the hAnDbook of teChniCAl AnAlysisthrough in the direction of the breakout. As far as Trader B is concerned, no fail-
ure has yet occurred as the pattern is not yet confirmed or completed, since there
is still no valid breakout. For Trader B, the pattern only failed to complete.
But one could also argue that there is no real failure as far as Trader A’s scenario
is concerned since price did move an extra one percent beyond the one percent
filter in the direction of the breakout. The question will now be the amount of
price excursion required after a valid breakout in order for a pattern to avoid
failure. Many practitioners solve this problem by requiring that a completed pat-
tern achieves its minimum one‐to‐one projected price objective or target in order
to avoid any future possibility of pattern failure.Chart patterns and scaling
The type of chart scaling employed will affect the analysis of chart patterns. This
is because chart patterns are geometrically based. As such, the construction and
subsequent angle of trendlines will vary when being expanded at the lower price
levels and compressed at higher price levels on the logarithmically scaled charts.
There will be a discrepancy in the chart pattern breakout levels between arithmeti-
cally and logarithmically scaled charts.13.3 Popular Chart Patterns
v tops and v bottoms
A V top is a formation that makes a very clear and distinctive top in the market,
which is usually accompanied by a large spike in volume, popularly referred to
as a blow off. Similarly, a V bottom is a formation that makes a very clear and
distinctive bottom in the market, which is usually accompanied by a selling cli-
max. The uptrends and downtrends associated with V tops and V bottoms are
characterized by very little trend oscillation and may even trace out a parabolic
path in some cases. The formation is usually not visually discernible until most of
the subsequent retracement is done. There is no clear way to determine pattern
completion in V tops and V bottoms. There is also no minimum price objective
associated with this pattern. The best way to catch a V top or bottom is to employ
a simple trendline violation. See Figure 13.2.
V tops and V bottoms may peak and trough respectively at:■ (^) Historical support and resistance levels
■ (^) The test of some significant trendline
■ (^) Significant Floor Trader’s Pivot Point levels
■ (^) Significant Fibonacci levels
■ (^) Important psychological prices ending with double and triple zeros
■ (^) Significant resistive and supportive confluences
Volume testing its historical highs is probably the clearest indication of a po-
tential V top or V bottom forming in the market. In Figure 13.3, we observe the
USDCAD forming a V bottom on the four‐hour chart.