Blog posts of '2025' 'May'

Chart patterns enable traders to anticipate potential trend reversals and structure their trades accordingly. One of the most reliable bullish reversal patterns is the Double Bottom. Identifying this formation early can help traders prepare for upward price movements and avoid short positions near potential market bottoms.

A Double Bottom is a bullish reversal pattern that resembles the letter “W.” It usually forms after a prolonged downtrend, signaling that selling pressure is waning and buyers may soon take control, pushing prices higher.

Anatomy of the Double Bottom Pattern

First Trough: The pattern begins with a strong downward move that reaches a low (the first trough) before bouncing upward. This low represents a support level where buyers begin to show interest.

Second Trough: After the bounce, the price retraces but fails to break significantly below the first trough, forming a second bottom. This second failure to create a new low suggests diminishing bearish strength and growing buyer confidence.

Neckline and Breakout: The high point between the two bottoms is called the neckline. A breakout occurs when the price closes above this neckline with increased volume, confirming the Double Bottom pattern and signaling a potential reversal from bearish to bullish trend.

How to Trade the Double Bottom Pattern

Entry Point

• Enter a long position when the price breaks and closes above the neckline with notable volume.
• Alternatively, wait for a retest of the neckline after the breakout. Enter when the retest holds and the price begins to rise again.
• Furthermore, you can also split your position — for example, enter 50% on the breakout and the remaining 50% after a successful neckline retest.

Target Price

Two common techniques are used to project a target:

Chart-Based Target:

• Measure the distance from the troughs to the neckline.
• Add this distance to the neckline level to project the upside target.
  
• Target = Neckline + (Neckline – Bottom)
  

Fibonacci Extension or Pivot Points:

• These tools can provide additional profit targets and help confirm resistance levels beyond the initial breakout.

Stop-Loss Placement

• Place the stop-loss just below the second trough to protect against failed breakouts.
• If entering after a retest, a tighter stop just below the neckline can be considered.
  
• Avoid overly tight stops in volatile markets to prevent getting stopped out by minor retracements.
  

Additional Tips

• Double Bottoms are most effective after a prolonged downtrend — in sideways markets, the pattern may lack reliability.
• Volume should typically decrease during the formation of the second trough and increase on the breakout above the neckline.
  
• Confirm the setup with indicators like RSI divergence (higher lows on RSI while price forms equal or lower lows) or a MACD bullish crossover.
  
• A rounded or flatter second bottom adds credibility, showing consistent buyer defence at support levels.
  

Charting Exercise: Switch to a daily chart and scan for potential Double Bottom formations. Clearly mark:

• First and second troughs
• Neckline (resistance between the two bottoms)
  
• Entry point (breakout candle)
  
• Target and stop-loss levels

In technical analysis, chart patterns often provide clues about future price direction. One such highly effective reversal pattern is the Triple Bottom. Whether you're just starting out or already have trading experience, learning to recognize and trade the triple bottom pattern can give you an edge, especially in volatile or trend-reversal conditions.

A Triple Bottom Pattern occurs after a prolonged downtrend, signaling a potential shift from bearish to bullish sentiment. It is formed when the price hits the same support level three times, failing to break below it, and then finally breaks out above the neckline (resistance level), confirming the reversal.

Support Level: This is a horizontal zone where price finds repeated buying interest. In a triple bottom, price touches this support three distinct times with roughly equal lows, indicating a strong demand zone.

Neckline (Resistance): The highs formed between each of the bottoms usually form a horizontal resistance, called the neckline. A breakout above this neckline is the key confirmation signal.

Breakout: The breakout happens when the price convincingly closes above the neckline, often with increased volume, indicating the bears have lost control and bulls are taking over.

How to Trade a Triple Bottom Pattern

Entry Point

• Enter the trade when the price closes above the neckline with strong volume.
• Look for a bullish candle that breaks the neckline and holds above it — not just a wick or intraday spike.
• A better way can be to enter 50% of your quantity at breakout and 50% after a confirmation candle.

Target Price: There are a few ways to estimate the target:

• Chart-based method:

Chart patterns enable traders to anticipate potential trend reversals and structure their trades accordingly. One of the most reliable bullish reversal patterns is the Double Bottom. Identifying this formation early can help traders prepare for upward price movements and avoid short positions near potential market bottoms.

A Double Bottom is a bullish reversal pattern that resembles the letter “W.” It usually forms after a prolonged downtrend, signalling that selling pressure is waning and buyers may soon take control, pushing prices higher.

