Many chart patterns form over an extended period of time, ranging from months to a full year. But there are a handful which develop, complete, confirm, and track for the price target within two or three weeks on average. Here are the most important ones.

1) Pennants are small, narrow triangles which form quickly and usually with declining volume, pointing in the opposite direction to the prevailing trend in a tightening consolidation. The pennant’s counterpart, the flag, looks and behaves in a similar fashion, but with support and resistance boundaries which are parallel rather than converging. Both flags and pennants tend to serve as continuation patterns and are amongst the strongest ones.

2) Dead-cat bounces are abrupt, savage retracements that sometimes occur during a share’s collapse. The theory is that even a dead cat will bounce if dropped from a sufficient height and while the name is morbid the theory has merit. If the fundamentals maintaining a company’s shares are found to be tissue then the collapse is a given and often accompanied by a continuation gap en route. Share traders should watch for the share price to retrace, often filling in that gap, before the dead-cat bounce reverses again with the downtrend having a bit more room to run.

3) Bull and bear traps look at first like a breakout from a developing pattern. Many times these traps linger above the resistance or below the support long enough to bypass the trader’s filtering mechanisms, but rarely longer than two weeks. The initial enthusiasm for the breakout dwindles away, volume falls off, the price move ceases advancing and begins to consolidate, and then the share price retreats back into the original pattern and sometimes even breaks out on the far side, leaving the bulls or bears who entered the market with a small and frustrating loss.

4) Island reversals are small clusters of price bars separated from the rest of the chart by a gap. Although it’s not always clear at first, this proves to be an exhaustion gap and the share price, rather than continuing the move higher or lower, instead consolidates at roughly the same level for one to three weeks. Consolidation over and market sentiment certain a mistake’s been made, the share price then gaps in the opposite direction as the trend reverses, with the gap forming over the same general price range as the initial exhaustion gap. These matching gaps leave a scar on the chart at that level which is liable to remain for some considerable time, perhaps years.

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