Chart Pattern Analysis
figUre 13.33 Ascending Triangles as Reversal Formations on the Daily Chart of S&P
500 Large Cap Index.
Courtesy of Stockcharts.comIn Figure 13.33, we see various descending triangles forming around Black
Monday in October 1987. Notice the bearish descending triangle formation just
prior to the market collapse. It met its target before opening lower in the next
trading session.broadening formations
Broadening formations are also referred to as expanding triangles or mega-
phonic patterns and are characterized by successively higher peaks and lower
troughs. Broadening formations are regarded as reversal formations. At mar-
ket tops they represent bearish reversal formations and at market bottoms
they are regarded as bullish reversal formations. The broadening formation is
usually a precursor of increasing volatility in the markets. Stoplosses are nor-
mally taken out when attempting to trade support or resistance levels during a
price expansion. The pattern is complete once the two diverging trendlines are
established. No breakout is required for pattern completion. There is no clear
minimum target projection associated with this formation. Entries may be ini-
tiated at the retest of either trendline, with stoplosses placed slightly beyond
it. Notice the increase in volatility after a broadening formation is formed in
Figures 13.34 and 13.35.bullish and bearish flags
Bull and bear flag formations represent short‐term trend interruptions and
as such are regarded as continuation formations. The flag forms as a paral-
lelogram and it slopes slightly against the direction of the existing trend.
In uptrends it slopes downward and in downtrends it slopes upward. The
flag parallelogram is preceded by a pole that represents a short and rapid
thrust in price, and is ideally accompanied by heavy volume. The volume
should gradually subside as the flag parallelogram unfolds and increase on