognize the symmetrical triangle pattern when you see a stocks price
vacillating up and down and converging towards a single point. Its back and forth
oscillations will become smaller and smaller until the stock reaches a critical price,
breaks out of the pattern, and moves drastically up or down.
The symmetrical triangle pattern is formed when investors are unsure of a stocks
value. Once the pattern is broken, investors jump on the bandwagon, shooting the
stock price north or south.
DEFINITION of 'Symmetrical Triangle'
A chart pattern used in technical analysis that is easily recognized by the distinct shape
created by two converging trendlines. The pattern is identified by drawing two trendlines
that connect a series of sequentially lower peaks and a series of sequentially higher troughs.
Both trendlines act as barriers that prevent the price from heading higher or lower, but once
the price breaches one of these levels, a sharp movement often follows.

Symmetrical Triangle Pattern

To form your symmetrical triangle pattern, draw two
converging trendlines that bound the high and low prices.
Your trendlines should form (you guessed it) a symmetrical
triangle, lying on its side.

BREAKING DOWN 'Symmetrical Triangle'

A symmetrical triangle is generally regarded as a
period of consolidation before the price moves
beyond one of the identified trendlines. A break
below the lower trendline is used by technical traders
to signal a move lower, while a break above the
upper trendline signals the beginning of a move
upward. As you can see from the chart above,
technical traders use a sharp increase in volume or
any other available technical indicator to confirm a
breakout beyond one of the trendlines.
The sharp price movement that often follows a
breakout of this formation can be captured by
traders who are able to identify the pattern early
enough.

How to Profit from Symmetrical Triangles

Symmetrical triangles are very reliable. You can profit from upwards or downwards
breakouts.
If you see a symmetrical triangle forming, watch it closely. The sooner you catch the
breakout, the more money you stand to make.

Watch For:

Sideways movement, a period of rest, before the breakout.

Price of the asset traveling between two converging trend lines.

Breakout of the way to the apex.

Set Your Target Price:

As with all patterns, knowing when to get out is as important as knowing when to
get in. Your target price is the safest time to sell, even if it looks like the trend may
be continuing.

For symmetrical triangles, sell your stock at a target price of:

Entry price plus the patterns height for an upward breakout.

Entry price minus the patterns height for a downward breakout.

Ascending and Descending Triangles

(Pattern Number Two)

Ascending and Descending Triangles: The Traditional Bull and

Bear

Ascending Triangle:
When you notice a stock has a series of increasing troughs and the price is unable
to break through a price barrier, chances are you are witnessing the birth of an
ascending triangle pattern.
An ascending triangle is the bullish counterpart of a descending triangle.
DEFINITION of 'Ascending Triangle'
A bullish chart pattern used in technical analysis that is easily recognizable by the distinct
shape created by two trendlines. In an ascending triangle, one trendline is drawn
horizontally at a level that has historically prevented the price from heading higher, while
the second trendline connects a series of increasing troughs. Traders enter into long
positions when the price of the asset breaks above the top resistance. The chart below is an
example of an ascending triangle:

Ascending Triangle Pattern

Confirm your ascending triangle pattern by drawing a
horizontal line tracing the upper price barrier and a
diagonal line tracing the series of ascending troughs.
BREAKING DOWN 'Ascending Triangle'
An ascending triangle is generally considered to be a
continuation pattern, meaning that it is usually found
amid a period of consolidation within an uptrend.
Once the breakout occurs, buyers will aggressively
send the price of the asset higher, usually on high
volume. The most common price target is generally
set to be equal to the entry price plus the vertical
height of the triangle.

Descending Triangles:
The descending triangle is the bearish counterpart to the ascending triangle.
DEFINITION of 'Descending Triangle'
A bearish chart pattern used in technical analysis that is created by drawing one trendline
that connects a series of lower highs and a second trendline that has historically proven to
be a strong level of support. Traders watch for a move below support, as it suggests that
downward momentum is building. Once the breakdown occurs, traders enter into short
positions and aggressively push the price of the asset lower. The chart below is an example
of a descending triangle:

Descending Triangle Pattern

Confirm your descending triangle by drawing a
horizontal line tracing the lower price barrier and a
diagonal line tracing the series of descending troughs.

