This document provides an overview of various technical analysis chart patterns and theories, including: 1) The head and shoulders pattern which can be bullish or bearish, with variations that impact the probability of a successful formation. 2) Other patterns like M, W, triangles, and flags/pennants which are continuation patterns formed by sharp price movements followed by sideways consolidation. 3) Dow theory which defines trends as successively higher/lower peaks and troughs, with reversals occurring when highs/lows are broken. 4) Elliot wave theory which contends social trends can be seen in financial markets through recurring patterns of impulsive and corrective waves.

1. TECHNICAL
ANALYSIS
(CHARTS AND PATTERNS)
BY: MR. GERRY O. GATAWA, MBA

2. LINE CHART

3. BAR CHART

4. KAGI CHART

5. THE HEAD AND
SHOULDERS
8-5

6. The head and shoulders formation can be bullish or bearish, it’s typical
formation is the following
BEARISH
BULLISH

7. Let us examine the bearish formation in detail:
the neckline may be horizontal as in the figure or ascending / descending,
the shoulders may be at the same price level or at different levels, these
variations to respect to the typical formation gives the trader additional
information as to the degree of probability that the formation will follow up
with a break through, i.e. a descending neckline as well as a lower right
shoulder raises the probability of a successful pattern formation, on the
other hand an ascending neckline as well as a higher right shoulder
decreases the probability of a successful formation.
neckline
head
l.shoulder
r.shoulder

8. M PATTERN

9. W PATTERN

10. WEAKENING UPWARD PATTERNS

11. WEAKENING DOWNWARD PATTERNS

12. J AND REVERSE J PATTERNS

13. WEAKENING TRIANGLE PATTERNS

14. STRENGTHENING TRIANGLE
PATTERNS

15. DOW THEORY

16. DOW THEORY

17. AN UPWARD TREND IN DOW THEORY IS A SERIES
OF SUCCESSIVELY HIGHER PEAKS AND HIGHER
TROUGHS.
A downward trend is a series of successively lower
peaks and lower troughs.

18. In this situation, the market has gone from a period of
successively higher highs and lows to successively lower
highs and lows, which are the components of a
downward primary trend.

19. THE REVERSAL OF A DOWNWARD PRIMARY
TREND OCCURS WHEN THE MARKET NO LONGER
FALLS TO LOWER LOWS AND HIGHS.
This happens when the market establishes a peak that is
higher than the previous peak followed by a trough that
is higher than the previous trough, which are the
components of an upward trend.

20. THE ELLIOT WAVE
Mr. Elliott contends that
social, or crowd behavior
trends can be recognized in the
price trend activity in the
financial markets.

21. Elliott came up with thirteen patterns or "waves," that he
suggested recur in the markets.

22. The basic patterns in Elliott's theory is what is known as impulsive
waves and corrective waves.

23. An impulsive wave is made up of five sub waves and moves in the
same direction as the larger price trend.

24. A corrective wave is made up of three sub waves and moves against
the trend of the next larger size.

25. FLAGS AND PENNANTS

26. THESE TWO SHORT-TERM CHART PATTERNS ARE CONTINUATION
PATTERNS THAT ARE FORMED WHEN THERE IS A SHARP PRICE
MOVEMENT FOLLOWED BY A GENERALLY SIDEWAYS PRICE
MOVEMENT.

27. THIS PATTERN IS THEN COMPLETED UPON ANOTHER
SHARP PRICE MOVEMENT IN THE SAME DIRECTION AS
THE MOVE THAT STARTED THE TREND.

28. THE PATTERNS ARE GENERALLY THOUGHT TO LAST FROM ONE TO
THREE WEEKS.

30. THE MAIN DIFFERENCE BETWEEN THESE PRICE
MOVEMENTS CAN BE SEEN IN THE MIDDLE
SECTION OF THE CHART PATTERN.

31. IN A PENNANT, THE MIDDLE SECTION IS CHARACTERIZED
BY CONVERGING TRENDLINES, MUCH LIKE WHAT IS SEEN
INASYMMETRICAL TRIANGLE.

32. THE MIDDLE SECTION ON THE FLAG PATTERN,
ON THE OTHER HAND, SHOWS A CHANNEL
PATTERN, WITH NO CONVERGENCE BETWEEN
THE TRENDLINES.

33. IN BOTH CASES, THE TREND IS EXPECTED TO
CONTINUE WHEN THE PRICE MOVES ABOVE THE
UPPER TRENDLINE.