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Hello Steemians, it is another lovely week to be here participating in crypto academy courses. I am happy to have gone through the lecture given by professor @imagen and now I'm here to present my homework post.

Question 1.) Explain in your own words the concept of Double Top, Double Bottom and Wedges. How to interpret each one?

Traders all over the world pay keen attention to formation of patterns in the financial market to be able to predict market movement. And there are numerous patterns used by traders in the market, amongst which are Double Top, Double bottom and Wedges. I will be explaining these patterns below and the methodology to interpret each.

DOUBLE TOP

Double Top is a chart pattern that is used by traders in the financial market. The Double Top pattern usual forms at the peak of a bullish trend. The Double Top pattern is usually called the M pattern mainly due to it's shape. As the name Double implies, it is form from the Price chart producing two conservative rounding tops.

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Interpretation of a Double Top pattern

The formation of a Double Top pattern usually Signals a trend reversal in this case a Bearish trend reversal. It usually means the end of an uptrend as a struggle between buyers can be seen resulting in the formation of two double top.

• Formation of the first Top or Peak

The first peak or top is formed due to the presence of new buyers in the Market. Due to the increase buyers, price keep rising and rising until it meets a resistance from sellers. New sellers then come into the market and bring down prices. The first peak has been successfully formed.

• Formation of the Second Top or Peak

The sellers are unable to take over the market and the market see the introduction of new buyers. These buyers pull take over the Market and causes price yo increase. However, the buyers are still unable to maintain their control over the market as the encounter a resistance from sellers around the same level as the first top. Sellers in the market then overtake the market and beat down prices.

• When the sellers overtake the market and are able to bring down prices to go beyond the Neckline, then it is an opportunity to enter a Sell trade. Neckline is the bottom level of the first top.

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DOUBLE BOTTOM

Contrary to the Double Top, the Double bottom is formed at the end of a Bearish trend. The Double bottom is a chart pattern that forms at the end of a bearish trend and used by traders to enter the market. The Double bottom is also called the W pattern mainly due to it's shape. It is a bullish reversal pattern.

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Interpretation of the Double bottom

The Double bottom is a Bullish reversal signal and a good position for a Buy trade. The formation of a Double bottom signals trend reversal.

• Formation of the First Bottom

The first bottom is formed during a downtrend when sellers are more than buyers on the market taking price down. At a certain point, usually a support, new buyers get into the market to resist the fall in price. The buyers overtake sellers and price start rising again

• Formation of the Second bottom

However, the buyers are not able to keep the market for long as new sellers come into the market to push back price in a downward direction. The sellers succeed in bringing down prices just to the level of the first bottom. At this level new buyers come into the market to cause prices to increase.

• Now a trading signal is produced when prices go above the first point at which sellers overtook the market, usually referred to as Neckline.

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WEDGES

Another important pattern in the market that is being used to identify trading opportunities is known as wedges. Wedges are trend reversals Pattern that are mostly form during consolidation in the Market. A Wedge can be defined as a price pattern that is marked by two converging trendlines drawn below and above the price chart to connect the the high point and low points of a financial asset.

This trend lines show that the highs and lows of an asset are either rising or falling giving rise to the formation of a wedge. There are two types of Wedges, the Rising and the Falling wedge. Let's look at the two Wedge.

Rising Wedge

A rising Wedge is formed by drawing two trendline connecting the highs and lows of an uptrend. In a rising Wedge, price is expected to reverse to a downward direction. The trendline of the rising Wedge converge upward in the same direction. The rising Wedge indicates in decline in the volume of price trend

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Interpretation of a Rising Wedge

The formation of a Rising Wedge usually Signals a price break and potential trend reversal in the market. It shows a decrease the the power the buyers have in the market as price no longer rise with the same volume causing the trendline to converge. The Market experience a fall in the volume of buyers and a slow but sure introduction of sellers in the market causing price to increase at a decreasing rate till price breakout and more sellers overtake the market. Some traders turn to say the is a pause in the movement of price.

Falling wedge

On the other hand, a falling wedge occurs during a bearish trend and usually Signals a bullish trend reversal. The two trendline connecting the highs abd lows in a falling wedge converge downward in the same direction.

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Interpretation of the Falling wedge

The falling wedge is a sign of falling momentum of sellers in the market and an introduction of new buyers. The number of sellers in the market are reducing keeping price is a relatively slow decrease over a period of time. The introduction of new sellers in the market is an indication that we about to see the end of the bearish trend and an upward reversal is about to start. So in general, a falling wedge indicates a falling volume in the amount of sellers in the market and the potential price breakout to an uptrend formation.

