3 trend continuation models. Forex Figures and Graphic Models Continued Trend Trend in the form of Japanese candles
Model model - These are different types of price consolidation phases that occur within long-term trends. As the name implies, it is expected that the continuation model will be completed by the price movement in the same direction, which preceded its formation.
Triangles (triangles)
Triangle (Triangle) is a region of price consolidation, whose boundaries intersect. The forex triangle can serve as a sign of reversal or, more often, continuing the trend. A small triangle height from 10 to 15 percent of the previous trend is usually a trend continuation figure. Many ascending and descending trends are divided into parts by such triangles, just as phrases are divided into pieces of commas. Large triangles whose height is a third or more of the previous trend, usually turn out to be reversible changes. And finally, some triangles are moving to a regular price corridor.
Triangles can be divided according to their corner, for three large groups: symmetrical, ascending and downward.
1. Symmetrical triangle
The upper and lower line of the symmetric triangle goes with the same slope: that is, if the upper line is tilted under 30 degrees to the horizontal, then the lower is also tilted under 30 degrees. A symmetric triangle reflects the equality of the forces of "bulls" and "bears" and is more likely that he notes the continuation.
- The technical analysis of Forex is a rather difficult way to explore the Forex market, but with all this you can not get anywhere from its use.
2. Ascending triangle
It has a relatively smooth upper border and the lower boundary. The smooth upper border shows that the "bulls" retain their power and can raise prices up to the same heights, while "bears" weaken and cannot lower prices as low as before. The ascending triangle is more likely to complete the breakthrough up.
3. Downward triangle
It has a relatively smooth lower border, and its upper border goes down. The smooth lower border shows that the "bears" retain their power and lower prices until the previous level, and the "bulls" weaken and cannot raise prices as high as before. A descending triangle is more likely to be completed by a downward breakthrough.
The volume falls as the triangle aging. If it increases when prices are moving up, then the breakthrough is more likely. If the volume increases when prices are suitable for minimizes, then the breakthrough is more likely. The true breakthrough is confirmed by a splash of volume, at least 50 percent of the average over the past five days. From the triangle you can calculate the minimum price level for the next market movement. Measure the height of the triangle from the base and postpone vertically from the point in which the triangle was broken.
Flags and Vimpels
Flags and pennants are narrow and short-term (for example, from one to three weeks) consolidation phases within trends. The figure of the technical analysis is called the flag when it is limited by parallel lines, and pennant when the lines converge.
Pennant with a slope opposite to the trend, serves as a continuation figure. The old saying reads: " Pennant raise the middle of the mast", That is, the rise is likely to last so long after the pennant, as he lasted before him. Pennant, tilted along the trend, indicates that the trend is ready to reverse. Vimpels may seem like triangles, but they differ in a temporary measurement: a triangle forms, Sia significantly longer.
Flags and pennants usually reflect the pauses in a strong trend. In-Che putting, behind these models, as a rule, the price movement in the same direction, which was preceded by their formation. The breakdown of the flag or pennant can be considered as confirmation that the trend continues, and as a signal to trade in the direction of the trend. Since the trifles usually occur in the direction of the main trend, it makes sense to open positions during the formation of the flag or pennant, without waiting for his breakdown. Such an approach provides more favorable conditions for entering the market, and without a significant deterioration in the percentage of profitable transactions
After breakdown from the flag or pennant, the lower point of Mo-Delhi (for the case of a growing trend) can be used as an oriented protective stop. Significant breakdown beyond the flag or pennant in the direction opposite to the expected, i.e. Against the main trend, can be considered as a signal of potential turning trends.
Flags and pennants are usually directed towards the opposite of the main trend. If a downward flag is formed during the upstream trend, you should post an order for the purchase above the last maximum of the peak to catch an upward breakthrough. The ascending flag at the upstream trend serves as a sign of the resulting redistribution of forces and more likely a downward breakthrough. You should place an order for sale below the last minimum in the flag. With a downward trend, you should act on the contrary.
Flags or pennants that are formed near the upper border of the trading range can be particularly important "bullish" signals. In the case when the flag or pennant is formed under the upper boundary of the torch range, it indicates that the market does not retreat, although the dos-tig area of \u200b\u200bthe powerful resistance is the vertices of the range. Such price behavior has rising consequences and assumes that the market is gaining momentum for the final jerk up. In general, the longer than the trading range, the greater the potential significance of the flag or pennant, forming-gesting near its upper boundary. For the same reasons, flags or pennants, which are formed near the lower border of the trading range, are important "honey-humainy" models.
