Here, we see an “M” pattern forming on a double top which is a major bearish sign. In a double bottom a “W” type pattern is formed in which we see a bullish rally to follow. If the stock is to form more humps and continue to test the resistance or support areas there will be a major move in the direction indicated. This goes along with a major move if a stock moves sideways in a basing pattern for a long time. The longer the wait, the stronger the breakout whether it is up or down.

Major moving averages can act as great supports for a stock. It can be like a magnet in the way a stock will bounce off it only to return to the moving average and bounce off it again.

On the other side of acting as a support, moving averages can also form a resistance. Once a stock has traded under a major moving, that average becomes a ceiling. This fact is especially true once the stock has fallen under its 200-day moving average. Some of the major moving averages include the 20-day, 40-day, 50-day, and 200-day moving averages. Other averages used that could be beneficial are a stock’s 10-day, 30-day, 40-day, and 100-day moving average.

This graph shows a typical setup when a stock is in good shape in an upward trend.

On the other hand, when a stock seems to trade in a sideways and orderly fashion, it is said that the stock is consolidating. The longer a stock trades in this pattern, the more powerful the breakout in which ever direction it goes. In this chart you will be able to see an example of when a stock trades in either pattern.

High wave candlesticks show very long upper and/or lower shadows. A group of high wave candlesticks may tell of a trend change.

The gravestone is another profit taking pattern for the bulls when the stock is in an uptrend. Usually following this symbol one will probably see a mob of sellers waiting anxiously to drive the stock price back down. One can see by the illustration that the stock will open and close near the lows of the day.

The “harami cross” forms when the second candlestick is a doji. Since we have a doji forming, there will be a powerful move. This move depends on what body is formed and will be an indication of what direction will follow. If the body is dark, the move will be bearish. If the body is clear, the move will be bullish. Examples of harami and harami cross patterns are shown below.

In the next graph we will take a look at “bullish engulfing” and “bearish engulfing” patterns. These patterns can also predict a trend change. This pattern consists of two candlestick bodies of opposing color in which the second body is larger and “engulfs” the previous body. Remember that these reversal patterns do not always promise a trend change. Instead, they should be viewed upon as a “look out” for price changes in the future.

This figure shows another type of reversal pattern, the “dark cloud,” in which appears at the height of an uptrend or near the top of a sideways move. Here, the first real body is clear and long while the second real body opens above the close of the first, but closes near the low of the trading range. This second move should penetrate deep into the territory that the first real body was trading in. The deeper the pullback, the more bearish of an indicator the signal becomes. On the other hand, the “bullish piercing” pattern, shows us a bullish trend reversal in which a long dark real body precedes a long white real body. This powerful reversal pattern will take place at the bottom of a downtrend.