**Question 2.) Main differences between the Double Top and the Double Bottom. Show screenshots.

Difference between Double Top and Double bottom

Double Top	Double bottom
Double Top usually happens at the end of a uptrend	Double bottom usually occurs at the end of the downtrend
Double Top is a Signal for a bearish trend reversal. That is when it occurs there is a possibility for price to turn bearish	Double bottom is a signal for bullish trend reversal as price are expected to breakout and starts rising
Double Top pattern is in the form of M	Double bottom pattern has a W Shape

Graphical illustration

As I earlier mentioned above, the main difference between the Double Top and Double bottom is in their area of formation, their sharp and the Signal that they give. So below I will illustrate the difference using screenshots

Double Top

From the image above, double top can be seen to form at the end of a bullish trend. The Double Top is in the shape of M and after the formation of the pattern, price reverses to a downtrend.

Double bottom

From the screenshot of the Double bottom, we can confirm that the pattern formation is at the bottom of a bearish trend, it is in the shape of a W and signals a bullish trend reversal. We can see price rising immediately after the formation of the Double bottom pattern.

3.) Explain and highlight the main differences between a bullish wedge and a bearish wedge. Show screenshots of each.

Difference between a Bullish Wedge and a Bearish Wedge

Bullish Wedge	Bearish Wedge
A Bullish Wedge usually forms at the top or during a bullish trend	While a Bearish Wedge forms during a downtrend.
Bullish Wedge is a Sell order signal as it is a potential trend reversal	While a Bearish Wedge is a good Buy order pattern as it signals a Bullish trend reversal and rise in prices.
The trendline in a Bullish Wedge are drawn converging upwards connect highs and lows	While the Bearish Wedge trendline are drawn downward connecting highs and lows of the price chart.

Graphical illustration of the difference between Bullish Wedge and a Bearish Wedge

Bullish Wedge

As can be seen from this illustration, the Bullish wedge forms at the top of an uptrend and a downtrend follows after price break the trendline.

Bearish Wedge

While the Bearish Wedge forms at the bottom of the downtrend and signals trend reversal yo the upward direction.

Question 4.) Explain the volatility that usually exists with respect to the volume in the wedges. When is there usually more volume? What happens if a pullback breaks the support of a wedge?

Volatility in simple terms refers to the liability of the price of an asset to change rapidly. In our context, there is a relationship between Volume and the the Wedge pattern. There is a direct relationship between Volume and the formation of the Wedge pattern be it Rising Wedge or falling wedge.

Rising Wedge

As we earlier mentioned, a rising Wedge forms at the end of a bullish trend and signals a Bearish trend reversal. A rising wedge can also form at the middle of a bearish trend in which case it's not a signal of trend reversal but trend continuation.

It is therefore important to note than a pause occurs during the formation of a rising wedge as the uptrend reduces. Price increases at a decreasing rate and this also decreases volume. So during the formation of the Wedge from the start to the finish point, the volume decreases.

So volume decreases as the price reduces. But towards the end of the rising Wedge and as soon as price breaks downward below the down trendline, the volume will increase momentum and more sellers enter the market to beat down prices. So to conclude there is a direct relationship between Volume and Rising Wedge as Volume reduces during the formation of a Rising Wedge and increases immediately price breaks the wedge(that is the lower trendline)

Falling wedge

A falling wedge on the contrary forms at the end of a bearish trend or in the middle of a bullish trend. A falling wedge is a good Buy Signal as the trend is expected to reverse to a bullish trend.

Same with the rising Wedge, the formation of a falling wedge usually experience a drop in the momentum of the Volume. At the start of a falling wedge, price falls at a decreasing rate, that is price movement is slow. But as soon as price breaks above the upper trendline, the volume increases as price gains momentum and it's movement becomes faster.
So, Volume decreases during the formation of a falling wedge and and increases as price breaks out of the pattern and moves upward

Question 5.) Find and analyze the double top pattern on at least 2 charts. Show your own screenshots.

To answer this question, I will be using Tradingview platform to analyse my charts and identify the Double Top pattern.

Double Top on ADAUSDT and XRP USDT charts

I identified my first Double Top on the Cardona USDT chart pair using Tradingview.
Let's do a quick reminder of the Double Top pattern

• It forms mostly at the end the end of a bullish trend
• It has a M shape
• It is a signal for trend reversal

Now, looking at the screenshots above, we can evidently see that the Double Top was formed during an uptrend. Buyers first took price to a high, new sellers came into the market to cause price to fall forming the first peak or top. But as can be seen from the screenshot, the seller were unable to dominate the market for long and so new buyers came into the market to push price up again. The buyers could only raise price to a point around the previous peak and new sellers came in to overtake the market. This time sellers overtake the market causing price to fall lower than the previous support.
A sell trade can be placed immediately the price crosses the Neckline or previous support.

Question 6.) Find and analyze at least 2 rising wedges and 2 falling wedges on at least 2 charts. Show your own screenshots.