Anatomy of the Double Bottom Pattern

First Trough: The pattern begins with a strong downward move that reaches a low (the first trough) before bouncing upward. This low represents a support level where buyers begin to show interest.

Second Trough: After the bounce, the price retraces but fails to break significantly below the first trough, forming a second bottom. This second failure to create a new low suggests diminishing bearish strength and growing buyer confidence.

Neckline and Breakout: The high point between the two bottoms is called the neckline. A breakout occurs when the price closes above this neckline with increased volume, confirming the Double Bottom pattern and signalling a potential reversal from bearish to bullish trend.

How to Trade the Double Bottom Pattern

Entry Point

• Enter a long position when the price breaks and closes above the neckline with notable volume.
• Alternatively, wait for a retest of the neckline after the breakout. Enter when the retest holds and the price begins to rise again.
• Furthermore, you can also split your position — for example, enter 50% on the breakout and the remaining 50% after a successful neckline retest.

Target Price

Two common techniques are used to project a target:

Chart-Based Target:

• Measure the distance from the troughs to the neckline.
• Add this distance to the neckline level to project the upside target.
  
• Target = Neckline + (Neckline – Bottom)
  

Fibonacci Extension or Pivot Points:

• These tools can provide additional profit targets and help confirm resistance levels beyond the initial breakout.

Stop-Loss Placement

• Place the stop-loss just below the second trough to protect against failed breakouts.
• If entering after a retest, a tighter stop just below the neckline can be considered.
• Avoid overly tight stops in volatile markets to prevent getting stopped out by minor retracements.

Additional Tips

• Double Bottoms are most effective after a prolonged downtrend — in sideways markets, the pattern may lack reliability.
• Volume should typically decrease during the formation of the second trough and increase on the breakout above the neckline.
• Confirm the setup with indicators like RSI divergence (higher lows on RSI while price forms equal or lower lows) or a MACD bullish crossover.
• A rounded or flatter second bottom adds credibility, showing consistent buyer defence at support levels.

Charting Exercise: Switch to a daily chart and scan for potential Double Bottom formations. Clearly mark:

• First and second troughs
• Neckline (resistance between the two bottoms)
  
• Entry point (breakout candle)
  
• Target and stop-loss levels
  

Use horizontal lines for the troughs and neckline. Measure the vertical distance from trough to neckline and project it upwards to estimate a conservative target. Confirm the with a volume surge.

Homework: Study the following stocks and check if a Double Bottom pattern is forming or has already played out:

1. Infosys Ltd. (INFY)

2. Larsen & Toubro Ltd. (LT)

You may also add the stock to your watch list to understand further price action.

Disclaimer: This analysis is purely for educational purpose and does not contain any recommendation. Please consult your financial advisor before taking any financial decision.

Chart patterns are a vital part of technical analysis, helping traders anticipate potential reversals or continuations in price. One of the most commonly observed reversal patterns is the Double Top. Recognizing this pattern early can help traders avoid long positions near market tops and prepare for potential downward moves.

A Double Top is a bearish reversal pattern that looks like the letter “M.” It typically forms after an extended uptrend, signalling that buying pressure is weakening and a potential trend reversal to the downside may occur.

Anatomy of the Double Top Pattern

First Peak: The pattern begins with a strong upward move that reaches a high (the first peak) before pulling back. This initial peak marks a level of resistance where sellers begin to emerge.

Second Peak: After the pullback, buyers attempt to push prices higher again, but the rally stalls near the level of the first peak, creating a second top. This second failure to break above resistance shows diminishing bullish strength.

Neckline and Breakdown: The low point between the two peaks is known as the neckline. A breakdown occurs when the price closes below this neckline on increased volume, confirming the Double Top pattern and indicating a potential reversal from bullish to bearish trend.

How to Trade the Double Top Pattern

Entry Point

• Enter a short position when the price breaks and closes below the neckline with significant volume.
• A more conservative approach is to wait for a retest of the neckline after the breakdown, entering when the retest fails to push the price back above it.
  
• Partial entry can also be used: 50% on the initial breakdown and 50% after a failed retest.
  

Target Price: Two main techniques are commonly used to estimate the price target:

Chart-Based Target:

• Measure the height from the peaks to the neckline.
• Subtract this distance from the neckline to project the target level.
• Target = Neckline – (Top – Neckline)
  

Fibonacci Extension or Pivot Points: These tools can also be used to estimate logical support levels or profit-taking zones above the breakout.

Stop-Loss Placement

• Place the stop-loss just above the second peak to protect against failed breakdowns.
• Alternatively, a tighter stop can be placed just above the neckline if you entered on a retest.
  
