Head and Shoulders Top

A HS top is formed when the price makes a high, pulls back, makes a higher high, pulls back, and then makes a lower swing high. This
creates three peaks, with the one in the middle being the highest. The topping pattern is typically only relevant if seen after a
substantial advance.

Connect the two lows within the pattern with a trendline. This is the "neckline." If the neckline is angled up, traders will often enter
short positions, or sell long positions, when the price falls below the trendline after the third peak. If the neckline is flat or angled
down, traders will enter short positions, or sell long positions, when the price falls below the latest pullback low. When the price
falls below the neckline, or latest pullback low, it is called a breakout. The breakout indicates the pattern has completed and the
price will likely proceed lower.

If entering a short trade at the breakout level, a stop loss is placed above the high of the right shoulder.

Once a pattern completes the price will frequently, but not always, move back to, or above, the breakout point. This occurs in the
chart above, where the price drops below the neckline but then rallies back above it a few later before continuing its downward
course. It's for this reason a stop loss is placed above the right shoulder on short positions, as this helps reduce the possibility of
being stopped by these small price moves against the trade direction.

Price Target

The estimated downside move after the pattern completes is the height of the pattern subtracted from the breakout price. For
example, if the breakout price is $20, and the high during the pattern was $25, the height of the pattern is $5. This indicates a drop
to $15.
In the first chart example the height of the pattern subtracted from the breakout would result in a negative price. That can't happen,
so in such cases another estimation method is required. Percentages can work well. Assume the top of a pattern is $60 and breakout
point is $30. We don't want to assume a stock will go to zero using the conventional approach, so percentages provide a much
better estimate. The decline from $60 to $30 is 50%. Therefore, take 50% of $30 to get a target of $15. This is more realistic than $0.

The rationale for the topping pattern is that uptrends make higher swing highs and higher swing lows. Once the pattern completes
the price has already made a lower swing high (right shoulder) and potentially a lower swing low at the breakout point. Therefore,
the uptrend is seriously drawn into question, and signs of a downtrend have already emerged.

Head and Shoulders Bottom

The head and shoulders (HS) bottom, or inverse head and shoulders, occurs after a downtrend, and signals an uptrend may be
starting or underway. The pattern is created by a swing low, followed by a rally, a lower swing low, a rally, and then a higher low.

If the neckline is flat or angled down, long positions are often taken when the price moves above the neckline. This is the breakout
point and signals the pattern is complete. If the neckline is angled up, enter long when the price moves above the latest rally high
(the most recent of the two) within the pattern.

Place a stop loss below the low of the right shoulder. Once the price breaks out it may not always proceed immediately in the
expected direction, and having a stop loss below the right shoulders helps reduce the chance of being stopped out as the price
oscillates around.
Price Target

The projected upside price move once the pattern completes is based on the height of the pattern. Add the height of the pattern to
the breakout price. For example, if the low of the pattern was $50, and the breakout point is $60, the height is $10 and the upside
target is $70.

The rationale for the pattern is that the once the pattern completes there is already evidence that the downtrend is over.
Downtrends make lower lows and lower highs, and the higher right shoulder means that is no longer occurring. Also, at the breakout
point the price is typically making a higher high, which is a trait of uptrends, not downtrends.

Trading Considerations

The target estimate for the pattern is only that: an estimate. The price may not reach the target, or it may move well past it. If there
was a large uptrend, followed by a small head and shoulders, if the price does turn lower the decline could well exceed the estimate
based on the small head and shoulders pattern. While the targets are a good guide, the size of other price moves surrounding the
pattern can also be taken into consideration.

The drawback of HS patterns is that the reward-to-risk is often not that attractive. Depending on the size of the right shoulder, the
stop loss amount on the trade is often only slightly less than the potential profit which is based on the full height of the pattern. If
risking $100 a trader may extract $120 to $200, equivalent to a 1.2:1 to 2:1 reward-to-risk. Favor patterns where the expected pay
off is at least twice the risk. Since the stop loss, entry point, and target are known before a trade is even taken, traders can asses
which trades are worth taking and which are not.