Models of continuing trend, or consolidation models, can be found when, after a long ascending or downward trend, the lateral trend comes or the consolidation period. In such cases, it is possible to detect a specific figure, a model that will continue to predict the direction of the asset price and even to predict its final goal is the price that the market will reach after the breakdown of the figure and continue the trend after consolidation. Although finding a classic model on the schedule may be a difficult task. Especially since the model does not always coincide with the expected. This can be remembered by minus technical analysis - an element of subjectivity.
The continuation models are as follows:
- triangles
- rectangles
- vimpels and flags
Figures arise both with the upward and downward trends.
Triangles are divided into three species - a triangle with a flat vertex, a triangle with a flat base and an equifiable triangle. For example, a flat base triangle is a struggle of bulls and bears, when the price of the asset on the rebound from the base remains approximately at the same level, and on the rebound from the upper side of the triangle (vertices), the price is reduced each time. I also note that the model is the less reliable than the closer the price approaches the top of the triangle, without having exhausted a breakdown. The perfect triangle is considered when the price concerns his sides three times, and on the fourth pierces.
From all this it follows that the option must be purchased on the rebound from the side of the triangle, or when trying. In this case, you can determine the target price. When testing the target price is approximately equal to the height of the unused side of the triangle, that is, the side that is not a "wall", the price does not disappear from it.
But there are certain cases when the price breaks the triangle, goes in the right direction, but then reaches a certain limit and dramatically changes the direction of movement. With an upward trend, this situation is called a "bullish trap", with a downward trend - "bearish trap".
Rectangles
Rectangles in pure form depict support and resistance levels. That is, the price comes to this level, trying to overcome it, and then either bounces, and goes in the opposite direction, or pierces the level. If the price has struck the level in the direction of the trend, then it should be expected to continue. If the price struck the rectangle in the opposite direction from the trend, then this situation is considered a strong trend reversal model. Sometimes after breakdown, you should expect a correction period, or rollback. In this case, the price is trying to check the "punched" level, say, resistance, which after breakdown turned into support level.
The target price, as in the case of triangles, is calculated as the height between the "walls" of the shape.
Flags and Vimpels
The flag and pennant is very difficult to determine on the chart. Basically, they arise in high-voltage markets after a sharp increase or lower prices, forming a flagpole. It should be noted that during the model of the model the volume should decrease. As for the form of the flag and pennant, the flag looks like a downward parallelogram, and the pennant as directed down the triangle.
The most common models of continuing trends are "flag" ("flag ") and " pennant " ("pennant. "). Detection and analysis of these graphic figures are carried out on a bar" bars "price chart (Fig. 14.12).
"Flags" and "Vimpels" are formed only within the trend, are a sign of the correction of a trend confirming its continuation ("trend is accompanied by ascents and downsion"), and are formed as two parallel straight lines, conducted from above and below the downward or downward trend. Day bars. The tilt "flag" is always directed towards the opposite of the main price movement.
Fig. 14.12.Graphic models "Flag" and "Vympel" on the shares schedule of OJSC "LUKOIL"
It is noted that after completing the correction (completion of the formation of the Flag Figure), the subsequent rise or decline in prices will minimize the value equal to the average size of the bars in the figure (figures 1 and 2 in Fig. 14.12). This property "flag" is reflected by the saying "The flag always rises to the middle of the flagpole" and if the outbreak of the "flag" or "penal" shapes are stopped in the trend, then the investor requires increased attention, since the strength of the trend is depleted. The duration of the formation of models is from four to 10-12 days.
Graphic model "triangle" There are often enough, but their identification requires certain skills. Three types of triangles are isolated - symmetrical, ascending and downward. All of them belong to the tendency to continue the trend, and their identification on the price schedule speaks of the continuation of the trend in which they arose. The "triangle" model is formed within the current trend, and its duration ranges from two to six residences. The schematic model of a symmetric triangle that is generated on the upstream trend is presented in Fig. 14.13.
