Chart Pattern

Chart pattern is an important trading tool that that can be used as a technical analysis stragedy for both professionals and beginners.

A chart pattern is a shape within a price chart that helps to suggest where the price will move next, based on what it has done in the past. Chart patterns are the basis of technical analysis and require a trader to know exactly what they are looking at, as well as what they are looking for.

These patterns are formed by the price movements of a financial instrument, such as a stock, currency pair, commodity, or index, over a specific period of time. Chart patterns can be based on seconds, minutes, hours, days, months, or even ticks and can be applied to a line, bar, candlestick charts.

There are two basic types of patterns:

Continuation patterns identify opportunities for traders to continue with the ongoing trend. The most common continuation patterns include Triangle, Flag and Pennant patterns.

For example, triangle is a chart pattern that signifies a breakout is likely where the triangle lines converge. It can be ascending, descending and symmetrical.

Reversal chart patterns on the opposite indicate that a trand may be about to change direction. While the continuation pattern signals that the prevailing trend is likely to continue after a temporary pause is finished and the breakout is confirmed, reversal patterns are pointing towards an impending change in the trend direction. Also, reversal patterns need more time to form than the continuation formations as it is easier for the market to continue in the same direction than change its course.

If a reversal chart pattern forms during an uptrend, it hints that the trend will reverse and that the price will head down soon. Conversely, if a reversal chart pattern is seen during a downtrend, it suggests that the price will move up later on.

The most common reversal patterns are:

• Wedge patterns
• Head and shoulders pattern
• Double top pattern
• Double bottom pattern
• Triple top and triple bottom pattern
• Sushi roll pattern
• Quasimodo pattern

For example, here are the Double bottom and Wedge patterns:

Please note that the chart patterns do not guarantee that a market will move in that predicted direction. They are merely an indication of what might happen to an asset’s price. It is advisable to combine this information with more identifiers, like technical indicators and trading tools. That way you can form a more effective way of improving your trading strategy and positions in the market.