While not all HS patterns are worth trading, when the pattern completes it still provides analytical insight as to whether the price is
likely to head lower or higher over the next while. This aids in confirming trades which may result from other strategies.
Cup and Handle

The cup and handle is both a continuation and a reversal pattern. The reversal pattern marks the end of a downtrend, and shows the
price transitioning into an uptrend.

The continuation pattern occurs during an uptrend; a cup and handle forms, then the price continues its rise.

The cup and handle is similar to a rounded bottom, except that with the cup and handle the price stalls near the breakout point and
moves sideways or lower for a period of time. The U-shaped price action forms the cup, and the sideways or downside movement
that follows creates the handle.

Reversal Pattern

In order for a cup and handle reversal to form, the price must first be falling. As with a rounded bottom, the price levels off and then
begins to rise. Once it forms the cup, the price then must pause and either move sideways or move lower—this is the handle.

The handle usually moves in a channel, contained between two trendlines. During the handle, the price should not decline more
than about 50% of the cup height. For example, if the bottom of the cup is $5, and the top of the cup is $6, the handle should form
between $6 and $5.50. If the price drops more than 50% of the cup it could indicate that the selling is too strong, which means an
immediate rise is less likely.

Since the price action of the handle is usually contained within a channel or between trendlines, take a long trade when the price
moves up out of the channel/handle. Drawing the handle is subjective. Depending on how the trendlines are drawn, different
traders will end up with different breakout points.

Once a trade is taken, place a stop loss below the low point on the handle. This controls risk in the event the price keeps dropping
instead of rallying.

Price Target

A cup and handle reversal may indicate a long-term trend change. Long-term trends can last for years, therefore the reversal pattern
doesn't have a long-term target. Typically, the longer the amount of time the cup and handle takes to form the bigger the rally that
follows.
For an estimated shorter-term target, or to establish a risk/reward for the trade, add the height of the pattern to the breakout point.
This target assumes that the size of the rally within the cup will be replicated on the next rally. If indeed the long-term trend has
reversed, the price should be able to reach this target, and potentially exceed it.

Continuation Pattern

The cup and handle continuation pattern has a similar setup to the reversal pattern, except the continuation patterns occurs within
an uptrend. The price is moving higher, declines forming the U-shape and handle, then breaks out of the handle to the upside
signaling the continuation of the uptrend.

As with the reversal pattern, the handle should not decline more than 50% of the way down the cup. Draw trendlines along the
highs and lows of the prices within the handle. Enter long when the price breaks above the upper handle trendline.

Place a stop loss below the low of the handle. This controls the risk on the trade in case the price moves lower again.

Price Target

Add the height of the cup to the breakout point on the handle. This provides an estimated target for the next advance.
As discussed in the cup and handle reversal section, uptrends can last for years. The target represents a target for the next rally, but
that target could be exceeded as the long-term uptrend unfolds.

Trading Considerations

The cup and handle continuation patterns has two positive factors working for it: an already established uptrend, and the pattern is
showing the price starting to rise again following a pullback. The combination of these two factors make it a more reliable pattern
than the cup and handle reversal.

The reward on both the continuation and reversal patterns outweigh the risk, since the anticipated target is the height of the
pattern, or more. The risk, on the other hand, is based on the size of the handle which is smaller than half the size of the cup. This
makes the pattern an ideal trading candidate, as the potential reward is at least double the risk.

Double Tops

A double top forms when the price makes a high within an uptrend, and then pulls back. On the next rally the price peaks near the
prior high, and then falls below the pullback low. It's called a double top because the price peaked in the same area twice, unable to
move above that resistance area.

The pattern is complete—traders may take short positions or exit long positions—when the price drops below the pullback low. For
example, if the price hits a high of $50, pulls back to $47, rallies to $50.05, and then drops back below $47, the pattern is complete
and that could indicate that the price will continue to drop.

For trading purposes, short positions may be initiated when the pattern completes. It's also advisable to avoid longs, since the price
could decline further. A stop loss on short positions is placed above the latest peak, or above a recent swing high within the pattern.

