Methods of unambiguous identification of graphic figures

The main problem in technical analysis is the fact that in real life classical figures of reversal or continuation of trend are very rare on charts. Moreover as a rule when it becomes clear that this is a pattern of reversal or continuation of trend in front of You it is too late to do anything. Recommendations given below will help You to react more promptly to appearing of graphic patterns not thinking specially what particular pattern you see.

A break of a trendline is the basis if each signal in analysis of graphic patterns. Let’s draw a line using the last two highs. We will call it the «upper line». Next we will draw one more line using the last two bottoms and we’ll call it the «lower line».

Four cases are possible:

• Both lines are directed upwards. It means the trend is upward.
• Both lines are directed downwards. It means the trend is downward.
• The upper line is directed upwards and the lower one is directed downwards. The situation is unclear.
• The upper line is directed downwards and the lower line is directed upwards.
• In the last case (the upper line is directed downwards and the lower one is directed upwards) some graphi pattern is forming in the market. What pattern? How is it called? Is it a reversal pattern or a pattern of continuation of trend?

Answers to these questions are only of curious nature. We will get practical use from such a construction when a break of the upper or lower line occurs. After that we open a position in the direction of the break. Only after one of the lines is broken you are able to answer the questions mentioned above (except for the name of the pattern which isn’t important taking into consideration the fact that classical patterns appear on charts very rarely).

The conclusions will become more valuable if they are confirmed by bear convergence/bull divergence on oscillators.

We’ll give an example. We’ll suppose that the trend was upward and the fourth variant formed, then:

• if the upper line was broken a pattern of continuation of trend formed.
• if the lower line was broken a reversal pattern formed.