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Chart Patterns Interpretation
They denominate patterns, or graphic formations, to those particular figures that can represent the prices of securities when represented in a chart.
The patterns can be of two types, attending to its prediction potential in reference to as how the quotations will evolve: tendency of continues figures and tendency of changing figures.
The tendency of continuous figures: has the capacity of predicting a continuation of the tendency that has been dominating the market until this moment, that is the case of: triangles, flags, wedges, etc.
The tendency of changing figures: is interpreted as a sign of tendency change. That is the case of: the double and triple ceiling, the double and triple floor, rounded floors and ceilings, etc.
Double and Triple Ceilings
Before a rising tendency, a double ceiling is that which has place when there is a formation of two maximum risings between which you can observe a valley.
The triple ceiling is that which has three successive maximums of prices, separated by its corresponding valley.
Interpretation:
When a price reaches its maximum level and then descends, the most logic interpretation is that the price reached results excessive for the market: there exists more selling forces than that of buying, which makes the prices to recede.
The more times that the price reaches a determined height, and doesn’t surpass it, the stronger will be the resistance to obtain it. This anticipates a market reaction that the most probable will consist of a returning to the tendency.
If the double ceiling has been formed during a long period, is very probable that the market will react with a great movement, with a diminishing of the price.
If the figure has been formed along a short time period, the market will react with small movements.
The minimum distance that a price will go after the formation of a double ceiling will be equal to the distance between the higher and lower of the valley in the figure.