Price Target

The estimated decline is equal to the height of the pattern subtracted from the breakout point. If the pattern high is $50.05 and the
pullback low is $47, when the price breaks below $47, subtract $3.05 from $47 to get a target of $43.95.
The rationale for the double top pattern is that uptrends make higher swing highs and higher swing lows. Once the pattern
completes the price failed to make a substantially higher swing high, and then proceeded to make a new low by dropping below the
prior pullback low. This draws the uptrend into question, and there is evidence of a downtrend beginning.

Double Bottoms

A double bottom forms when the price makes a low within a downtrend, and then pulls back to the upside. On the next decline the
price stalls near the prior low, then rallies above the pullback high. It's called a double bottom because the price stalled in the same
area twice, unable to drop below that support area.

The pattern is complete, and traders may take long positions, when the price rallies back above the pullback high. For example, if the
price drops to $47, pulls back to $50, drops to $46.75, then a rally back above $50 signals that the price will continue to head higher.
Price Target

Patterns may cover a large price or time area, or they may be small, occurring quickly. The price target adjusts to the size of the
pattern. Smaller patterns have smaller price targets than big patterns. The price target for the double bottom is similar to the double
top, except with the double bottom we add the height of the pattern of the breakout point. If the height of the pattern is $3, add $3
to the breakout point.

Trading Considerations

Not all traders are interested in taking positions on a chart pattern breakout. Even so, the double top (bottom) pattern still alerts
traders when they may wish to reconsider their long (short) positions.

The price target is only an approximation of how far the price could move after a breakout. The price may not reach the target level,
which is why a stop loss is used, or the price could fall well below the target.

What the target does provide is a reward:risk ratio, and that is one of the shortcomings of this pattern. The price target and stop loss
are based on the height of the pattern. This means the expected profit and risk are roughly the same. Typically, professional traders
prefer trades where the profit potential is great than the risk. The reward:risk is improved if the stop loss is placed below the high of
a topping pattern or above the low of a bottoming pattern, although this will still typically only result in a reward:risk of 1:1 to 2:1.

Not all patterns are worth trading. The ones offering higher reward:risk are preferred. Even if a pattern isn't traded, it still provides
valuable insight into the short-term direction of the price.

Triangles

The triangle can be a continuation or a reversal pattern. Although, more often it is a continuation pattern. There are three types of
triangles: symmetric, ascending, and descending. For trading purposes they are all the same, the just look different.

A triangle forms when the price action narrows over several price swings. If trendlines are drawn along the highs and lows of the
price action, the trendlines converge towards each other. This creates the appearance of the triangle.
How to Use Triangles

Triangles occur in uptrends and downtrends. Since they can be continuation or reversal patterns, traders wait for the price to break
out of the pattern to indicate which direction it is going.

Since continuation triangles occur more often than reversal triangles, focus more on breakouts to the upside during uptrends and
breakouts to the downside during downtrends.

To draw a triangle there needs to be at least two swing highs and two swing lows. Trendlines are drawn along the highs and lows,
respectively, and extend out to the right. The price may make a couple more swings within the triangle. Re-draw the trendline, if
needed, to accommodate these new price swings.

When the price moves above the upper trendline it signals the price is likely to move higher. The pattern is complete. If the price
drops below the lower trendline it signals the price is likely to continuing dropping.

Symmetric Triangles

Symmetric triangles are created when both trendlines are moving towards each other.

Ascending Triangle

An ascending triangle occurs when the lower trendline is rising while the upper trendline is horizontal. This shows that swing lows
are rising but the rallies are stopping near the same resistance level.
Descending Triangle

A descending triangle is when the upper trendline is sloped downward, while the bottom trendline is horizontal.

With all three types of triangles, take a trade when the price breaks out of the pattern. The exact breakout price is subjective, as tiny
alterations in how the trendline is drawn will alter the breakout price level.

Place a stop loss just outside the pattern, on the opposite side from the breakout. For example, if buying an upside breakout, place a
stop loss just below the lower trendline. If going short on a downside breakout, place a stop loss just above the upper triangle
trendline.
Price Target

The height of a triangle at its base, or widest part, provides some clues as to how far the price could run following the breakout. To
get this estimate, add the height of the pattern to the breakout point in the event of an upside breakout. Subtract the height of the
triangle from the breakout point for a downside breakout.

