1. Head and shoulders reversal pattern
The head-and-shoulders pattern is considered to be one of the most reliable major reversal patterns , and it can be divided into two types: the head-and-shoulders top pattern and the head-and-shoulders bottom pattern.
1.1 Head and shoulders pattern
The head-and-shoulders pattern is a typical trend reversal pattern, and it is a bearish pattern at the end of the rising market. The graph is formed by the left shoulder, head, right shoulder and neckline. The price or index continued to rise, the trading volume was greatly enlarged and then fell back to consolidate, forming the first peak and trough. Investors who missed the rising market bought and pushed up the price, and broke through the first peak and trough position to hit a new high, but the trading volume did not see Continuously enlarged, the price or index was suppressed by profit taking and then pulled back to form the second peak and valley (head), and then fell back to the low point of the first decline and rose again stimulated by low-level buying, but rebounded to the first peak and valley Nearby, it turned around and fell below the neckline support formed by the connection between the first and second lower low points, the third peak and valley formed, and the head and shoulders top pattern was formed.
When the pattern is formed, the price or index declines by the vertical height between the highest point and the neckline. The opposite of the head and shoulders top is the head and shoulders bottom pattern.
Morphological points:
(1) During the formation of the head-and-shoulders top pattern, there must be trading volume coordination when the third top forms a rebound.
(2) After the head-and-shoulders top falls below the neckline, there may be a temporary rebound and pullback. Generally, it is blocked after the pullback to the neckline. It should not break through the neckline support upwards, otherwise it will be a failed head-shoulders top pattern.
(3) Once the head-and-shoulders pattern is confirmed, most of the declines will be greater than the theoretical decline.
(4) Generally speaking, the head-and-shoulders pattern is the period of the main shipment, the pattern is obvious, and it takes a long time to complete.
Operating strategy:
During the formation of the head-and-shoulders top pattern, when the price or index forms a head and falls below the upward trend line, it is the first selling point; when the price or index falls below the neckline support position, it is the second selling point; after the stock price breaks through, there is a back-drawing neckline Resistance is the third selling point.
1.2 Head and shoulders pattern
The head-and-shoulders pattern is also a typical trend reversal pattern. It is a bullish pattern that appears at the end of a market decline. The graph is formed by the left shoulder, bottom, right shoulder and neckline. The price or index rebounded after a sharp decline, forming the first trough, but the rebound was blocked and fell back again, falling below the previous low point, and then rebounded again to form the second trough. However, the rebound encountered the resistance of the first rebound high point and fell again. The price or index fell to the first low point and rebounded again, forming the third trough. The neckline resistance formed by the rebound link, the formation of the head and shoulders bottom pattern.
When the pattern is formed, the price or index reversal height is the vertical height between the neckline and the lowest point. A head and shoulders bottom is the opposite of a head and shoulders top.
Morphological points:
(1) During the formation of the head-and-shoulders bottom pattern, there must be trading volume coordination when the third bottom forms a rebound.
(2) After the head-and-shoulders bottom rises above the neckline, there may be a temporary drop, but it should not fall below the neckline support, otherwise it will be a failed head-shoulders bottom pattern.
(3) Once the head-and-shoulders bottom pattern is confirmed, most of the gains will be greater than the theoretical gains.
(4) Generally speaking, the head-and-shoulders bottom pattern is the period for the main force to build positions, and the pattern is relatively flat and takes a long time to complete.
Operating strategy:
During the formation of the head-and-shoulders bottom pattern, the first buying point is when the price or index breaks through the downward trend line of the current round; when the neckline of the head-and-shoulders bottom breaks through, it is the second buying signal; when the stock price pulls back to the neckline position, it is the third buying point At this time, although the stock price has risen by a certain extent compared with the lowest point, the upward trend has only just begun, and investors who have not yet bought should continue to chase in.
2. Triple top and triple bottom
2.1 Triple top pattern
Triple Top (Triple Top) is also known as the Three Heads. It is a turning chart pattern formed by three similar highs, which usually appears in rising market conditions. After the price or index rose for a period of time, the investment began to take profits, and the market fell back from the first peak under this selling pressure; when it fell back to a certain area, some investors who were optimistic about the future market were bought, so the market It rises again, but when the price or index rises to the vicinity of the previous peak, it falls again under the selling pressure of some lightening orders; when it returns to the vicinity of the previous low, buying orders rush in again, pulling the price or index up, However, due to the second resistance near the previous high point, investors once again reduced their positions and sold when they were close to the previous two high points, and the price or index gradually fell to the vicinity of the previous two low points (that is, the neckline). Many investors reduced their positions and sold, the price or index fell below the neckline, and a triple top pattern was formed. The more typical triple top usually appears in a short period of time and breaks through the support line.