BREAKING DOWN 'Descending Triangle'

This is a very popular tool among traders because
it clearly shows that the demand for an asset is
weakening, and when the price breaks below the
lower support, it is a clear indication that downside
momentum is likely to continue or become
stronger. Descending triangles give technical
traders the opportunity to make substantial profits
over a brief period of time. The most common
price targets are generally set to equal the entry
price minus the vertical height between the two
trendlines.

The ascending and descending patterns indicate a stock is increasing or decreasing

in demand. The stock meets a level of support or resistance (the horizontal trend
line) several times before breaking out and continuing in the direction of the
developing up or down pattern.

How to Profit from Ascending and Descending Triangles

Ascending and descending triangles are short-term investor favorites, because
the trends allow short-term traders to earn from the same sharp price increase that
long-term investors have been waiting for. Rather than holding on to a stock for
months or years before you finally see a big payday, you can buy and hold for only
a period of days and reap in the same monster returns as the long-time stock
owners.

As with many of our favorite patterns, when you learn to identify ascending and
descending triangles, you can profit from upwards or downwards breakouts. That
way, youll earn a healthy profit regardless of where the market is going.

Watch For:

An ascending or descending pattern forming over three to four weeks.

Set Your Target Price:

For ascending and descending triangles, sell your stock at a target price of:

Entry price plus the patterns height for an upward breakout.

Entry price minus the patterns height for a downward breakout.

Head and Shoulders

(Profitable Pattern Number Three)

Head and Shoulders

The head and shoulders pattern is a prevailing pattern among short sellers,
investors who profit from downtrends. After three peaks, the stock plummets,
offering a textbook, high-return opportunity to traders who catch the trend
early.
DEFINITION of 'Head and Shoulders Pattern'
A technical analysis term used to describe a chart formation in which a stock's price:

1. Rises to a peak and subsequently declines.

2. Then, the price rises above the former peak and again declines.
3. And finally, rises again, but not to the second peak, and declines once more.
The first and third peaks are shoulders, and the second peak forms the head.

Head and Shoulders Pattern

Head and shoulder patterns are characterized by a large
peak bordered on either side by two smaller peaks. Draw
one trend line, called the neckline, connecting the bottom
of the two troughs.

BREAKING DOWN 'Head And Shoulders

Pattern'
The "head-and-shoulders" pattern is believed to be
one of the most reliable trend-reversal patterns.

The first trough is a signal that buying demand is starting to weaken. Investors who
believe the stock is undervalued respond with a buying frenzy, followed by a flood
of selling when traders fear the stock has run too high. This decline is followed by
another buying streak which fizzles out early. Finally, the stock declines to its true
worth below the original price.

How to Profit from the Head and Shoulders Pattern

Short sell as soon as the price moves below the neckline after the descent
from the right shoulder.

Set Your Target Price:

For the head and shoulders pattern, buy shares at a target price of:

Entry price minus the patterns height (distance from the top of the head to
the neckline).

Double and Triple Bottoms and Tops

(Profitable Patterns Number Four and Five)

Double and Triple Bottoms and Tops: Reversals upon reversals

When you see a W or M pattern forming, you may have just discovered a moneymaking double bottom or double top pattern. These patterns are common reversal
patterns used to suggest the current stock trend may be likely to shift.
But dont panic if your double bottom or double top patterns do not develop as you
had originally thought. You havent lost your chance for cash. If your W or M pattern
reverses for a fourth time, you could now be working with the profitable triple
bottom or triple top.

Double Bottom Pattern

A double bottom is simply the opposite of a double top. This pattern occurs during a
downtrend and is a signal of a reversal of the downtrend into an uptrend. This
pattern is easily recognizable after the fact by its resemblance to the letter "W". The
initial downward move will find a support at the first bottom and then the price
action will rally off the support to a temporary new high (the middle of the "W").
Another selloff will take place that will reach the same support level of the first
bottom, and consequently cause another rally upwards. Lastly, the trend is
confirmed when the price breaks through the upper resistance to complete the
pattern and reversal.
DEFINITION of 'Double Bottom'
A charting pattern used in technical analysis. It describes the drop of a stock (or index), a
rebound, another drop to the same (or similar) level as the original drop, and finally another
rebound.

