Page 188 - DCOM504_SECURITY_ANALYSIS_AND_PORTFOLIO_MANAGEMENT

Unit 6: Technical Analysis

Notes
Figure 6.9

A double top pattern is shown on the left, while a double bottom pattern is shown on the
right.
4. Flag and Pennant: 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. This pattern is then completed upon another sharp price movement in the
same direction as the move that started the trend. The patterns are generally thought to
last from one to three weeks.

Figure 6.10

As you can see in the above figure, there is little difference between a pennant and a flag.
The main difference between these price movements can be seen in the middle section of
the chart pattern. In a pennant, the middle section is characterized by converging trendlines,
much like what is seen in a symmetrical triangle. The middle section on the flag pattern,
on the other hand, shows a channel pattern, with no convergence between the trendlines.
In both cases, the trend is expected to continue when the price moves above the upper
trendline.
5. Triangles: Triangles are some of the most well-known chart patterns used in technical
analysis. The three types of triangles, which vary in construct and implication, are the
symmetrical triangle, ascending and descending triangle. These chart patterns are
considered to last anywhere from a couple of weeks to several months.

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