As is obvious from fig. 14.13, the formation of a symmetric triangle begins with the fact that the vertices under the numbers 3 and 5 turn out to be lower than the preceding vertices, and the bases are slowly raised. At first glance, such a price behavior indicates the completion of the ascending trend, and only the analysis of this price model allows you to make a more reasonable conclusion. For this, in four points of local extremums - two vertices 1 and 3 and two reasons 2 and 4 are built two straight lines, the intersection point of which among them was called "vertex" ("Apex"). These lines act as support line (line 2-4) and resistance line (line 1-3). In order for the figure to receive the completed view, the perpendicular is lowered from the vertex 1 (" base" – "BASE") on line 2-4. It turned out the figure "lying on the side of a symmetric triangle". The formed model covers the period consolidation period when, after rapid lifting or falling, market participants stop and evaluate their positions.
If approximately between 1/3 to 1/4 of the rise of the ascending symmetric triangle, the price will trigger the top line 1-3, then the upward trend will continue if the breakdown does not happen, the price will go into the side trend or even happens a trend fracture. At the same time, it is possible to estimate the minimum value of the further increase in prices after the breakdown of the line 1-3. For this, a perpendicular ribbon is raised from the breakdown point. h, equal value of the base. His vertex and will be the desired minimum value of the rise in prices. Another method allows to identify the direction of price movement. To do this, in our case, a line in the line 2-4 is conducted from point 2. The corridor formed in this case is directed towards the price movement. An analysis of a symmetric triangle that is formed on a falling trend is carried out in a similar way.
Consider the formation of a symmetric triangle on the example of prices for shares of OJSC LUKOIL (Fig. 14.14). In early May 2006, after a long lifting, the company's shares began to fall sharply. Their fall stopped on May 22, and began the same rapid rise. As a result of subsequent changes, the price was formed by the figure "Symmetric Triangle" (vertices 2-4 and base 1-3). The significant range of price fluctuations in the triangle led to the fact that the value of the price drops after the completion of the formation of the figure was also significant.
Fig. 14.13.Scheme of graphic model "Symmetric triangle"
Fig. 14.14.Symmetric triangle on the price schedule of OJSC "LUKOIL", May-June 2006
"ascending" and "Downward triangles". Already by the title it can be assumed that these models are formed, respectively on the ascending and downward trend. Although these triangles are a type of symmetric triangle, at the same time with their help, unlike a symmetric triangle, it is enough to determine the development of the trend. The ascending triangle scheme is presented in Fig. 14.15.Fig. 14.15.
The ascending triangle is formed on an upward trend when the price increases temporarily stops. The ascending triangle is built, as well as symmetrical, in four points - two vertices (on a point 1 and 3) and two bases (points 2 and 4). At the same time, the upper line 1-3, acting as the resistance line, is usually close to horizontal, and the perpendicular omeged 1 perpendicular to line 2-4 completes the formation of the model "rectangular triangle". The horizontal of the upper line is explained by the continuing high activity of buyers, providing a subsequent rise in prices, so the ascending triangle is considered a "bullish" model.
The model completion signal is considered a breakthrough at the cost of closing the upper line of the triangle. In turn, the descending triangle is a mirror reflection of the ascending triangle in the falling market and is considered a "bear" model. The period of formation of both models - from 2 to 10 weeks.
Graphic model "Expanding formation" or " expanding triangle " - This is a price change model, relating to triangles. It occurs when two strong groups of "bulls" and "bears" are formed on the market, consisting of a large extent of private investors, each of which wishes to turn the market to their side. The model is relatively rare and is not characterized by the uniqueness of the parties of the triangle, as described above, and their discrepancy. In other words, this model describes the state of the market when the "bulls" and "bears" begin to "rock", waving a wavely increasing and lower prices.
This increases the volume of trade, i.e. The market becomes a spontaneous. The model is formed at the top of the ascending trend. This is a "bearish" model, because it is completed by changing the trend, i.e. Falling the market (Fig. 14.16). The model consists of two or three consecutively emerging vertices (in diagram 1.3,
5) and two or three bases (2,4,6). The period of formation of the model is 6-10 weeks.
Graphic model "diamond" or "rhombus". Sometimes called "diamond formation". The model is two triangles - expanding and the following symmetric (Fig. 14.17). It occurs on the top of the market and is formed within 4-10 weeks. In the first half of the model, trade volumes consistently increase, and in the second - decrease. This model is rarely formed and is considered completed when the price breaks through the lower side of the symmetric triangle.
