Sean Twizer and a co-host break down seven candlestick patterns traders watch: cup-and-handle, double and triple bottoms, double top, head-and-shoulders, triangles, and bull flags. They explain what each pattern signals about support, resistance, and other traders' thinking, but warn against building an entire strategy around them since institutions rarely do.
Even though I don't trade solely based on technical analysis, that does not mean that I do not know the main patterns. As I previously mentioned, it's really important to know what other traders and investors are looking at because this market in a nutshell is a self-fulfilling prophecy, as people will look for reasons for why a stock did what it did. That is in order to fill in the gap in their mind. So these are the most common technical patterns that occur on the market and people look for.
Cup and handle. This pattern resembles a cup with a handle. Candle and is considered bullish. It typically signals a continuation of an uptrend after a brief consolidation period. Bullish Double Bottom: This pattern indicates a change in trend from bearish to bullish. It consists of two consecutive touches at the support, with a rebound in between, which looks like the letter W. Bullish Triple Bottom: Similar to the double bottom, but with three touches instead. It signals a strong support level and potential reversal of the downtrend. Bearish Double Top: This The opposite of a double bottom and is considered bearish. It occurs when a stock reaches a high price twice with a decline in between, signaling a potential trend reversal. Bearish Head and Shoulders: This pattern signifies a trend reversal from bullish to bearish. It consists of 3 peaks, with the middle peak (aka the head) being the highest, and is followed by a decline in price below the support level. Descending Triangle: A bearish pattern characterized by lower lows and a horizontal support line. It suggests that that the downtrend is gaining momentum and a breakdown is on the way. Ascending triangle: This pattern is bullish and indicates continuation of an uptrend. It consists of a horizontal resistance line and a rising support line, with a breakout expected to occur in the direction of the trend. Bull flag: Found in stocks with strong uptrend, the bull flag pattern is formed by a vertical rise, which is the pole, followed by a consolidation period, which is the flag. It signals a continuation of an uptrend after a consolidation phase.
These patterns are used by technical analysis traders, and if we will know how to identify them on the chart with a quick look, we can have a better idea where to expect support and resistance levels. We should pay attention to them, but we do not need to take them into consideration and speculate our entire thesis based on that. They just give us a better understanding to what other traders and investors are looking at. At the end of the day, the Goldman Sachs analyst is not going to place his positions based on bull flag or bear flag, so don't put too much weight on these patterns.