• Avoid overly tight stops in volatile markets as minor pullbacks can trigger premature exits.
  

Additional Tips

• Double Top patterns are more effective after a sustained uptrend — they lose significance in choppy or sideways markets.
• Volume should typically increase on the breakdown and decrease during the formation of the second peak.
  
• Use additional indicators like RSI divergence (lower highs on RSI vs. higher highs on price) or MACD bearish crossovers to confirm weakness.
  
• Look for a rounded or flat second top rather than a sharp spike — this shows sellers consistently rejecting higher prices.
  

Charting Exercise: Switch to a weekly chart and scan for potential Double Top formations. Clearly mark:

• First and second peaks
• Neckline (support zone between the two tops)
  
• Entry point (breakdown candle)
  
• Target and Stop-loss levels
  

Use charting tools to draw horizontal lines for the peaks and neckline. Measure the distance from peak to neckline to project a conservative target after breakdown. Confirm with volume analysis to validate the setup.

Homework: Study the following stocks and check if a Double Top pattern is forming or has already played out:

1. Bharti Airtel Ltd. (BHARTIARTL)

2. Syngene International Ltd. (SYNGENE)

You may also add the stock to your watch list to understand further price action.

Disclaimer: This analysis is purely for educational purpose and does not contain any recommendation. Please consult your financial advisor before taking any financial decision.

Chart patterns provide traders with valuable clues about potential price movements while doing technical analysis. One of the most reliable continuation patterns is the Cup and Handle formation. Understanding the Cup and Handle pattern can help you anticipate bullish breakouts and plan your entries with precision.

A Cup and Handle is a bullish chart pattern that resembles the shape of a tea cup. It usually appears after a strong uptrend, consolidates in the shape of a rounded bottom (the cup), and forms a smaller downward drift (the handle) before breaking out to new highs.

Anatomy of the Cup and Handle Pattern

Cup Formation: The cup resembles a “U” shape and signifies a period of consolidation after a bullish trend. The price gradually declines and then rises back to the previous high, forming a rounded base. This shows that selling pressure has diminished, and buyers are gradually regaining control.

Handle Formation: Once the cup is complete, a slight pullback forms the handle. This usually appears as a downward or sideways drift, often contained within a small descending channel or wedge. The handle is a final shakeout before the breakout.

Breakout: A breakout occurs when the price closes above the resistance formed at the top of the cup on increased volume. This confirms the pattern and typically leads to a renewed bullish move.

How to Trade the Cup and Handle Pattern

Entry Point

• Enter the trade when the price breaks above the handle’s resistance line on strong volume.
• A high-quality breakout typically involves a decisive close above the resistance (not just a wick) and ideally comes with volume confirmation.
• Conservative traders may choose to wait for a confirmation candle above the resistance to reduce the risk of a false breakout. For them another way can be to enter 50% of your quantity at breakout and 50% after a confirmation candle.

Target Price

There are a couple of standard methods to project your profit target:

Chart-Based Target:

• Measure the depth of the cup (from the bottom to the resistance level).
• Add this height to the breakout point.

Target = Breakout Level + (Resistance - Cup Low)

Fibonacci Extension or Pivot Points: These tools can also be used to estimate logical resistance levels or profit-taking zones above the breakout.

Stop-Loss Placement

• Place your stop-loss below the handle’s low to protect against failed breakouts.
• A more aggressive stop could be just below the breakout candle’s low for tighter risk control.
  
• Avoid placing stops too close, especially if the handle formed on low volume, as minor whipsaws are common.

Additional Tips

• Ensure the cup has a rounded bottom rather than a sharp V-shape — this signals healthier accumulation.
• The longer the cup formation, the more significant the breakout tends to be.
  
• Use supporting indicators like volume surge, RSI breakout, or MACD crossover to confirm momentum.
  
• These patterns are more reliable in bullish market conditions or strong sectors.
  

Charting Exercise: Switch to a daily chart and start scanning for Cup and Handle formations. Clearly mark:

· Cup bottom and rim (resistance)

· Handle structure (a small “U” or descending channel or wedge)

· Potential Breakout, Entry, Stop-loss, and Target zones

Use chart tools to draw the neckline of the cup and the upper boundary of the handle. Measure the depth of the cup to estimate your target price after breakout. Watch for volume confirmation to validate the breakout.

Homework

Look at the following stocks and identify which one shows signs of a developing or confirmed Cup and Handle pattern:

1. JSW Energy Ltd. (JSWENERGY)

2. HDFC Asset Management Company Ltd. (HDFCAMC)

Study the price action, draw the cup and handle zones, and see if the breakout is supported by volume.