Fig. 14.16.Scheme of an expanding triangle or "expanding formation"
Fig. 14.17.Diagram of the graphic model "Almaz"
Graphic model "wedge" ("wedge. ") It is also possible to be considered as a kind of triangles. It is formed inside the current ascending or downward trend and its advent confirms its continuation. The wedge is formed for one to two months and on the form resembles a symmetrical triangle, leaning toward the opposite trend. Wedge, directed A sharp angle down, is considered a "bullish" model, since it is formed on the upstream trend and confirms its continuation (Fig. 14.18).
Wedge, like other continued trend models, is a stage in the development of a trend after rapid growth or fall during which market participants produce a trend assessment. Usually before the breakthrough, the wedge passes from 2/3 to 3/4 of its length.
Graphic model "rectangle" It is a period in the development of trend, after the completion of which the trend continues its movement. The figure is a chain of consecutive lifts and recessions with the same amplitude arising from the development of the trend. When analyzing, the analyst conducts straight lines on the vertices and the bases of the figure, often parallel, which gave the name of the graphics model. Another name of the rectangle is "price corridor". The resulting figure can be a parallel axis of the graph of the graph or slightly inclined. Refers to medium-term models formed for one to two months (Fig. 14.19).
Fig. 14.18.Scheme of the graphic model "Wedge"
Fig. 14.19.Scheme of the graphic model "Rectangle" on the downward trend
Rectangles of various duration are formed on ascending, and on descending trends. Their emergence is a consequence of the market struggle of two equal groups "Bykov" and "Bear". As a rule, after completing this struggle, the market movement continues towards the preceding trend. Based on the amplitude of price fluctuations h. In a rectangle, you can estimate the minimum value of the subsequent price changes. For this, as shown in Fig. 14.19, rectangle height h. Turn to the breakthrough point of the bottom line of the rectangle, which in a falling trend acts as a line of resistance.
There is another way to measure the magnitude of the future price change after breaking. It is used in the case of an overly long-term lateral price movement in the rectangle. The length of the rectangle is measured, which is transported to a breakthrough point in the form of a price change height. In this case, it is assumed that the prolonged struggle of the "bulls" and "bears" leads to the accumulation of significant market energy expressed in a strong jerk after the prolonged pause (Fig. 14.20).
Fig. 14.20.Price change diagram after completing the graphic model "Rectangle" on a downward trend
At Forex, the downward triangle appears when the currency pair is in a downward trend and trying to turn around. At this time, the currency steam is supported by sufficient demand from buyers to fix the price, but forms consistently lower maxima. This leads to a drop of volatility, since the price is compressed into a narrowing range. It forms a characteristic descending triangle.
After that, the market usually breaks the lower limit of the triangle. This pattern indicates the continuation of the trend, and not to turn.
In the markets less liquid than forex, traders usually pay attention only to models, covering longer periods of time (weeks or months).
However, on Forex, these patterns may appear and bargain with profit at different time intervals.
A descending triangle is classically a bear signal.
Formation of a downward triangle.
A descending triangle is classically a bear signal. Make sure the triangle is in the downward trend. It should have a flat or almost flat reference line from below and the falling upper line, which is the level of resistance. The price range should be narrowed. Available volatility can be checked using an indicator (Average True Range).
In order for the descending triangle model to be valid, the price should form a "teeth" that should become less and lower.
When you trade on SELL, the first thing you need is to confirm the downward trend. This is due to the fact that the descending triangle usually appears as part of a small correction wave during a stronger trend.
The structure itself should not be a trend or its large part. Use to confirm the trend.
The transition to a larger scale allows you to check below and above the emerging downward triangle. If there is a strong level of support nearby, then from transactions for sale should be abstained.
An example of a downward triangle on the schedule.
As in the case of an ascending triangle, in interpretation and presentation of the exact form of a downward triangle there is a lot of subjectivity, especially on small timeframes. Models of triangles can appear throughout the Trend. You can see them from the beginning of the trend to the middle, and then to the reversal.
A descending triangle can be found in two different forms.
1. The first - when the formation of the triangle ends with a strong bear breach. Example in the figure below. This picture is often found in descending trends. The area of \u200b\u200bprice consolidation is formed when the volatility is reduced.
