Day Trading Chart Patterns 4 — Questions and Answers
Question 1: What does a 'gap and go' pattern require for a valid day trade entry?
- Price must gap down and then reverse higher
- Price gaps up on high relative volume and continues higher after a brief consolidation (Correct answer)
- Price must fill the gap before the trade is taken
- Price gaps up on below-average volume for a low-risk entry
Correct answer: Price gaps up on high relative volume and continues higher after a brief consolidation
A gap and go setup requires a gap up on high relative volume, followed by a brief consolidation before continuing in the gap direction.
Question 2: In technical analysis, what is a 'bear trap' in the context of chart patterns?
- A pattern that traps bears by producing a false breakout to the downside before reversing upward (Correct answer)
- A bearish pattern that confirms a long-term downtrend
- A formation where bears enter before a strong move lower
- A gap-down pattern that leads to sustained selling
Correct answer: A pattern that traps bears by producing a false breakout to the downside before reversing upward
A bear trap occurs when price briefly breaks below a support level, trapping short sellers, before reversing sharply upward and stopping them out.
Question 3: What is the typical volume behavior WITHIN a rectangle consolidation pattern?
- Volume increases steadily throughout the pattern
- Volume contracts as the pattern develops, then expands on breakout (Correct answer)
- Volume is highest at the midpoint of the consolidation
- Volume remains irrelevant within rectangle patterns
Correct answer: Volume contracts as the pattern develops, then expands on breakout
Volume typically contracts during rectangle consolidation as interest wanes, then expands significantly on the breakout candle to confirm direction.
Question 4: Which of the following is a reversal pattern, NOT a continuation pattern?
- Bull flag
- Pennant
- Rising wedge in a downtrend (Correct answer)
- Symmetrical triangle
Correct answer: Rising wedge in a downtrend
A rising wedge in a downtrend is a bearish reversal pattern, while bull flags, pennants, and symmetrical triangles are typically continuation patterns.
Question 5: What does an 'evening star' pattern signal in a candlestick chart?
- A bullish reversal at the end of a downtrend
- A bearish reversal at the top of an uptrend (Correct answer)
- A continuation of the current uptrend
- A gap-up opening the following session
Correct answer: A bearish reversal at the top of an uptrend
An evening star is a three-candle bearish reversal pattern appearing at the top of an uptrend, signaling a transition from buyers to sellers.
Question 6: When a stock breaks out of an ascending triangle, what is the measured move price target?
- The height of the flagpole prior to the triangle
- The height of the triangle added to the breakout price (Correct answer)
- The distance from the breakout to the prior swing high
- Twice the width of the triangle base
Correct answer: The height of the triangle added to the breakout price
The measured move target for an ascending triangle is calculated by adding the triangle's maximum height to the breakout point.
Question 7: A 'hammer' candlestick has which of the following characteristics?
- Small real body at the bottom, long upper shadow, little to no lower shadow
- Small real body at the top, long lower shadow, little to no upper shadow (Correct answer)
- Large real body with equal upper and lower shadows
- Wide opening range with a close near the midpoint
Correct answer: Small real body at the top, long lower shadow, little to no upper shadow
A hammer has a small real body at the top of the candle's range, a long lower shadow at least twice the body's size, and little to no upper shadow.
Day Trading Chart Patterns 4
What does a 'gap and go' pattern require for a valid day trade entry?