There is a competition between bears and bulls on the stock exchange; the bears stand for falling and bulls for rising prices. In stock market jargon and at the level of the capital markets, such synonyms as these are often used. An example would be the doves (doves) and falcons (hawks). These synonyms each describe an expansive (low interest rate) and restrictive (high interest rate) monetary policy.
Bullish and bearish formations are very popular among market technicians because they provide information about the likelihood of a trend continuing. As a result, bullish chart formations are presented using practical examples. It makes sense to further subdivide the patterns into...
- consolidation and
- reversal formations
This is what bullish continuation formations look like
Continuation formations, as the name suggests, are patterns that indicate the continuation of trends. The simplest bullish chart formation would be the technical uptrend. This is usually confirmed by two connected lows. You get a trend channel if you connect both the lows and the highs.
Technicians say: If the lower trend line has not been broken, the trend is still intact. The lows are therefore often used by technicians to enter or buy new products.
This is what bullish consolidation formations look like
Consolidation often presents itself as a bullish flag. Bullish flags can either sideways or against the upward trend.
With flags you should pay attention to whether it is a slight consolidation or a correction. Both are consolidations, only a correction is more dynamic, because here real sales are made, whereas with a slight consolidation there are simply no buyers on the market.
As the chart above shows, the interpretation of a flag is not complete simple. This is more a matter of experience and also differs depending on the traded value.
In general, however, one can say that slight consolidations are represented by candles that have short bodies. The flags 2 and 3 therefore already have a corrective character. These consolidations are mostly traded through break-out strategies.
Another bullish consolidation formation is the bullish triangle. A technical triangle is usually similar to flags, except that in this case the volume traded decreases over time, while at the beginning of the triangle there is still some disagreement between the bulls and bears, which in turn is reflected in the larger one Fluctuation range is noticeable.
These formations are also traded using break-out strategies. Triangles can differ in size like flags. So they can also either point slightly towards or in the direction of the trend, be very wide or be very pointed. In the past, it was often found that the breakout from the triangle occurs more dynamically the more pointed a triangle becomes.
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This is how bullish reversal formations look like
continuation and Consolidation patterns are bullish if they occur in an upward trend. Reversal formations are bullish when the downtrend is still intact. The formations indicate a reversal.
Often a bullish reversal formation is evident from a bottom formation. Market technicians already see a bottom formation when a low was triggered twice but no new low could be reached. These so-called raised floors occur more frequently in the short-term area than in the medium to long-term. This makes the bottom chart clear on a 15-minute basis.
A bullish reversal formation can also occur in the form of an inverted SKS formation, i.e. shoulder-head-shoulder formation upside down. SKS formations do not have to indicate a reversal of the major trend, but at least they can point to emerging, medium-term trends, as the lower chart makes clear on a daily basis.
Descriptions of an infinite number of bullish patterns can be found in the media. As a rule, this is to be seen as side filling, because just as there are only a few market phases, there are only a few basic patterns. The differences between a bullish flag and a bullish triangle are overlapping. In both cases, however, there are consolidations. The subdivision into continuation, consolidation and reversal formations is therefore sensible.
Another method of identifying patterns could be implemented on the basis of candle patterns or candle sticks. These patterns are discussed in detail in another article.
Brokers like Stockpair offer analysis software in addition to course supply, which makes it easier to identify course formations.