2. The second form is a smooth continuation of the downward trend. It is characterized in that after the formation of a triangle, the trend is resumed without serious breakdowns. Figure below shows such an example.
The direction and strength of the breakthrough.
After the downward triangle completes the formation, there is no way to know exactly how and when the bear breakthrough will develop.
One of the most popular ways is to wait for the closure of the candle, which breaks through the bottom line of support. This creates a specific input signal.
As in the case of other models of triangles, the size and orientation of the pattern is a useful guide to determine the possible sample breakdown and use to determine the target values \u200b\u200bof the Loss and Take-Profit stop.
How to use a downward triangle in trading?
When trading a downward triangle, expect a breakthrough shortly after the completion of its formation. At this moment, volatility shrinks the strongest, and the market is ready for a new surge of activity.
Common Take Profit is installed in the depth of the triangle model. Suppose that the distance from the highest to the lowest point is 200 points. Take profit is set to equal or slightly less than this value.
Triangles are technical models of breakdown. Therefore, if there is no fundamental reason to keep the position, it is better to close the position if the bearish breakdown did not occur.
You should also use no more than ¼ of the total length of the triangle to set the validity period of the order. For example, if a triangle takes 8 days, this means that the expectation of the breakthrough is no more than 2 days.
During the descending triangle trading, you can use postponed orders. They can be placed below the level of support (the lower line of the triangle).
With other graphic analysis models you can meet
The continuation models usually mean that the price range reflected in the chart is no more than a pause in the development of the dominant trend and that the direction of the trend will remain the same after their completion.
This is exactly what they differ from the models reflecting the reversal (fracture) of the main trend.
Another criterion of differences between the models of reversal and continue the trend is the duration of their formation. The construction of tendencies of the reversal usually takes more time. The continuation models are less long.
Triangles.
Triangles are customary to classify as a symmetrical, ascending, as well as an expanding triangle and diamond formation or a diamond.
The ascending triangle is considered a bull model, and the descending triangle is bearish. Both triangles are ascending and downward - differ significantly from symmetric. Regardless of which stage in the trend, they are formed, these models are very clearly predicted by the market situation.
Unlike them, a symmetric triangle is a neutral model. This does not mean, however, that with a symmetric triangle cannot be predicted by the development of market dynamics. On the contrary, since it belongs to the models of continuing the trend, the analyst can determine the direction of the previous trend, and then make quite a logical conclusion that she continues.
They argue that due to the lack of a symmetric triangle of unambiguous belonging to bovine or bear models, it is deprived of prognostic value. This statement is not entirely true, since this type of triangle usually indicates the renewal of the tendency after a pause. Thus, it is obvious that the symmetric triangle is still able to issue a reliable forecast.
Symmetrical triangle.
As a rule, a model to continue the trend. It marks a pause in an already existing trend, after which the trend is resumed. Although in the general case a symmetric triangle can be both a continuation figure and a turning figure. The direction of market movement is usually determined by the direction of price breakthrough beyond the figure.
Fig.1. An example of a symmetric triangle on the upstream market. The model is considered complete when the closure price is fixed outside of any of two lines - support or resistance forming a triangle figure. The vertical line on the left is the base of the model, and the point on the right, where the line is converged.
The minimum requirement for each triangle is the presence of four reference points. For the trend line, as we remember, two points always need. Thus, in order to draw two converging lines, each of them must pass at least two points.
There are two ways to measure a symmetric triangle. One consists in measuring the height of the base (A-B) and the projection of this distance vertically from the breakthrough point with or from the vertex. Another way is to projections up the line parallel to the bottom line of the model from the top of the base (point A). For example, the "head-shoulders" model for the top of the market.
Rising triangle.
The top side of the triangle is located horizontally, and the bottom rises up. This model means that buyers exhibit greater activity than sellers. Such a model is considered to be bullish and usually ends up the price breakthrough beyond the top line.
Fig.2. Rising triangle. The model is considered completed when a significant output of the closing price is beyond the resistance line. The breakthrough should accompany a sharp increase in volume. The upper line of resistance turns into support level in subsequent price drops. The minimum price benchmark is determined by measuring the height of the triangle (AB) and projection of this distance up from the breakthrough point of S.
