Chart Patterns (Part 4) - Broadening Formation, Flags and Pennants Patterns
Technical analysis

Chart Patterns (Part 4) – Broadening Formation, Flag and Pennant Patterns

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There are certain chart patterns which are very much similar to the other ones. Some of them are discussed here.

1. Broadening formation – It is a different type of triangle pattern. It forms when the volatility of the asset rises. The prior trend leading to broadening formation could be any. In this pattern, the price moves in between two lines. The first upper line which is a resistance line is an upward sloping line with higher peaks or highs (at least three highs). Successive peaks or highs should be higher than the previous ones. The second lower line which is a support line is a downward sloping line with lower toughs or lows (at least three lows). Successive troughs or lows should be lower than the previous ones. The pattern indicates a disagreement between traders and investors. A breakout can occur in any direction either up or down and can be confirmed with heavy volume. It can be seen as the opposite of symmetrical triangle. It is more frequent and a short term pattern in comparison to the symmetrical triangle

Broadening formation

 

2. Flag PatternsThese are continuation patterns. They form after a sharp up or down price movement and this sharp price movement is known as a flag pole. After a sharp move, a pause occurs and price moves in a certain direction. In an uptrend, price moves in between two down sloping parallel lines which consist of three lower highs or peaks and three lower lows or troughs. These highs and lows form a good resistance or support for the price. The breakout occurs when the price breaks the resistance line with heavy volume and the prior trend continues to move. In downtrend price moves in between two upward sloping parallel lines which consist of three higher highs or peaks and higher lows or troughs. These highs and lows form good resistance and support for the price. The breakout occurs when the price breaks the support line with heavy volume and the prior trend continues to move. Flags are very much similar to channel patterns as in both cases price moves in between two parallel but diagonal lines but there are certain differences for example;

  • Flags slope against the ongoing trend while channels usually form in the direction of an ongoing trend.
  • Flags are short term patterns which are considered to be short corrections in the ongoing trend while channels are long term patterns which define the ongoing trend. 

Flags

(Chart courtesy of StockCharts.com)

3. Pennant Patterns – These are continuation patterns. They also form after a sharp up or down price movement and after this sharp move, a pause occurs. Price moves in between two lines. The first upper descending line is the resistance line with at least 3 highs or peaks in which successive highs should be lower than the previous ones. The second lower ascending line is the support line with at least 3 lows or troughs in which successive lows should be higher than the previous ones. Price moves in between these two lines moving towards the apex of the triangle, which is the point where highs and lows converge and price breakout in the direction of the prior trend with heavy volume. Pennants are very much similar to symmetrical triangles but there are certain difference for example; 

  • Sharp price movement before pennant’s formation.
  • Pennants are short term patterns in comparison to symmetrical triangles.
  • In pennants price move in the direction of the prior trend after breakout but it is not necessary in the case of a symmetrical triangle.

Pennant

(Chart courtesy of StockCharts.com)

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