Most of the effort in charting goes into the identification of tops and bottoms. Because many of these formations unfold over fairly long periods, they have been called accumulation at the bottom, where typical stock investors slowly buy into their position, and distribution at the top, where the invested positions are sold off. The most popular of these formations are:
Head-and-shoulders bottom and top Common rounded upward or downward turn
Triangular bottom and top of an ascending, descending, or symmetric shape, such as a triangle, flag, or pennant Ascending bottom and top “V”-bottom (a “V”-top is usually referred to as a spike) Double bottom and top
Complex bottom and top, including a triple bottom or top, or a combination of other formations
Broadening bottom and top
Most of these patterns are self-explanatory and are covered in detail in many books devoted entirely to the topic. In addition to the classic by Edwards and Magee and the monograph by Jiler, the reader can find considerable value in John Murphy’s—BarCharting” in Kaufman, Handbook of Futures Markets,’ and more recently Scbwager on Futures.. Technical Analysis.’ Instead of giving examples of these formations, we win look at them in the context of trading rules.