Interpretation of Price patterns

rahulg77 · #1 23rd June 2006, 05:43 PM

Dear Traderji and other members,

Going through the charts many a times you come with a situation of how to draw a pattern cause many options are seen. Below I am attaching two files of Tata steel. In one I have drawn a Wedge and on the same time frame I have drawn a ascending triangle. Now which one should we take for our study. If we take it as a wedge...we also see falling volume with increase in price. This is Formed during a down trend. Hence could be bearish.

Now if we take it as a right angled triangle. In this formation volume should decline as the formation takes place(which is normal and is happening)and then the volume should increase on break out on either side.

which would make a more valid pattern. Also if you see after such a fall, most of the shares are moving in tandem to the market, so many scripts are showing similiar patterns. So would it not be advisable to use patterns as such a stage.

Looking forward to participation of all members.

Rgds

Rahul

aca_trader · #2 24th June 2006, 12:40 AM

So far as my knowledge goes, A right angled triangle needs alteast one leg of the range, namely, high or leg to continuously test the horizontal base of the triangle. It usually forms when the range starts narrowing.Chart of adani exports is attached for your kind perusal.

Hence, in my opinion, no Right Angled Triangle has formed in Tata Steel so far, if the horizontal line has been drawn at Rs. 500 level.

Looking forward to a validation of the concepts by members.

Best Regards,
--Ashish

AJAY · #3 24th June 2006, 11:54 AM

Dear Rahul,
Here infact the patterns what you are talking about are not at all valid patterns according to me. For a valid pattern to form, the time required to form it is also important. The patterns what you are talking about are not in the valid time frame. Patterns should strike to the eye the moment we look at the chart. We should not search for them. If we start searching for them, we'll see many patterns on every chart.

And besides this I suggest you to analyse what is a pattern and how it forms? And also develop insight into which action resulted in the formation of a pattern and what is the after affect for that action. Unable to explain in detail because of time constraints. Hope you received what I am suggesting. And developing such insight is not that difficult.

All the very best
AJAY

rahulg77 · #4 24th June 2006, 04:38 PM

Thank you ashish and ajay,

I see what u are trying to say. I see where I might have made a mistake. More insights would be helpful though.

Rahul

Agilent · #5 24th June 2006, 11:13 PM

Rahul
What you are seeing is neither a triangle, nor a wedge, but a variant of wedge classified as a Pennant.

That's because typically Wedges and Triangles take longer than 3 weeks to develop, and the pattern you showed has run only 10 days

I would add that pennants (and their cousin 'flags') are consoldation patterns , as against reversal patterns. So chances are that TISCO will resume its downward trend ... note how the previous rally from 22-29 May (clearly a pennant) preceded the resumption of the downtrend around 1 June

Disclaimer : exceptions prove rules ... so my prediction could easily turn wrong...heheh

AGILENT

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