You may also add the stock to your watch list to understand further price action.

Disclaimer: This analysis is purely for educational purpose and does not contain any recommendation. Please consult your financial advisor before taking any financial decision.

In the world of technical analysis, breakouts are among the most powerful patterns traders use to identify potential trading opportunities. One of the most reliable and widely observed breakout patterns is the Horizontal Resistance Breakout. Whether you're a beginner or a seasoned trader, understanding this setup can significantly enhance your trading edge.

A horizontal resistance breakout occurs when the price of a financial instrument breaks above a well-defined resistance level that has repeatedly prevented the price from moving higher.

Resistance Level: A resistance level is where selling pressure halts price advances. When price repeatedly fails to break a flat level, it forms horizontal resistance, seen as a straight line on the chart.

Breakout: A breakout happens when the price convincingly closes above this resistance level, signalling a potential shift in market sentiment from bearish or neutral to bullish.

How to Trade a Horizontal Resistance Breakout

Entry Point

• Enter the trade once the price closes above the horizontal resistance on strong volume.
• A confirmed breakout typically includes above-average volume and a decisive candle body (not just a wick above resistance).
  
• A better way can be to enter 50% of your quantity at breakout and 50% after a confirmation candle.
  

Understanding the Retest of a Breakout

A retest happens when the price, after breaking above resistance, pulls back to test that former resistance level—now acting as support.

This is a healthy market behavior and adds credibility to the breakout.

How to use the retest in your strategy:

• Wait for the price to pull back to the breakout level.
• Look for bullish reversal patterns (e.g., hammer, bullish engulfing) or support-holding price action near the breakout zone.
  
• Enter the trade if the level holds and price resumes upward movement.
  
• This provides a better risk-reward entry and confirms the breakout isn’t a false breakout.
  

Target Price: There are a few ways to estimate the target price:

• Using chart:

• Measure the height of the prior range (from support to resistance).
• Add this height to the breakout point. Target = Resistance Level + (Resistance - Support)
  
• Fibonacci Extension or Pivot Points: These tools can also be used to estimate logical resistance levels or profit-taking zones above the breakout.
  

Stop-Loss Placement

• Place a stop-loss just below the breakout level or below the most recent swing low.
• A tighter stop-loss can be placed at the low point of the breakout candle.

Additional Tips

• Combine resistance breakout patterns with momentum indicators like RSI or MACD to strengthen your conviction.
• Look for breakouts occurring in strong market trends or sectors showing relative strength.
  
• Always use a risk-reward ratio of at least 1:2 to make your trades worthwhile.

Charting Exercise: We have tried analysing this pattern on a weekly chart in the blog of 19^th May 2025. Let’s apply this on daily chart as well. Open a daily chart and do your own technical analysis.

Homework: Check the following two stocks and select the one that fits the horizontal resistance breakout pattern.

1. Bajaj Holdings & Investment Ltd. (BAJAJHLDNG)

2. LIC Housing Finance Ltd. (LICHSGFIN)

You may also add the stock to your watch list to understand further price action.

Disclaimer: This analysis is purely for educational purpose and does not contain any recommendation. Please consult your financial advisor before taking any financial decision.

In technical analysis, certain chart patterns stand out for their reliability in predicting trend reversals. One such powerful bullish reversal pattern is the Inverse Head and Shoulders. Let’s understanding this pattern as it may provide a significant edge, especially when spotting a potential shift from a downtrend to an uptrend.

The Inverse Head and Shoulders pattern typically forms after a prolonged downtrend, signalling that the selling pressure is waning and a bullish reversal may be on the horizon.

Pattern Anatomy

1. Left Shoulder: Formed when the price drops to a trough and then rallies.

2. Head: A deeper decline follows, creating a lower low, then another rally.

3. Right Shoulder: Price declines again but forms a higher low, followed by another upward move.

4. Neckline (Resistance): The highs of the rallies after the left shoulder and head create a horizontal or slightly sloped resistance line. A breakout above this neckline confirms the pattern.

Breakout and Retest: Key Confirmation

The pattern completes when price breaks above the neckline — ideally on increased volume, signalling a shift in market sentiment from bearish to bullish.

Retest: A Second Chance Entry

After the breakout, prices often retrace back to the neckline, testing it as a new support level. This retest offers a lower-risk entry opportunity:

• A successful retest (where the neckline holds and price bounces) adds confidence to the reversal.
• Traders can enter on a bullish candlestick confirmation after the retest.
  