The triple top pattern is the opposite of the triple bottom pattern.
The difference between a triple top and a head-and-shoulders top is that the second top of the head-and-shoulders top is higher than the first and third tops; while the three tops of the triple top are basically on the same horizontal line.
Morphological points:
(1) The distance and time between the peaks of the triple top do not have to be equal, and the bottom of the triple top does not have to be formed at the same price.
(2) The prices of the three vertices do not have to be completely equal, as long as they are close to each other.
(3) The third top of the triple top, the trading volume is very small, which shows signs of decline.
(4) Theoretically speaking, the wider the top of the triple top, the stronger the strength.
Operating strategy:
(1) When it falls below 3% of the neckline, the pattern can be established and a selling strategy can be adopted.
(2) The minimum price drop is estimated to be about the vertical distance from the head to the neckline.
2.2 Triple bottom pattern
The triple bottom is the reflection of the triple top pattern, formed by three similar lows in a falling market.
After a long-term decline in price or index, as the trading volume gradually shrinks, the rate of decline slows down and begins to rebound. The rebound stops at a certain price and falls, but stops falling when it falls near the previous low point, and then rebounds again. , when it rebounded to the previous high point, it encountered resistance and fell back again. When it returned to the vicinity of the previous two stops, the trading volume increased and the price began to rise, and broke through the previous two high points (neckline) in one fell swoop. A triple bottom pattern is formed.
Compared with the triple top, the triple bottom pattern usually takes several months and breaks through the resistance line to be confirmed as a triple bottom pattern.
The difference between the triple bottom and the head-and-shoulders bottom is that the second bottom of the head-shoulders bottom is lower than the first and third bottoms; while the three bottoms of the triple bottom are basically on the same horizontal line.
The rising strength of the triple bottom mainly depends on the following factors:
(1) When the stock price rises from the third bottom of the triple bottom, whether the trading volume can continue to increase moderately.
(2) Whether the trading volume can be rapidly enlarged at the moment when the stock price breaks through the neckline.
(3) The distance from the low point of the triple bottom to the neckline. The farther the distance, the stronger the upside after the formation.
(4) The hovering time of the stock price at the bottom, usually the longer the stock price hovers at the bottom, the greater the strength of its rise.
3. Double top and double bottom
3.1 Double top pattern
Double top, also known as "double top" or "M" head, is one of the more common reversal patterns in the K-line chart. It is composed of two relatively similar high points. Its shape is similar to the English letter "M", so named.
During the continuous rise of the price or index, when it rises to a certain level, the trading volume increases significantly, and the price or index starts to turn around and fall; when it falls to a certain position, the price or index rebounds upward again, but the trading volume is higher than the first peak. After rebounding to the vicinity of the previous high, it fell for the second time and fell below the low point of the first fall. The price movement trajectory resembles an M, and a double top is formed.
As shown in the figure, the price continued to rise to point B and fell back from a high point, stabilized and rebounded at point C, rebounded around point D, was unable to turn down, and then fell below the neckline support at point E, forming a double top pattern.
The shape of the double top is like two mountains connected, appearing at the top of the price, reflecting the bearish market outlook. If the price falls below the previous support line (neckline), it will fall more rapidly, and the support line will thus change into a resistance line. If the price or index rebounds again and is blocked at the neckline, this is a standard double-top pattern.
Morphological points:
(1) The two highest points of a double top are not necessarily at the same height, and a difference of 3% is generally acceptable. Generally speaking, the second head may be slightly higher than the first head, which means that in the process of falling and rebounding, there are promising funds trying to further expand the rising height, but due to the uncoordinated trading volume, the main force cannot make the stock price rise further. After more than 3% of the distance from the first peak, turn around and go down. If the second peak exceeds 3%, more long-term funds will enter the market, and the double-top pattern will evolve into an adjustment on the way up.
(2) When the first head is formed, the low point of its pullback is about 10%-20% of the first high point.
(3) Sometimes the double-top pattern is not necessarily a reversal signal. If it does not fall below the neckline support for a long time, it may evolve into a consolidation pattern. This needs to be determined by the time difference between the two peaks, the greater the time interval, the higher the effectiveness. Generally, it is more common for the interval between the formation of two high points to exceed one month, but if the interval between the double tops of the daily line exceeds half a year, its judgment value is very small.