Use the swing low and swing high at the base of the pattern to make this estimate, instead of measuring the distance between
trendlines.

Trading Considerations

Since continuations are more reliable than reversals, if an upside breakout occurs during an uptrend consider taking a long position.
If the price breaks to the downside during an uptrend, think twice before shorting it. That said, don't let biases or beliefs interfere
with what the market is actually doing. Even though an upside triangle breakout may be more likely during an uptrend, a downside
breakout sends a warning signal that the uptrend could be in trouble, or that price will move lower for a while.

The reward:risk ratio on triangles is always better than 1:1, which is favorable. This is because the profit target is based on the entire
height of the pattern, whereas the stop loss is based on the smaller portion of the triangle once the trendlines have converged.
Favor trades where the potential reward outweighs the risk by a factor of two or more.

Flags And Pennants

Flags and pennants are continuation patterns. They are traded in the same way, but each has a slightly different shape. The terms
flag and pennant are often used interchangeably.

A flag or pennant pattern forms when the price rallies sharply, then moves sideways or slightly to the downside. This sideways
movement typically takes the form or a rectangle (flag) or a small triangle (pennant), hence their names. Draw trendlines along the
highs and lows of the sideways price action. The sharp price rise preceding the flag or pennant is called the flag pole.

The sideways period is often followed by another sharp rise. This is where the trading opportunity comes in. Once the flag pole and a
flag or pennant have formed, traders watch for the price to breakout above the upper flag/pennant trendline. When this occurs,
enter a long trade.
The above pattern is bullish, because the pattern started with a sharp rally. There are also bearish patterns, where the price drops
sharply then forms the flag or pennant. With this pattern, watch for the price to break below the flag/pennant.

If a short trade is taken on the downside breakout, place a stop loss above the high of the flag/pennant (not the flag pole).

If a long trade is initiated on an upside breakout, place a stop loss below the low of the flag or pennant (not the flag pole).
Price Target

The concept behind the flag and pennant patterns is that the momentum seen during the flag pole phase could continue once the
pattern completes. Therefore, measure the size of the flag pole, then add that length to the bottom of the flag/pennant for bullish
patterns.

For bearish patterns, subtract the length of the flag pole from the top of the flag/pennant.
Trading Considerations

Flags and pennants occur in both uptrends and downtrends. Focus on trading upside breakouts from bullish patterns during
uptrends. While a downside breakout may indicate the price could move lower for a time, going short during an uptrend is a less
reliable trade.

Similarly, if an asset is trending lower, focus on trading downside breakouts from bearish patterns.

Since flag poles can be quite large, and the size of the flag/pennant quite small, these types of patterns produce favorable
risk/reward ratios. The reward or profit target is based on the strong movement of the flag pole. The stop loss, on the other hand, is
based on the small area that forms the flag/pennant. Reward potential on these trades often outweighs risk by a factor of three, or
more.

The Wedge

Wedges are a multiple price wave reversal pattern. Wedges form when the waves of an asset move within a narrowing range,
angled either up or down. Whereas triangles are formed by the price moving sideways, wedges can make significant progress either
up or down.

When the pattern completes, and the price breaks out of wedge, it is usually in the opposite direction the wedge was pointed. This is
why it is called a reversal pattern. For example, if a wedge is angled downward—called a "falling wedge"—the price will often break
above the top of the pattern and rally. In the case of a wedge angled upwards—a "rising wedge"—the breakout is typically to the
downside, indicating lower prices to come.

Examples of Wedges

Draw a wedge by connecting the multiple swing highs with a trendline, and connect the swing lows with another trendline. During a
falling wedge, watch for the price to move above the upper trendline. This is a breakout and completes the pattern. Consider taking
a long trade, and shy away from short trades.

For a rising wedge, consider a short trade when the price breaks below the lower trendline. Also consider exiting any long positions.
If trading a rising wedge, place a stop loss just above the most recent high within the wedge. When trading a falling wedge, place a
stop loss just below the most recent swing low within the wedge.

Price Target

Wedges can be significant turning points. A breakout may see the price run in the breakout direction for long periods of time.
Therefore, isn't a long-term price target for wedge. Rather the pattern gives us analytical insight into where the price is headed, and
an entry point into what could be a large move.

