Using Polytrends to Identify Chart Patterns
Double tops, bottoms, and head & shoulders patterns are arguably the most important technical reversal chart patterns that traders use to assist their directional market bias. Coincidently, due to the Polytrends design, traders using the algo can use it to help them visualize patterns within any market.
What Is a Double Top?
“A double top is an extremely bearish technical reversal pattern that forms after an asset reaches a high price two consecutive times with a moderate decline between the two highs. It is confirmed once the asset’s price falls below a support level equal to the low between the two prior highs.” –Investipedia.com
What Is a Double Bottom?
A double bottom pattern is a technical analysis charting pattern that describes a change in trend and a momentum reversal from prior leading price action. It describes the drop of a stock or index, a rebound, another drop to the same or similar level as the original drop, and finally another rebound. The double bottom looks like the letter “W”. The twice-touched low is considered a support level. –Investipedia.com
Visualizing the Patterns
Polytrends do not currently specifically highlight the double top/bottom patterns; however, you can easily recognize the pattern forming by paying close attention to the swing points plotted by the algo.
Notice the highlighted red shapes, clearly indicating the patterns that I’ve drawn manually for you to help you visualize the patterns.
What Is a Head and Shoulders Pattern?
A head and shoulders pattern is a chart formation that appears as a baseline with three peaks, where the outside two are close in height and the middle is highest. In technical analysis, a head and shoulders pattern describes a specific chart formation that predicts a bullish-to-bearish trend reversal.
The head and shoulders pattern is believed to be one of the most reliable trend reversal patterns. It is one of several top patterns that signal, with varying degrees of accuracy, that an upward trend is nearing its end. –Investipedia.com
Training your eyes to recognize how Polytrends plots trend and market structure can provide tremendous value in recognizing market reversals.