For this question, I will still be using the Tradingview platform to illustrate my answers.

Identifying Rising Wedge on a DOTUSDT and MANAUSDT charts

We have early that

• A rising Wedge also known as a bullish Wedge forms at the end or top of a bullish run(Uptrend)
• The pattern is identified by drawing trendlines connecting the highs and lows of a price chart converging upward.
• That the rising wedge experience fall in volume due to the slow movement of price
• And finally that the rising Wedge is a bearish trend reversal signal when it forms at the top of a bullish run.

From the images above, we can see that the market of DOTUSDT and MANAUSDT were in an uptrend and towards the end of uptrend, the momentum of price started reducing as price was increasing in a decreasing manner.

You can see from the image above that the trend is making lower highs and higher lows, thus permitting the trendline to be converge towards the bottom. A trendline has been drawn above and below the price movement connecting both highs and tops

The image further illustrate that after a while price breaks out from the trend falling fast. Immediately price breaks the lower trendline, a sell trade can be place as illustrated above. For this trade, I place my Stop loss at the zone of the upper trendline and Take profit below price for both trade.

Identifying and Analyzing a Falling wedge on SOLUSDT and ADAUSDT charts

Quick reminder

• A falling Wedge also known as a bearish Wedge forms at the end of a bearish run(downtrend)
• The pattern is identified by drawing trendlines connecting the highs and lows of a price chart converging downwards.
• The falling wedge experience a fall in volume due to the slow movement of price during it's formation till price breakout of the pattern
• And finally that the rising Wedge is a bullish trend reversal signal when it forms at the top of a bullish run.

From the screenshots above, we can see that the market of SOLUSDT and ADAUSDT are in an uptrend and towards the end of downtrend. Price at this pattern falls at a decreasing rate

You can see from the image above that the trend is making lower highs and higher lows, permitting the trendline to be converge towards the top. A trendline has been drawn above and below the price movement connecting both highs and tops

The image further illustrate that after a while price breaks out from the trend falling fast. Immediately price breaks the upper trendline, a buy trade can be place as illustrated above. For this trade, I place my Take profit above the entry price as price is further expected to rise and I place my Stop loss below price around the Lowe trendline

As you can see, price keep rising rapidly after breaking the upper trendline.

From the above explanation and illustration, it can be seen that the Wedge pattern when accurately identified will be of great help to a trader.

Question 7.) Importance of patterns in technical trading.

1. Identify and confirm Trends. When trading in the financial market, it's very important to be able to identify trends. It is often said the trend is your friend meaning trading following trends is profitable. Patterns help traders in identifying and confirming trends in the market.

2. Entry and Exit positions. Patterns also help traders to identify key entry and exit points in the financial market. A good understanding of patterns will help traders analysis to know when to enter or exit the market.

3. Identify key Support and Resistance levels and trend reversal. Patterns also help traders to be able yo identify key zones in the market like support and resistance levels, trend reversals points which are key areas in the market.

4. Analyze the market. Patterns also help traders not to trade blindly in the market or base their trading base on luck. Patterns inform traders to be profitable in the market. So through patterns, traders are able to analyse market trade and make informed decisions.

Question 8.) Do you find it effective to use these patterns in trading? Justify your answer.

I find it very effective using patterns to carry out my trade. Infact, patterns are the most effective trading strategy I know. A good understanding of price movement is illustrated on price. However, there is no Technical analysis tool or strategy that is completely accurate and 100 percent, so it is always advisable to use patterns with other technical Indicators. Below are justifications on why patterns are effective.

1. Base on Price. Unlike other technical analysis, patterns are based solely on price movement. Price is a good base for market analysis as it shows previous behaviors and emotion in the market. The emotions of traders are illustrated on prices in the market. Therefore, understanding patterns will mean understanding market emotions.

2. Patterns are the bases for development of other technical Indicators. Other technical Indicators are developed through the analysis of patterns in the market, making patterns effective.

3. Reliable. Historical data proofs that patterns formation are reliable as pattern are believe you repeat over and over. Patterns like Head and shoulders, Double Top and Double bottom etc are very accurate patterns and so historical references puts them to be very effective.
   For example, take a look at the screenshots above, every pattern formation was followed by it's prediction. If a rising Wedge was identified, we could see a downtrend follow next.

Conclusion

After a successful reading and performing assignments of Various professors, I can confess that patterns are the best technical tools to use for trading.

The formation of patterns like Double Top, Double bottom and wedges can help traders to identify key entry and Exit positions in the market. It is therefore important for traders to study and understand patterns so as to be able to make profit in the market, which is the sole purpose of most traders.

I thank in a special way professor @imagen for the wonderful lesson. It was a good read and assignments.

All screenshot used on this post are from Tradingview platform