Following a breakout, the price typically moves at least the height of the wedge (measured at the base where the two trendlines
start). For example, if the trendlines start at a swing high of $36 and a swing low of $33, the wedge is $3 high at the base. When the
price breaks out, expect at least a $3 move in the breakout price. Therefore, in this case, place targets $3 or more away from the
entry.
Trading Considerations

Estimate how far the price could run after a breakout by measuring the height of the pattern, but understand that if a major trend is
underway, the price could run a lot further. If you are long during a rising wedge, a downside breakout is a warning sign to get out. If
short in a falling wedge, and the price breaks upward, consider exiting.

Wedges can last a long time, narrowing into a smaller or smaller price area. This may result in anticipating when then it will end, or
taking trades before the breakout thinking that a breakout will occur soon. It is better to wait until the actual breakout occurs than
to speculate on when it will happen.

Gaps

A gap is empty space between one price bar and the next. Gaps occur when the price significantly changes from the close of one
price bar to the next, with no trading taking place in the empty space between the bars.

Gaps occur unexpectedly, which is why no trading occurs between the two price bars. From one day to the next the perceived value
of the asset amongst investors has changed. Because they are unexpected, gaps can be used for analytical insight, as different types
of gaps indicate whether a trend is starting, accelerating, or near its end.

There are four types of gaps: common, breakaway, runaway, and exhaustion, as well as a gap pattern called an island reversal.

Common Gaps

Common gaps provide no significant analytical insight, and are regular occurrences. Common gaps are small, meaning the price
difference between the two gapping bars is not significant. Common gaps occur frequently in stocks from one day to the next, and
in currency markets over the weekend.

Common gaps are typically, but not always, "filled." For example, if a stock closes at $50 on Monday, and then opens at $50.25 on
Tuesday, the price will often move back to $50 within the next few days. If the price goes back to where the gap started, technicians
consider the empty space filled.

Since the gaps occur regularly, they don't tell much about the future direction of the price.
Breakaway Gaps

Assets prices move in ranges or trends. Ranges are when then the price is moving up and down, but little progress is made in either
direction. Trends occur when the price is making progress either up or down over multiple price swings. When a price moves from
ranging to trending, it will sometimes start that trend with a breakaway gap.

A breakaway gap shows decisive movement out of a range or other chart pattern. These types of gaps are commonly associated with
heavy volume, showing the strong conviction of the breakaway. These types of gaps are most commonly associated with major news
events, or earnings announcements in individual stocks, which rapidly change investor sentiment.

Breakaway gaps don't tend to fill, or at least not for a long time. Instead, the price tends to run in the same direction as the
breakway for some time after. The times when breakaway gaps do fill, the breakout direction usually prevails. The price may move
back to where the gap started, fooling traders into thinking the gap was a false breakout, but then the price usually keeps moving in
the breakaway direction.

Breakways gaps can occur to the upside or downside. The analytical insight is the same: expect further movement in that breakaway
direction.

Runaway Gaps

Once a trend starts and has been underway for a while, more traders start hearing about it. Any positive news or catalyst brings in
traders who have been waiting to get in. This causes a runaway gap, or a gap within the middle of the trend, indicating that the
trend is still strong and picking up steam.

These types of gaps are also typically associated with a volume increase, but lots of volume isn't as important here as it is with
breakaway gaps.
Runaway gaps signal a continuation of the trend. Traders already in positions will view the event as a sign to hold the trade longer.
Those on the sidelines may want to get in as there is likely more room for the price to run. While this can be a favorable entry, it is
not as favorable as entering after a breakaway gap.

Exhaustion Gaps

An exhaustion gap occurs at the end of a trend, often after a significant price increase. The gap higher after a strong advance shows
euphoria, where the last remnants of those on the sidelines enter into the trade. With no one left to keep pushing the price up,
there is a gap higher followed by a gap lower or a strong selloff.

