Identification Guidelines
|
Characteristic |
Discussion |
|
Uptrend |
Look for price to make a straight-line
run upward with few or no pauses, often fitting inside a channel (two parallel trendlines). |
|
Reversal |
Price at the top of the inverted
V will form a one-day reversal, island reversal, or tail, usually on heavy volume. |
|
Trendline |
After the reversal, price
pierces an up-sloping trendline drawn along the price lows, confirming the trend change. |
|
Downtrend |
Price trends down, usually
at the mirror angle of the uptrend. If price climbed by 45 degrees, price will tumble following a 45 degree trend. |
|
Extension |
The extended V top is a variation
of the V top. After price reverses at the top, price forms a flag or pennant
pattern – a sideways price move that often
swings upward against the downward price trend. Once the flag completes, price
resumes the decline. |
Trading Tips
Trading an extended V top
is easier than trading a regular V top. When price breaks out of the flag or
pennant in the extended portion of the inverted
V, take a position. For downward breakouts, expect price to approach the
price
level of the start of the inverted V on the left. It may not reach the exact bottom,
so be prepared to exit early.
Example
The above figure shows an example of an extended V top chart pattern. Price
begins the advance to the summit in early June and peaks near July. A black candle
signals a reversal followed by the extension in a small congestion region that
slants upward. Once the stock pierces the bottom of this region, price tumbles,
approximating the angle at which price climbed to the V top.
Extended V Bottoms
Identification Guidelines
Many of the identification
guidelines are similar to the extended V top.
|
Characteristic |
Discussion |
|
Downtrend |
Look for price to make a straight-line
run downward with few or no pauses, often fitting inside a channel. |
|
Reversal |
Price at the bottom of the
V will form a one-day reversal, island reversal, or tail, usually on heavy volume, perhaps gapping upward. |
|
Trendline |
After the reversal, price
pierces a down-sloping trendline drawn along the price tops, confirming the trend change. |
|
Uptrend |
Price trends up, usually at
the mirror angle of the downtrend. If price dropped by 30 degrees, price will rise following a similar angle. |
|
Extension |
The extended V bottom is a
variation on the V bottom. After price reverses at the bottom, price forms a flag
or pennant pattern – a sideways price
move that often swings downward against the prevailing upward price trend. Once the
flag completes, price resumes the rise. |
Trading Tips
Trade an extended V bottom
once price exits the flag or pennant. Expect price to approach the price level of
the left side of the V (where the decline
started).
Example
The above figure shows an example of an extended V bottom chart pattern. The
decline into the pattern is unusually steep, meaning it cannot last long, and it
doesn’t. Price rebounds in V-shape and then levels out, forming the extension.
The extension appears on the chart as a descending triangle -- a flat base with
down-sloping top. The breakout from this congestion pattern is upward and that means
a powerful move up, retracing much of the drop leading into the V bottom.
|
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