When we draw aline joining all the tops of a price pattern together the line is called a Resistance Line. It is a series of highs on a chart where the market continually rejects the price thus not allowing it to go any higher. It is basically the exact opposite of the support. Many traders elect to SELL when the price reaches this point. It is our belief that the market likes to test Resistance lines more than once and we look for SELL signals after a second or third testing of this line.

profit at this level. Some traders like to sell small parcels to average out their price paid and leave the rest in hope of greater gains.

Price Patterns

We will discuss some of the patterns that form on the charts that help give a further indication of an impending Trend Reversal. Once again some of the patterns about to be discussed are very powerful and SHOULD be respected!

Head Shoulders

He head Shoulder Pattern has claim to being one of the most reliable of all chart patterns. It is usually formed at the end of an upward trend or market rally and acts as a SELL signal.

There are four main components that make up a H pattern:

The Left Shoulder

The Head

The Right Shoulder

The Neckline.

The Left Shoulder

The market looks to test higher price levels. Increasing Volumes, followed by retracement to neckline.

The Head

Market again looks to test higher ground and succeeds with setting a higher price that was set by the Left Shoulder. Large Volumes Followed by retracement to neckline.

The Right Shoulder

Once again the market looks to test higher ground but this time fails to achieve the high price set by Head.Reducing Volumes, again followed by retracement to neckline only this time there is a good chance of the Neckline being violated and the market MAY look to test Lower ground.

The Neckline.

Is a line that is drawn connecting consecutive lows. It is a line where the price bounces off and refuses to go below. It is basically the same as a support line.

Most traders who are familiar with this pattern would try to liquidate at the top of the Head or as it started to retrace towards the Neckline. If you are still holding a stock during the Right Shoulder stage it may be your last chance to liquidate before the price tests lower ground. I advise that you look to liquidate at the top of the Right Shoulder, remember you can always buy it back at a lower price.

Double TopsBottoms

This is another powerful pattern that MAY indicate that the market is looking to test Lower levels It occurs at the end of a upward trend or market rally.

Double tops basically tell us that the market has tested a price level on two occasions and on both times refused to go higher.Double bottoms are identical to double tops except they work in the opposite way and thus create a Buy signal. Double bottoms basically tell us that the market has tested a price level on two occasions and on both times refused to go Lower.

Double Tops can also come in the form of triple and quadruple tops. Volumes on the second top should be lower than the first top. If you hold a stock that exhibits a double top be ready to liquidate as there is a good chance the market will go lower.Double Bottoms can also come in the form of triple and quadruple bottoms. Volumes on the second bottom should be Greater than the first bottom. Double bottoms can give an excellent Buy signal and most Technical Traders would act on such a sign.

Triple Tops Bottoms

Triple tops basically tell us that the market has tested a price level on three occasions and on all times refused to go higher.Triple bottoms are identical to triple tops except they work in the opposite way and thus create a Buy signal. Triple bottoms basically tell us that the market has tested a price level on three occasions and on all times refused to go lower.