Day Trading Chart Patterns 5 — Questions and Answers
Question 1: A 'falling wedge' in a downtrend is generally considered what type of signal?
- Bearish continuation
- Bullish reversal (Correct answer)
- Neutral sideways signal
- Bearish reversal
Correct answer: Bullish reversal
A falling wedge in a downtrend is a bullish reversal pattern because converging downward trendlines show diminishing selling pressure before a breakout higher.
Question 2: What does the 'neckline' represent in a head and shoulders pattern?
- The average price of the three peaks
- The support level connecting the lows between the shoulders and head (Correct answer)
- The resistance level at the highest peak of the pattern
- The midpoint between the head and the right shoulder
Correct answer: The support level connecting the lows between the shoulders and head
The neckline connects the two reaction lows between the left shoulder, head, and right shoulder, and its break confirms the bearish reversal.
Question 3: In day trading, which candlestick pattern is known as a 'spinning top' and what does it suggest?
- A candle with a large body and no wicks, suggesting strong momentum
- A candle with a small body and long equal upper and lower shadows, suggesting indecision (Correct answer)
- A candle that closes at the high of the session, suggesting bullish strength
- A candle with a long upper shadow only, suggesting buyers failed
Correct answer: A candle with a small body and long equal upper and lower shadows, suggesting indecision
A spinning top has a small real body with long upper and lower shadows of roughly equal length, indicating indecision between buyers and sellers.
Question 4: What is the key difference between a 'reversal gap' and a 'continuation gap' (runaway gap)?
- Reversal gaps occur at the start of a trend; continuation gaps occur mid-trend (Correct answer)
- Reversal gaps occur mid-trend; continuation gaps occur at trend ends
- Reversal gaps fill within the same session; continuation gaps never fill
- There is no meaningful difference between the two gap types
Correct answer: Reversal gaps occur at the start of a trend; continuation gaps occur mid-trend
Reversal (breakaway) gaps appear at the start of a new trend from consolidation, while continuation (runaway) gaps appear in the middle of an established trend.
Question 5: Which pattern forms when price makes lower highs and higher lows, converging toward an apex?
- Ascending triangle
- Descending triangle
- Symmetrical triangle (Correct answer)
- Rectangle
Correct answer: Symmetrical triangle
A symmetrical triangle features lower highs and higher lows converging to an apex, showing balanced pressure between buyers and sellers before a breakout.
Question 6: What does a 'shooting star' candlestick pattern indicate when it appears after a rally?
- Bullish continuation — buyers are testing new highs
- Bearish reversal — buyers pushed price up but sellers rejected the move (Correct answer)
- Neutral — the pattern has no directional bias
- Bullish reversal — the long upper shadow shows buying interest
Correct answer: Bearish reversal — buyers pushed price up but sellers rejected the move
A shooting star after a rally indicates buyers drove price higher during the session, but sellers overwhelmed them to close near the open, signaling a bearish reversal.
Question 7: When analyzing an intraday chart, which pattern is known as an 'inside bar' and what does it signal?
- A bar that closes outside the prior bar's high and low, signaling a breakout
- A bar whose high and low are entirely within the prior bar's range, signaling consolidation or potential breakout (Correct answer)
- A bar that opens and closes at the same price, signaling a doji
- A bar with a gap above the prior bar's high, signaling strong momentum
Correct answer: A bar whose high and low are entirely within the prior bar's range, signaling consolidation or potential breakout
An inside bar is completely contained within the prior bar's high-to-low range, indicating consolidation and a potential breakout in either direction.
Day Trading Chart Patterns 5
A 'falling wedge' in a downtrend is generally considered what type of signal?