Double Bottom Pattern

A small peak is surrounded by two equal troughs

BREAKING DOWN 'Double Bottom'

The double bottom looks like the letter "W". The
twice touched low is considered a support level.
Most technical analysts believe that the advance
off of the first bottom should be 10-20%. The
second bottom should form within 3-4% of the
previous low, and volume on the ensuing advance
should increase.

Purchase When:

The price exceeds the middle-peak price.

Watch For:

A price increase of 10% to 20% from the first trough to the middle peak.

Two equal lows, not to differ by more than 3% or 4%.

Set Your Target Price:

For the double bottom pattern, sell your stock at a target price of:

Entry price plus the patterns height (distance from the peak to the bottom of
the lowest trough).

Double Top Pattern

Double tops are commonly found during an uptrend in prices where a new high is
formed followed by a slight pullback and a retest of the new high, but ultimately
failing to surpass the price level established at the first peak. This results in a
movement of prices to a lower level and completes the pattern of the double top.
The second peak does not have to stop exactly at the price reached from the first
peak but should be relatively close. This pattern is usually indicative of a trend that
is weakening where buying interest is decreasing.
DEFINITION of 'Double Top'
A term used in technical analysis to describe the rise of a stock, a drop, another rise to the
same level as the original rise, and finally another drop.

Double Top Pattern

A small trough is surrounded by two equal peaks.

BREAKING DOWN 'Double Top'

The double top looks like the letter "M". The twice
touched high is considered a resistance level.

Short Sell When:

The price drops below the middle-trough price.

Watch For:

A price decrease of 10% to 20% from the first peak to the middle trough.

Two equal highs, not to differ by more than 3% or 4%.

Set Your Target Price:

For the double top pattern, buy shares at a target price of:

Entry price minus the patterns height (distance from the trough to the top of
the highest peak).

React Or Anticipate?
One criticism of technical analysis based on chart patterns is that setups always look
obvious in hindsight but anticipating them as they are occurring in real time is
particularly difficult. Double tops and double bottoms are no exception. However,
these patterns appear frequently, successfully identifying and trading a majority of
them is no simple feat.
Anticipate
There are two approaches to this problem and both have their pros and cons. In
short, traders can either try to anticipate these formations, or wait for confirmation of
the pattern and then react to them. The approach you choose is more an indication of

your personality or trading style than relative merit. Those who have a fader
mentality - who love to fight the tape, sell into strength and buy weakness - might try
to anticipate the pattern by stepping in front of the price move.
React
On the other hand, reactive traders, who want to see evidence or confirmation of the
pattern before entering, have the advantage of knowing that the pattern exists but
there's a tradeoff: their entry point is later than an anticipatory trader that results in
worse prices and greater losses should the pattern fail.

Double tops and double bottoms are common reversal patterns every trader
should keep an eye out for, as they can signal a reverse in the trend

Triple Bottom Pattern

DEFINITION of 'Triple Bottom'

A pattern used in technical analysis to predict the reversal of a prolonged downtrend. The
pattern is identified when the price of an asset creates three troughs at nearly the same
price level. The third bounce off the support is an indication that buying interest (demand) is
outweighing selling interest (supply) and that the trend is in the process of reversing.

Triple Bottom Pattern

Three equal troughs amid a series of peaks.

BREAKING DOWN 'Triple Bottom'

Once the first bottom is created, the price reaches
a peak and retraces back toward the prior support.
This is when buyers enter again and push the price
of the asset higher, creating bottom No.2. The price
of the asset then creates another peak and heads
lower for its final test of the support. The final
bounce off the support level creates bottom No.3
and traders will get ready to enter a long position
once the price breaks above the previous resistance
(illustrated by the black line on the chart). This

pattern is considered to be a very reliable indication

that the downtrend has reversed and that the new
trend is in the upward direction.

Purchase When:

The price exceeds the resistance established by the prior peaks.

Watch For:

A series of three identical troughs at the end of a prolonged downtrend.

Set Your Target Price:

For triple bottom patterns, sell your stock at a target price of:

Entry price plus the patterns height (distance from the resistance to the
bottom of the lowest trough).