(4) The two peaks formed by the double top have obvious high volume cooperation, and the volume of these two peaks will also be sharp and prominent, forming two peaks in the volume histogram. However, the trading volume at the second peak shrank significantly compared with the first one, reflecting that the purchasing power of the market was weakening. If it is enlarged year-on-year, the double-top pattern may fail.
(5) Usually two peaks are formed, and the double top pattern can only be announced after the stock price effectively falls below the neckline. After that, the stock price will have a short-term retracement action, but it will encounter the neckline of resistance. At the same time, the retracement does not require the cooperation of trading volume.
(6) The method of measuring the minimum decline in the double top pattern is the vertical distance between the neckline and the highest point of the double top. The stock price decline in the market outlook is at least this theoretical decline.
(7) Generally speaking, the decline of the double top is larger than the theoretical minimum measurement decline.
3.2 Double bottom pattern
The double bottom shape is also called W bottom because it looks like the English letter W. It is a trend graph formed when the price falls to the same low point twice in a certain period of time. It usually appears at the end of the falling market and is the most important Bullish reversal pattern. The price or index stabilized at a certain position after a continuous decline, and the buying of bottoms pushed the rebound to rise. However, after rebounding to a certain height, it fell back to the previous low point due to the pressure of profit taking. Turn around again and break through the high point of the previous rebound, forming a double bottom pattern. In theory, the reversal height of a double bottom pattern will be a pattern height, which is the vertical height between the lowest price point and the neckline.
The opposite of the double bottom pattern is the double top pattern.
Morphological points:
(1) Most of the double-bottom patterns in reality have two low points that are not commensurate. In this case, the pattern is also valid, but the pattern reversal effect is slightly different.
(2) The process of forming the second bottom and breaking through the neckline must be coordinated with the trading volume. If the volume cannot be enlarged to follow up, the reversal will be greatly reduced, or there may be a risk of attracting more.
(3) The longer the double bottom pattern is built, the longer the market outlook effect will be.
(4) If there are technical indicators such as MACD and KDJ in the formation process of the double bottom pattern, the effect will be better.
(5) After breaking through the strong line, if the price or index falls again, the strong line will become a support.
Operating strategy:
The double bottom (W bottom) pattern is a strong bullish reversal pattern, and the formation of the pattern must be effectively broken through the neckline resistance level. After the double bottom (W bottom) pattern is confirmed, you can buy (do long).
4. Arc top and arc bottom
4.1 Shape of arc top
Arc top refers to the arc shape formed by the K line at the top.The shape of the arc top is relatively rare, and its formation process is roughly as follows: After maintaining a rising trend for a period of time, the strength of the long side gradually weakens, and it is difficult to maintain the original purchasing power. The rising trend eases, while the short side strengthens. Although the top continues to rise, it quickly falls back every time there is a slight rebound. First, a new high point appears, and then the point of fall is slightly lower than the previous low point, linking the short-term high points of the K line to form a circular arc top shape. During the formation of the arc top, the long and short forces are relatively balanced, and the K-line maintains a static form of platform arrangement. Once the strength of the short side exceeds that of the long side, it will start to fall back, and the form will be established when it falls below the starting point of the arc.
The round top pattern represents a very flat, gradual change in trend. Volume at the top shrinks as the market gradually turns. Finally, when the new price direction takes the initiative, it gradually increases accordingly.
The opposite of the arc top pattern is the arc bottom pattern.
Morphological points:
(1) During the formation of the arc top, the stock price fluctuated little, showing a pattern of relatively narrow fluctuations.
(2) During the formation of the arc top shape, the trading volume also presents an arc state, but the shape is opposite.
Operating strategy:
(1) If the price or index forms an arc top shape at a high level after a long period of sharp rise, it is better to decisively sell and wait and see;
(2) If the price or index shows a round top shape during the rebound at the beginning of the decline or during the decline, it should also be decisively out;
(3) If the price or index starts to fluctuate and rise after a long period of sharp decline, and a circular top shape appears when the increase is not large, short-term investors can reduce their positions, and medium and long-term investors can hold positions.
4.2 Shape of arc bottom
The arc bottom shape mostly appears in the price bottom area, which is a typical feature of the extremely weak market. The formation process is roughly as follows: After a long-term decline in the price or index, the selling pressure of the sellers gradually disappears, and the short side is basically released. However, due to the long-term decline, the market is cautious in buying and cannot rise immediately. It can only stay at the bottom for a long-term rest. stalemate. As the bottom-hunting buying continues to increase, the center of gravity continues to move up and break through the neckline resistance, forming an arc bottom shape.