Ascending and downward triangles are a variety of symmetric, however, have other prognostic functions. Note that for the ascending triangle the resistance line that limits the price range from above is horizontally, and the support line rises upwards. This model means that buyers exhibit greater activity than sellers. Such a model is considered to be bullish and usually ends up the price breakthrough beyond the top line.
The measurement method for the ascending triangle is quite simple. Measure the height of the model in the widest part and proper the resulting distance up from the breakthrough point. This is a point for determining the minimum price orientation.
Downward triangle.
The descent triangle model is a mirror image of an ascending triangle and is usually considered a bear model. This model means that sellers exhibit more activity than buyers, and as a rule ends with a further drop in prices.
Fig.3. Downward triangle. The model is considered to be completed in the breakthrough the cost of closing the lower horizontal line. To measure, it is necessary to determine the height of the triangle (A-B), and then properly dig it from the breakthrough point (point C).
When considering triangles, pay attention to the time of their formation. Usually the triangle is considered an intermediate model, since it is formed within one to three months (for day-scale graphs). The triangle that keeps less than a month is most likely, is not a triangle, but a different model, for example, a pennal that we will consider below. Triangles sometimes appear on long-term price charts, but they are still more typical for day charts.
Expanding triangle.
All models of the triangles, which we viewed to the present, were formed inside the convergent lines. The expanding triangle is built on the contrary. In addition, in the triangular models of other types as the amount of price fluctuations decreases, the volume is reduced. In the case of an expanding triangle, the volume increases along with the increase in price fluctuations. This suggests that the market becomes uncontrollable; The actions of traders are subject to emotions rather than common sense. This model indicates a very high activity in the general public market, so it often appears at the end of the final phase of the main trend, that is, on top or at the foot of the market. Thus, the expanding triangle is still usually a reversal model.
Fig.4. An example of an expanding triangle. It is usually formed during a fracture of the main trend and differs in the above three rising peaks and two lowered downs. The model is completed with the intersection of the second recession level. In the process of forming such a model, the direction of conclusion of transactions is unclear. Fortunately, she is relatively rare. For a bear market, the picture will be symmetric.
This model also contradicts us the regularities of the development of the trend, in which the breakthrough of the level of the previous peak usually indicates the resumption of an upward trend, while the breakthrough of the level of the previous recession signals the beginning or continuation of the downward trend. A trader that uses breakthroughs up and down as signals to action may encounter a number of false signals.
In the example above, the model completes and receives a signal about the start of the main descending trend, when the price movement from the third peak crosses the level of the second downturn (point 6). To minimize false signals, various filters are used at similar intersections. Since the model has three upper and two lower extremum, it is sometimes called the five-point model of the trend fracture. After the admission of a bearish signal, which finishes this model of the vertex, can be observed a return price upwards, constituting up to 50% of the previous segment of the price drop, after which the bear is resumed.
The expanding triangle is a relatively rare model, which, if arising, then, as a rule, on the eve of the fracture of the main trend. For a bull market, it resembles an expanding triangle with three consistently increasing upper and two lowered lower extremums. The expansion of price fluctuations is accompanied by a gradual increase in trading activity. This formation is completed when crossing the second recession level, which follows after the third peak market achievement.
Diamond or Diamond formation
Another relatively rare model of reversal type. The two different triangle models in itself is expanding and symmetrical. From the figure it is seen that the first half of the formation has the outline of the expanding triangle, the second is symmetrical. The volume dynamics in general corresponds to the price: in the first half of the formation, the volume increases, and then, as price fluctuations decreased by the second half, decreases.
Lines that limit the figure are first diverged, and then converge and form a graphic pattern resembling diamond. Hence the model name. Most often, it is a model of a tendency fracture, and only occasionally a model of continuing the trend. The diamond model is completed by the upward support of the support line in the second half of education, and the growth of trade activity usually occurs.
Fig.5. An example of diamond. This is a fracture model, which is formed on top of the market. First, it resembles expanding, then symmetrical triangle. The model is completed with the intersection of the lower, ascending line of the trend.
The method of measurement using the diamond model is reminiscent of the already described methods for measuring the triangle models. The distance is measured strictly vertically in the widest part of the model, and then projected down from the breakthrough point. Sometimes there is a return price of prices, reaching the lower line of resistance, after which the downward trend is resumed.
