INVESTMENT ANALYSIS

AND PORTFOLIO
MANAGEMENT

G.SriAnjaneyulu
RollNo:18L31E0014
MBA-A
 Trend Reversal Patterns

On the charts of currency rates it ’s possible to highlight

geometric models, which are
formed after the price level has reached its maximum
value in the current trend.
Recognition of these figures indicates the end of the
trend and the beginning of a new
movement.
Head and Shoulders
The Head and shoulders graphical price pattern signals the end of trend and the
following change
in direction of the asset’s price. It is typically formed in a developed uptrend.
This pattern is represented by three tops of the market price located at different levels:
two lower
tops (shoulders) aside and one highest top (head) in between. There is also a neckline
(support)
connecting pattern’s lows.
Following head and shoulders pattern formation the price
is generally believed to drop at least to its target level, calculated as
follows:
T = N – (H – N),
Where:
T – target level;
N – neckline level (initial support);
H – pattern’s head level (highest top).
Inverse Head and Shoulders

The inverse head and shoulders graphical price pattern serves as a sign of trend reversal and is
expected to be followed by change in direction of the asset’s price. It is typically formed in a
developed downtrend.

Formation
The pattern is characterized by three consecutive lows of the market price located at different
levels: two higher bottoms (shoulders) aside and one lowest bottom (head) in between. There is
also a neckline (resistance) connecting pattern’s highs.

Following inverse head and shoulders pattern formation

the price is generally believed to rise at least to its target level,
calculated as follows:
T = N + (N – H),
Where:
T – target level;
N – neckline level (initial resistance);
H – pattern’s head level (lowest bottom).
 Double Top
The double top pattern is considered a graphical price formation which precedes existing trend
reversal. It is typically
formed in an uptrend and is expected to be followed by a drop in prices, while the longer it takes
for the pattern to
be formed the more reliable it is.
Formation
The pattern is characterized by two parallel horizontal lines representing support and resistance levels which
respectively connect two most recent local highs of the price and a low, holding a certain bunch of price fluctuat
within. The price reverses twice at resistance levels under investor consideration the asset is overpriced there.

Following double top pattern formation the price is generally

believed to drop at least to its target level, calculated as follows:
T = S – H,
Where:
T – target level;
S – support level (recent local low);
H – pattern’s height (distance between support and resistance levels).
 Double Bottom
The double bottom price pattern is believed to be a sign of existing downtrend reversal. Prices are
expected to begin a rally following its formation, while the longer it takes for the pattern to be
formed the more reliable it is.
Formation
The price dynamics under the pattern is similar to the Latin latter “w”. The two most recent lows of
the price represent a strong support area where investors reversed their short positions thinking
the asset is underpriced at this level. On the other hand the most recent local high is considered to
be a resistance level.

Following double bottom pattern formation the price

is generally believed to rise at least to its target level,
calculated as follows:
T = R + H,
T – target level;
R – resistance level (recent local high);
H – pattern’s height (distance between support
and resistance levels).
 Triple Top

The triple top is a price pattern generally formed in an uptrend suggesting following reversal and a drop in
prices. It is considered more significant than the double top pattern.
Formation
The pattern is represented by three consecutive tops locates roughly at the same level and two
bottoms. Resistance and support lines connect the tops and the lows respectively. The resistance is believed
to be strong as the price reverses three times from the level where the asset is considered overpriced.

Following triple top pattern formation the price is generally

believed to drop at least to its target level, calculated as
follows:
T = S – H,
T – target level;
S – support level (recent local lows);
H – pattern’s height (distance between support and
resistance levels).
 Triple Bottom
The triple bottom price pattern it typically formed in a downtrend being a sign of a following reversal and a
rise in prices. It is considered more significant than the double bottom pattern.

The pattern is characterized by three consecutive lows locates roughly at the same level and two highs
between them. Support and resistance lines connect the lows and the tops respectively. The support is
considered to be especially strong as the price reverses three times from the level where investors believe
the asset is underpriced.
Following triple bottom pattern formation the price is
generally believed to rise at least to its target level, calculated
as follows:
T = R + H,
Where:
T – target level;
R – resistance level (recent local highs);
H – pattern’s height (distance between support and resistance levels).
T
 Forex Diamond
The brilliant graphical price pattern serves for existing trend reversal confirmation in case of its occurrence
on the chart. Traditionally it appears in an uptrend.

The pattern is characterized by four limited trend lines representing two support lines below and
two resistance levels above which respectively connect the most recent lows and highs, visually forming a
figure shaped as a brilliant or a rhomb as price fluctuations amplitude initially widens and then narrows.

Following brilliant pattern formation the price is generally believed to

fall at least to its target level, calculated as follows:
T = BP – H,
Where:
T – target level;
BP – right support breakthrough point;
H – pattern’s height (distance between pattern’s bottom and top).