The arc bottom pattern looks like a rounded bottom. Sometimes the pattern will contain an extended U shape and a consolidation period of 1 to 2 weeks, making the pattern look like a coffee cup with a handle on the right side. It is the famous "William O'Neill cup-and-handle pattern", which is a sign of an underlying uptrend.
The opposite of the arc bottom pattern is the arc top pattern.
Morphological points:
(1) During the formation of the arc bottom shape, the stock price fluctuates little.
(2) Generally speaking, during the formation of the arc bottom, the trading volume remains low. If there is a heavy volume, it may be the main attraction.
(3) The upward breakthrough of the neckline must be accompanied by an increase in trading volume, and sometimes the circular bottom form may be completed in the form of a gap break.
Operating strategy:
(1) The shape of the arc bottom is easy to confirm, and it is a very reliable bottom reversal shape. After the left half is completed, there is a slight rise and the trading volume is moderately enlarged to form a right half of the arc. You can intervene in light positions; You can increase your position when you break through;
(2) When the price or index fluctuates repeatedly at a low level to form a circular bottom after a sharp drop, it is an excellent opportunity, and you must dare to follow up;
(3) If the arc bottom shape is formed at a relatively high position, at this time, it should be noted that if the intervention is an operation of chasing high, it can only be treated as a short-term operation.
5. V-shaped top and V-shaped bottom
5.1 V-shaped top
V-shaped top is also called single-headed spire, which means that after the price or index has gone through a continuous rapid rise, a sudden factor reverses the entire trend, and a very sharp turning point is formed at the top accompanied by a large trading volume. Generally, it takes two or three On the trading day, the price or index then falls at the same speed as when it rose, and there is a near-vertical sharp drop, falling rapidly from the high point to near the bottom point, and the trading volume gradually decreases. The entire moving track is like an upside-down English letter V (so Also known as an inverted V reversal), a V top formation forms. The V-shaped top pattern is opposite to the V-shaped bottom pattern, and the meaning it represents is also opposite.
Morphological points:
(1) V-shaped tops often appear in the late stage of the rising market or in an out-of-control bull market environment, and the market rose too violently in the early stage;
(2) Once the V-shaped top is formed, it will reverse more violently than the V-shaped bottom without any obvious signs in advance;
(3) On the day when the V-shaped top reversal is formed, the daily K-line often forms cross stars, Yin lines with long upper and lower shadow lines or big Yin lines, etc., occasionally accompanied by island-shaped reversal patterns.
Operating strategy:
The V-shaped top has no clear buying and selling point, and often appears in the high price area. After the price or index rises sharply, the volume stagnates. In the early stage of the fall, it is a long-term decline. Investors should leave the market decisively when such a signal appears; once the V-shaped top The turning point is unstoppable, and it is a top form with great lethality. If it can be judged in time, it can effectively avoid high position lock-in. There is no clear measure of the decline in the V-shaped top, but it will generally return to the original starting point.
5.2 V-shaped bottom
V-shaped bottom, also known as V-shaped reversal, is a relatively common and extremely powerful reversal pattern in actual combat. It often appears when the market fluctuates violently. There is only one low point or high point in the bottom or top area of the price, and then As long as the original running trend is changed, the stock price shows a drastic change in the opposite direction.
The formation process of this pattern is roughly as follows: the price or index fell steadily and continuously, and then fell rapidly, and the trading volume increased. After falling to a certain low point, the decline was suddenly reversed, and the price or index turned to rise sharply. Immediately and completely control the market, the rising speed is the same as the previous falling speed, and all lost ground is recovered in almost the same time; therefore, the stock price moves like a V-shaped trajectory, and the V-shaped bottom is formed. A V-shaped trend is a reversal pattern, indicating that the past trend has reversed.
Morphological points:
(1) The V-shaped bottom trend must have obvious trading volume cooperation at the turning point, forming a V-shape on the graph;
(2) When the stock price breaks through the top of the hovering area of the V-shaped bottom, it must be accompanied by an increase in trading volume, and when it falls below the hovering bottom of the V-shaped bottom, there is no need for an increase in trading volume;
(3) On the day when the V-shaped bottom reversal is formed, the daily K-line often forms a cross star, a Yang line with a long upper and lower shadow line or a big Yang line.
Operating strategy:
When the V-shaped bottom is formed, investors should dare to enter the market to buy bottoms. If they are afraid of traps, they can intervene with light positions first. If they make a wrong judgment, they should stop the loss and get out. The greater the decline in the V-shaped bottom in the early stage, the greater the room for rising in the future market.
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