Volume will either be lower than on prior runaway gaps, or it may be significantly higher. The lower volume shows that fewer people
are participating in this latest gap, signaling the trend's exhaustion. On the other hand, a significant volume spike of two or three
times the volume on prior spikes also indicates a reversal because with that many people getting in it is questionable how many
traders will be left to keeping pushing the price in that direction.
Exhaustion gaps only signal the trend is near an end, and may not mark the exact turn point in the other direction. The price may
continue to move in the trending direction for a few more days (or price bars), often with extreme volatility.

It is sometimes only clear after the fact, once the reversal has started, as to whether it is a breakaway gap or an exhaustion gap. The
pattern still provides insight though, because following an exhaustion gap the price will rarely revisit those extreme price levels for a
long time. In other words, when the price reverses it typically trends in that direction for a long time.

Island Reversal

An island reversal is a pattern composed of a gap in the trending direction, a mostly sideways period for the price, then a gap in the
other direction. The price does not return to where the sideways period occurred, making it look like an island on the chart. The
"sideways" period can be as little as one price bar, or multiple price bars.

The island is a strong reversal pattern, because it leaves many traders trapped in trades at poor prices (the island). When the price
gaps the other way, they are forced to get their trades, fuelling the trend in the other direction.

The island is often not tested again for some time because a new trend unfolds in the reversal direction.

Triple Tops And Bottoms

Triple tops and triple bottoms are reversal patterns. A triple top signals the price is no longer rallying, and that lower prices are on
the way. A triple bottom indicates the price is no longer falling and could head higher. Triple tops and bottoms are similar to double
tops and bottoms, except in the case of a triple there are three high points (top) and low points (bottom).

Triple Tops

A triple top occurs when the price peaks in the same area on three separate occasions, with pullbacks after the first and second
peaks.

The pattern completes when the price drops below the latest pullback low (after the second peak), or breaks the trendline formed
by connecting the two pullback lows. When this occurs, short positions may be initiated based on the pattern. Those currently in
long trades should question whether they want to hold that trade through another decline.
If the price peaks at $119, pulls back to $110, rallies to $119.25, pulls back to $111, rallies to $118, then drops below $111, that is a
triple top and signals the price is likely heading lower.

A stop loss on short positions is placed above the latest peak, or above a recent swing high within the pattern. This limits the risk of
the trade if the price doesn't drop and instead rallies. Chart pattern don't work all the time.

Price Target

The estimated decline is equal to the height of the pattern subtracted from the breakout point. If the pattern high is $61 and the low
of the two pullbacks is $54, subtract $7 from the breakout price when the price falls below $54. This gives a price target of $47. The
chart shows another example.
The rationale for the triple top pattern is that uptrends make higher swing highs and higher swing lows. The price tried to move
higher three times and couldn't, and then dropped below the pullback low of the pattern. That is evidence that a downtrend is
starting, or at minimum the uptrend is in jeopardy.

Triple Bottoms

A triple bottoms is the inverse of a triple top. It occurs after an extended decline, and is when the price reaches the same support
area on three separate occasional. After the first and second lows there is a pullback to the upside.

The pattern completes when the price moves above the high of the most recent pullback. Alternatively, the pattern also completes
when the price breaks above the trendline formed by connecting the two pullback highs. Consider taking a long position at the
breakout point, and beware of short positions.

If the price bottoms at $20, moves up to $22, declines to $19.75, moves up to $21, declines to $19.70, then rallies above $21, the
triple bottom is complete. The downtrend is likely over so watch for prices to move higher.

If buying when the pattern completes, place a stop loss below the most recent low of the pattern. Alternatively, to keep the risk
smaller, find a swing low to place the stop loss below within the pattern. This helps limit the trade risk if the price doesn't rally and
instead drops.

Price Target

Once the pattern completes, traders can use the size of the pattern to estimate how far the price could rally. Take the height of the
pattern and add it to the breakout point. If the breakout point is $52.50, and pattern has a height of $3.23, the estimated profit
target is $55.73.
The rationale for trading the triple bottom is that downtrends make lower swing highs and lower swing lows. The price tried to move
lower three times, but couldn't break below the support area. The price then rallied above a recent high. That indicates an uptrend,
not a downtrend.