Triple Bottom
This bullish reversal pattern has all of the same attributes as the triple top but signals a
reversal of a downward trend. The triple-bottom pattern illustrates a security that is trading
in a downtrend and attempts to fall through a level of support three times, each time moving
back to a level of resistance. After the third attempt to push the price lower, the pattern is
complete when the price moves above the resistance level and begins trading in an upward
trend.
This pattern begins by setting a new low in a downtrend, which is followed by a rally to a
high. This sets up the range of trading for the triple-bottom pattern. After hitting the high,
the price again comes under selling pressure, which sends it back down to the previous low.
Buyers again move back into the security at this support level, sending the price back up
again, usually to the previous high.
This is repeated a third time, but after failing again to move to a new low, the pattern is
complete when the security moves above the resistance level to begin trading in an uptrend.
In this pattern, volume plays a role similar to the triple top, declining at each trough as it
tests the support level, which is a sign of diminishing selling pressure. Again, volume should
be high on a breakout above the resistance level on the completion of the pattern.

The price objective will also initially be calculated as the distance of the chart pattern added
to the price breakout.

Triple Top Pattern

DEFINITION of 'Triple Top'

A pattern used in technical analysis to predict the reversal of a prolonged uptrend. This
pattern is identified when the price of an asset creates three peaks at nearly the same price
level. The bounce off the resistance near the third peak is a clear indication that buying
interest is becoming exhausted. It is used by traders to predict the reversal of the uptrend.

Triple Top Pattern

Three equal peaks amid a series of troughs.

BREAKING DOWN 'Triple Top'

The three consecutive tops make this pattern visually similar
to the head and shoulders pattern but, in this case, the
middle peak is nearly equal to the other peaks rather than
being higher. Many traders will enter into a short position
once the price of the asset falls below the identified support
level (shown by the black line in the chart above)

Purchase When:

The price falls below the support that formed from the prior troughs.

Watch For:

A series of three peaks at relatively the same level.

Set Your Target Price:

For triple top patterns, buy shares at a target price of:

Entry price minus the patterns height (distance from the support to the top
of the highest peak).
Triple Top
This bearish reversal pattern is formed when a security that is trending upward tests
a similar level of resistance three times without breaking through. Each time the
security tests the resistance level, it falls to a similar area of support. After the third
fall to the support level, the pattern is complete when the security falls through the
support; the price is then expected to move in a downward trend.
The first step in this pattern is the creation of a new high in an uptrend that is stalled
by selling pressure, which forms a level of resistance. The selling pressure causes the
price to fall until it finds a level of support, as buyers move back into the security. The
buying pressure sends the price back up to the area of resistance the security
previously met. Again, the sellers enter the market and send the security back down
to the support level.
This up-and-down movement is repeated for the third time; but this time the buyers,
after failing three times, give up on the security, and the sellers take over. Upon
falling through the level of support, the security is expected to trend downward.
This pattern can be difficult to spot in the early stages as it will initially look like a
double top pattern which was discussed in a previous section. The most important
thing here is that one waits for the price to move past the level of resistance before
entering the security, as the security could actually just end up being range-bound,
where it trades between the two levels for some time.
In the triple-top formation, each test of resistance at the upper end should be marked
with declining volume at each successive peak. And again, when the price breaks
below the support level, it should be accompanied by high volume.
Once the signal is formed, the price objective is based on the size of the chart pattern
or the price distance between the level of resistance and support. This is then
deducted from the breakout point.
Meaning Behind Triple Tops and Bottoms
The significance of these two formations is that an established trend has hit a major
section of support/resistance, which stops the trend's ability to continue. This is an
indication that the buying or selling pressure that is supporting the trend is beginning

to weaken. It also is an indication that the opposite pressure is gaining strength.

The chart pattern is signaling that there is a shift in the supply and demand of the
security and of the balance between buyers and sellers. When a reversal signal is
formed in a triple top, there is a shift from buyers moving the security upward to
sellers moving the security downward.

How are Triple Top patterns interpreted by analysts and traders?