• This is especially helpful in filtering out false breakouts or low-volume moves.

Chart-Based Target:

• Measure the vertical distance from the head (lowest point) to the neckline.
• Add that distance to the breakout point.
• Target = Neckline + (Neckline - Head)
  

• Alternative Methods:

In technical analysis, chart patterns often provide clues about future price direction. One such highly effective reversal pattern is the Triple Bottom. Whether you're just starting out or already have trading experience, learning to recognize and trade the triple bottom pattern can give you an edge, especially in volatile or trend-reversal conditions.

A Triple Bottom Pattern occurs after a prolonged downtrend, signalling a potential shift from bearish to bullish sentiment. It is formed when the price hits the same support level three times, failing to break below it, and then finally breaks out above the neckline (resistance level), confirming the reversal.

Support Level: This is a horizontal zone where price finds repeated buying interest. In a triple bottom, price touches this support three distinct times with roughly equal lows, indicating a strong demand zone.

Neckline (Resistance): The highs formed between each of the bottoms usually form a horizontal resistance, called the neckline. A breakout above this neckline is the key confirmation signal.

Breakout: The breakout happens when the price convincingly closes above the neckline, often with increased volume, indicating the bears have lost control and bulls are taking over.

How to Trade a Triple Bottom Pattern

Entry Point

• Enter the trade when the price closes above the neckline with strong volume.
• Look for a bullish candle that breaks the neckline and holds above it — not just a wick or intraday spike.
• A better way can be to enter 50% of your quantity at breakout and 50% after a confirmation candle.
  

• Chart-based method:

In the world of technical analysis, breakouts are among the most powerful patterns traders use to identify potential trading opportunities. One of the most reliable and widely observed breakout patterns is the Horizontal Resistance Breakout. Whether you're a beginner or a seasoned trader, understanding this setup can significantly enhance your trading edge.

A horizontal resistance breakout occurs when the price of a financial instrument breaks above a well-defined resistance level that has repeatedly prevented the price from moving higher.

Resistance Level: A resistance level is where selling pressure halts price advances. When price repeatedly fails to break a flat level, it forms horizontal resistance, seen as a straight line on the chart.

Breakout: A breakout happens when the price convincingly closes above this resistance level, signalling a potential shift in market sentiment from bearish or neutral to bullish.

How to Trade a Horizontal Resistance Breakout

Entry Point

• Enter the trade once the price closes above the horizontal resistance on strong volume.
• A confirmed breakout typically includes above-average volume and a decisive candle body (not just a wick above resistance).
  
• A better way can be to enter 50% of your quantity at breakout and 50% after a confirmation candle.
  

Understanding the Retest of a Breakout

A retest happens when the price, after breaking above resistance, pulls back to test that former resistance level—now acting as support.

This is a healthy market behavior and adds credibility to the breakout.

How to use the retest in your strategy:

• Wait for the price to pull back to the breakout level.
• Look for bullish reversal patterns (e.g., hammer, bullish engulfing) or support-holding price action near the breakout zone.
  
• Enter the trade if the level holds and price resumes upward movement.
  
• This provides a better risk-reward entry and confirms the breakout isn’t a false breakout.
  

Target Price: There are a few ways to estimate the target price:

• Using chart:

• Measure the height of the prior range (from support to resistance).
• Add this height to the breakout point. Target = Resistance Level + (Resistance - Support)
  
• Fibonacci Extension or Pivot Points: These tools can also be used to estimate logical resistance levels or profit-taking zones above the breakout.
  

Stop-Loss Placement

• Place a stop-loss just below the breakout level or below the most recent swing low.
• A tighter stop-loss can be placed at the low point of the breakout candle.

Additional Tips

• Combine resistance breakout patterns with momentum indicators like RSI or MACD to strengthen your conviction.
• Look for breakouts occurring in strong market trends or sectors showing relative strength.
  
• Always use a risk-reward ratio of at least 1:2 to make your trades worthwhile.

Charting Exercise: We have tried analysing this pattern on a weekly chart in the blog of 19^th May 2025. Let’s apply this on daily chart as well. Open a daily chart and do your own technical analysis.

Homework: Check the following two stocks and select the one that fits the horizontal resistance breakout pattern.

1. Bajaj Holdings & Investment Ltd. (BAJAJHLDNG)

2. LIC Housing Finance Ltd. (LICHSGFIN)

You may also add the stock to your watch list to understand further price action.

Disclaimer: This analysis is purely for educational purpose and does not contain any recommendation. Please consult your financial advisor before taking any financial decision.