Flag and pennant.
Models flag and pennant marvel short pauses in a dynamically developing trend. The formation of these models on the chart should precede the steep and almost direct line of price movement. They denote the markets that in their development up or downhill as it were to overtake themselves and therefore must stop and prey before continuing the movement in the same direction.
Flags and pennants belong to the most reliable models of continued trend.
The flag resembles a parallelogram or a rectangle, limited to two lines with a slope from the movement of the prevailing trend. With a descending trend, the flag must be slightly directed upwards.
The pennant model can be determined by two converging lines that limit the shape, and a more horizontal location. Pennant resembles a small symmetrical triangle.
Fig.6. Example of a bovine flag. The model usually appears after a sharp price movement and marks a short pause in the development of the trend. The direction of the flag is opposite to the direction of the price trend. During its formation, the volume of trade decreases, and then, in the breakthrough of the trend line, increases. Such a model usually appears in the middle of the price movement.
Fig.7. Bovine pennant. It resembles a small symmetric triangle, but its duration does not exceed three weeks. Such a model is formed with a small amount. The price movement after its completion should repeat the distance traveled to the price before the model appears.
Both models are formed against the background of a gradual significance decline in trade. Both models are relatively short-lived and end for one to three weeks (for day-scale graphs). Completion and the other model occurs when the resistance line is intersected, which limits the figure from above during an upward trend. A breakthrough of support lines that limit the figure below indicates the resumption of a downward trend. In both cases, the breakthrough of analytical lines should be accompanied by an increase in trade.
Measuring methods for both models are almost similar. Figuratively speaking, the flag and pennant model "take off from the flagpole to half the mast length." Under the "flagpole" implies a sharp rise or decline in the model. "Half of the Mast Length" suggests that similar small models of continuing trends usually arise approximately in the middle of the movement. In general, the price movement after the resumption of the trend will cover the distance equal to the length of the "flagpole" or the length of the price move preceding the formation of the model.
More precisely, measure the length of the prior stroke of the price from the point of the initial breakthrough, that is, from the point in which the new trend signal appeared. The segment equal to the length of the preceding vertical movement is projected from the breakthrough point of the flag or pennant and indicates the goals of the market.
Once again we call the most important features inherent in the models flag and pennant.
1. The emergence of such models is preceded by a sharp movement of prices in the form of an almost straight line, accompanied by a significant amount of trade.
2. Then the pause comes, and with a small price, it is set to approximately one level within one to three weeks.
3. The trend is resumed with a sharp increase in trade activity.
4. Both models are formed approximately in the middle of the price movement.
5. Pennant has outlines similar to a small horizontal symmetric triangle.
6. The flag resembles a small parallelogram located with a slope against the movement of the dominant trend.
Model Wedge.
In the form and duration of the formation, the wedge model resembles a symmetric triangle. Like the model, a symmetric triangle, the wedge is easily recognizable in two lines converging in its top, but the wedge is distinguished by a significant bias up or down by oboi lines forming a figure. As a rule, the wedge is built against the direction of the movement of the dominant trend. Wedge, directed down, is considered a bull model, and a wedge awarded up - bearish.
Fig.8. Example of a bovine wedge aimed down. The model is formed by two converging lines and is directed down, opposite to the development of the dominant trend.
Fig.9. An example of a bear wedge. Bearing wedge is directed up against the direction of the dominant descending trend.
The wedges are most often formed during the development of an existing trend and, as a rule, are models to continue the trend. However, sometimes, very rarely, they can also be formed on top or at the base of the market, signaling about the imminent turning trend. However, this is very rare.
Regardless of the place of the formation of this model - in the middle or at the end of the segment of the price movement - it is always necessary to be guided by the rule, according to which the wedge, directed upwards, is a bear model, and the wedge aimed down, the bull.
As a rule, such a model before breaking time to pass two thirds of the distance to its vertices, and sometimes even reaches it (the ability to pass the entire path to the top also distinguishes it from a symmetric triangle). As the wedge is found, the volume should decrease, and then, in a breakthrough, it is increased. With a downward trend, the wedge is formed faster than with ascending.
The above material is a summary of the relevant sections of the book: John J. Murphy. Technical analysis of futures markets: theory and practice. - M.: Sokol, 1996.