The triple top pattern, like its counterpart, the triple bottom, is an extremely reliable
reversal pattern. Forming over a period of several weeks or months, the triple top
pattern reflects the slow death of a bullish trend in preparation for a bearish
reversal. Because of its consistency and clear-cut formation, the triple top lends
itself easily to the creation of effective trade strategy, making it a favorite among
analysts and traders.
The triple top pattern is characterized by three consecutive and nearly identical
peaks with relatively even spacing. While it is not necessary for the peaks to be
exactly the same, it's better if they're closer. These three peaks form a significant
resistance level. As bulls try and fail to penetrate this barrier, price rebounds off the
resistance level as bears briefly take over, forming the troughs that separate the
peaks. This repeated failure by bulls is interpreted as an important indicator that
bullish momentum is waning and the trend is gearing up for a reversal. Volume
declines as the pattern unfolds, further highlighting bullish fatigue. However,
volume may spike just at the height of each peak as bulls try desperately to push
past resistance.
The most crucial component of the triple top pattern is the breakout. Price must
break low after the formation of the third peak, moving past the lowest low of the
pattern. If price fails to breach this support level, the triple top is not confirmed. This
is one reason why the triple top is such a rarity: Without the necessary price
confirmation, the price oscillation forming this pattern can easily become part of
another type of pattern, such as the ascending triangle, or of no pattern at all.

Now You Know

The five most profitable stock patterns:
symmetrical triangle
ascending and descending triangles
head and shoulders
double top and double bottom

 triple top and triple bottom

Learn How to Minimize Your Stock

Market Losses >
Minimize Your Risk
How to Minimize Your Risk
No investment advisor likes to admit it, but no stock picking system is perfect.
Sometimes, the stocks we think will explode, dont. Sometimes, the stocks we
feature lose money.
There may not be a foolproof system to predicting the stock market, but we do have
a foolproof system for managing risk.
I follow one of the safest risk reduction systems available.
Using these three simple steps, you can reduce the risk in your stock picking plan:
Three Ways to Take Risk Out of the Stock Market
1. Screen Your Picks.
This might seem obvious, but patterns that look like they are developing into
predictable trends do not always follow through. After combing over
thousands of stock charts a day, I will often not features a single stock.
2. Get In. Get Out.
I preaches setting realistic target exit prices for all stocks. I lock in high
returns while the stock is high, and I get out before the market has a chance
to change its mind.
3. Set Tight Stop Losses.
This step is absolutely critical to minimizing your risk in the stock market. If a
sure-fire winner turns out to be a fizzled-out dud, your system needs to have

a built-in, abandon-ship trigger. That is, you need to know when to cut your
losses and move on to brighter prospects.
I set its stop-loss trigger around 3%. So if a trade starts to go sour, you will almost never lose
more than 3% of your investment.

Maximize Your Return

How to Maximize Your Return
(In Up or Down Markets)
Remember at the beginning of this report when we said we would show you
the Three Simple Steps to Stock Profits?
We already learned about step one: picking profitable stock patterns. Weve also
covered step two: minimizing your risk. Now we have come to the final step that
makes the how to profit from stocks, even when the stock goes down.
Its a common misconception that traders can only make money when the price of a
stock rises.
Investors can make money anytime they can predict a stocks future movement
up or down.

Its time to learn about short selling.

DEFINITION of 'Short Selling'

Short selling is the sale of a security that is not owned by the seller, or that the seller has
borrowed. Short selling is motivated by the belief that a security's price will decline, enabling
it to be bought back at a lower price to make a profit. Short selling may be prompted by

speculation, or by the desire to hedge the downside risk of a long position in the same
security or a related one. Since the risk of loss on a short sale is theoretically infinite, short
selling should only be used by experienced traders who are familiar with its risks.

Short selling is the secret to making cash in a down market. Here is how it works:
1. Identify a stock pattern that suggests a stock is headed down.
2. Borrow shares of the soon-to-decline stock from your brokerage..
3. Immediately sell these borrowed shares.
4. Wait for the stock to drop to your target price.
5. Buy the shares at the target price.
6. You return the shares to your brokerage.
7. Enjoy your profits.

CONCLUSION

Time to Get Started!

You are ready. You know everything you need to make big money on stocks, and you
can put all of these tools to work now. Start flipping through stock charts, and see if
you can identify the right patterns. Then use our easy-to-follow principles of risk
management and short selling to ensure you are squeezing the most out of every
one of your investment dollars.

Important Links

http://www.investopedia.com/walkthrough/forex/intermediate/level4/movingaverages.aspx
Analyzing Chart Patterns: http://www.investopedia.com/university/charts/
Stop-Loss Order: http://www.investopedia.com/terms/s/stop-lossorder.asp?
layout=orig
Short Selling Tutorial: http://www.investopedia.com/university/shortselling/

Five Chart Patterns You Need to Know.: http://www.chartadvisor.com/