Descending Triangles

The descending triangle is an upside down version of an ascending triangle. With this being the case you would expect the share price to break to the downside, however this pattern is not as reliable as the ascending triangle. If the support is strong enough then the share may rebound off support and break up.

The best way to trade the descending triangle is to use a conditional order and get in only on the confirmed break. Alternatively you can set alerts for the break and trade it that way. Always be careful of a snap back into support.

V Formation

After a rapid increase in price expect the share to pull back. It is only natural that a strong rise in the share price leads to a reversal as traders take their profits. If you had made a 100% profit in a week would you sell your shares? Most people would and this selling off drives the share price back down. Watch these patterns carefully and use trailing stop losses in order to maximise your opportunities in either direction.

Double Tops

Double tops are commonly found when a share cannot push higher. The share price rises up and forms the first peak. It then drops away and rebounds back towards the peak. The price cannot push any higher and can then fall away rapidly.

Buying a CFD as a double top forms can result in a losing trade and if you own a CFD when a double top forms it can be time to exit from the trade. The NASDAQ correction in 2000 when all the technology shares fell over was characterised by a double top pattern forming in the market as a whole and in many technology shares.

Head and Shoulders

The head and shoulders pattern is formed by the share price creating a peak, the first shoulder followed by a higher peak, the head. The share price then fails to regain the level that it reached previously and forms the second shoulder. When the share breaks through the neckline expect a strong fall in the price. The fall will often be the same distance below the neckline that the head is above the neckline. The head and shoulders can mark the end of an up trend and the beginning of a new trend.

Using the tips suggested above will ensure you get the most out of each of your trades. Good luck and as always Trade Smart.

Jeff Cartridge
LearnCFDs.com

24 January 2009

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