Trading Considerations

Two peaks or bottoms always occur before a third. Sometimes when a double bottom doesn't work out it will become a triple
bottom. When the price peaks or bottoms more than three times in the same area, the price is likely moving within a range.

As with double tops and bottoms, the risk/reward is a drawback of these triple patterns. Since both the stop loss and target are
based on the height of the pattern, they are roughly equal. Patterns where the potential profit is greater than the risk are preferred
by most professional traders. By placing the stop loss within the pattern, instead of above it (triple top) or below it (triple bottom)
improves the reward relative to the risk. The risk is based on only a portion of the pattern height, while the target is based on the full
pattern height.

Triple tops (and bottoms) can look like a head and shoulders patterns, if the middle peak is the highest (lowest) of the three. Since
the patterns are traded in essentially the same way, it is of little consequence if the pattern is labeled a head and shoulders or a
triple top/bottom.

Depending on which entry points is used—the trendline or the recent pullback high (triple bottom) or low (triple top) —it is possible
to have two profit targets since the height of the pattern can be added to either of these breakout points. Traders can choose which
target breakout level they prefer. For example, on a triple bottom, a trader may choose to use the higher profit of the two in order
to extract more profit from the trade.
Round Bottoms

A rounded bottom or saucer bottom can be a continuation or a reversal pattern. It is a cup or bowl formation where there is selling
at the left of the pattern, but as time progresses the selling tapers off and the price starts to rise again. The pattern shows the
transition from sellers having control to buyers having control.

Reversal Pattern

A rounded bottom reversal signals the end of a downtrend and that prices are starting to rise again. The price is declining, levels off,
and then ascends. When the price levels off, it may even form a small double bottom, triple bottom, or head and shoulders pattern.

The pattern is complete when the prices moves back above the starting point of the most recent decline, where the pattern started.

Buy when the pattern completes. Place a stop loss order below swing lows within the pattern that occurred once the price started
rising, or place a stop loss below the low of the entire pattern.

Price Target

Rounded bottoms—especially when they occur on daily and weekly charts, lasting several months or more—often signal a strong
trend change. Trends may last for a long time. In stock and currency markets trends can last five years or more. Therefore, the
rounded doesn't have an accurate long-term price target. Rather, the pattern lets traders know a major new trend could be starting.

For shorter-term traders not looking to capture an entire trend, but only part of it, add the height of the rounded bottom to the
breakout point. This provides an estimated target and also allows for a risk/reward ratio to be calculated on the trade (based on the
target and stop loss levels).
Continuation Pattern

The rounded bottom continuation pattern doesn't signal the end of an uptrend, but rather occurs in the midst of it. During uptrend,
the price may pullback and form a rounded bottom pattern before starting its ascent again. The rounded bottom is one type of
pullback that occurs within trends.

During a trend the price pulls back, levels off, and then begins to rise again. This forms the cup or bowl shape, similar to the reversal
pattern.
For trading this pattern, consider initiating long positions when the price moves above the prior high (where the pullback started).
Traders can also enter earlier than this, when the price has started it transition to the upside but before it reaches the prior high.
The latter approach results in a better entry price, but there is no guarantee the pattern will complete. Taking a trade when the
pattern completes (breakout) shows the pattern is progressing as expected, but the entry point is worse than if entering earlier.

Place a stop loss order below a recent swing low, or below the low of the entire pattern. This helps control risk in case the price
doesn't rally as expected.

Price Target

As with the reversal pattern, add the height of the rounded bottom to the breakout point for an estimated upside target. This aids in
assessing the risk/reward of the trade. Depending on how strong the trend is, the price could well exceed the estimated target. In
weak trends, or when the trend is near its end , the price may not meet the estimated profit objective. Typically, the stronger the
uptrend heading into the rounded bottom the larger the follow-through to the upside after the pattern.

Trading Considerations

This patterns allows for variation on entry point and stop loss location. In turn, the pattern can offer high reward-to-risk, or low
reward-to-risk. Buying as the price starts to transition higher, and placing a stop loss below a recent swing low provides high
potential reward for the risk, potentially upwards of 4:1 or more. Waiting for the official breakout and placing a stop loss below the
low of the pattern equates to a reward:risk of roughly 1:1.