Formations
Formations are patterns formed by a stocks chart that indicate whether the stock shows a probability of moving either up or down.
Reading formations
While formations can sometimes be seen by reading a standard line chart of a stock, formations are typically identified using candlestick charts. Candlestick charts use 'candles' to give more information on a time period of a chart. Charts can be changed to have candles represent different amounts of time, and give short-term or long-term indications of movement. How to read a candle:
Bullish formations
Flag/Pennant
Following a spike, a stock will start 'waving' up and down before a breakout.
Rounding Bottom
Similar to a cup and handle, although a rounding bottom will continue its uptrend typically coinciding with an increase in volume.
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Ascending Triangle
As support draws closer to a line of resistance, an ascending triangle will form before a breakout over resistance.
Cup & Handle
After a long reversal where the stock returns to around it's price before the downtrend (the cup), a stock will hold or consolidate for a period of time (the handle) before a breakout.
Double Bottom
Following a downtrend, a stock will hit the same line of support and recover before reversing.
Bearish formations
Flag/Pennant
A flag/pennant can also happen following a sudden drop in price, which is a bearish flag and typically leads to further downtrend.
Head & Shoulders
Similar to a double top, only with a 'head' between the two tops.
Double Top
Following an uptrend, a stock will hit the same line of resistance twice and not be able to breakthrough.