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2.4 - Pattern recognition for confluency

Ascending triangle

Bullish reversal & continuation pattern

  • Higher lows each move
  • Look for hidden bullish divergence on the higher lows until the RSI comes back into convergence & look for a COMS on the RSI
  • Check if the OBV is supporting of leading the move for a vote of confidence

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Darvas Box

A neutral formation that can be bullish or bearish

  • Look for a COMS before the breakout somewhere in the box
  • RSI can show hidden bullish at the start / pre box as extra confirmation
  • Look for OBV to support a breakout

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Bull flag

  • Strong impulsive move should form the pole, then a form of consolodation, usually in the form of a channel.
  • Measure fibs from first down COMS (reversal) to top COMS (revsal) (An impulse move (zig)  is from the end of the last zag to the next zag)
  • Check if volume did NOT support the move down and DID support the move up
  • Compare larger pivot points for hidden bullish divergence
  • When you find a COMS at the end of the bull flag, look for:
    • A break through a decline
    • Low down volume
    • RSI continuation
    • Bounce off 0.382 area

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Head & Shoulders

This is a bearish reversal pattern (failure swing)

  • The left shoulder is formed on increase positive volume
  • Divergence is found from the top of the left shoulder to the top of the head
  • The head will form on lowing / flat OBV, signalling weakness in the trend.
  • The right shoulder will be formed on even lower OBV, showing weakness in the dip buyers
  • When the neck line is broken, the pattern is confirmed and there should be increasing down volume on the sell off (even lower OBV)
  • The measured move is from the neckline to the top of the head.

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Falling Wedge

  • If a wedge starts forming into a zag zone, that should be the end of the ABC
  • OBV should not support the move down and should support the move up
  • Bullish divergence off the bottom of the wedge adds a point of confluence
  • Hidden bullish divergence off the low if running into a zag zone
  • Hidden bearish could be found at the top of the wedge if not at a bottom

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