An Introduction to Chart Pattern
Technical analysis tried its best to simplify the price chart and give the sight of seeing information behind it.
All things considered on the chart have signs for a professional trader who ambushes to enter at the right time or exit faster from the market. Reaching this level of recognition and taking decisions, requires a precise analysis of market that directly leads to studying patterns.
Chart Pattern Definition in Technical Analysis
Chart patterns are tabs of technical analysis puzzle. With them, everything becomes clear and complete. When the prior chartists were observing numbers of price charts, the repeated behavior of price had attracted their attention. They understood the sequences of swing low and swing high points sometimes configure familiar shapes. and assigned them different names based on their total shape. Like
- Triangle Patterns
- Broadening Pattern
- Flag Pattern
- Wedge Pattern
- Double Top/ Bottom Patterns
- Triple Top/ Bottom Patterns
- Head and shoulders
- Cup with the Handle
- etc.
Types of Chart Patterns
Patterns can be grouped by different features, like their appearance, entering direction, and leaving trend. Each of them gets a title based on their appearance, which is outlined perfectly by drawing trendlines. Being a member of a larger family according to the cause of change in trend.
In simple words, bullish-to-bullish, or bearish-to-bearish shows continuity but bearish-to-bullish or bullish-to-bearish are reversal manners. This led to a straightforward classification of chart patterns like this:
- Continues Patterns
- Reversal Patterns
Finding Chart Patterns on Price Chart
Support, resistance, and trendlines are essential tools that highlight patterns on price chart. Without drawing them, patterns are not outlined clearly and traders struggle with lots of higher highs and lower lows! These guidance trendlines should be learned and practiced over and over again to stick in trader's mind.About this Lesson...
The recognition phase of technical analysis is learning chart patterns.In the following lesson, a number of practical patterns have been collected and a series of common features are discussed. Here is the list of features and their definitions.
1. Appearance: Try to describe the shape of pattern in form of descriptive sentences. Every chart pattern is named by its shape.
2. Trendline: Drawing essential trendlines help traders find the pattern at first sight. Identifying support, resistance, uptrend, and downtrend can fully demonstrate chart patterns. Under consideration, not all of them are helpful, and overdrawing them may add complexity.
3. Pattern Category: Each pattern is a member of Reversal or Continues family patterns. If the pattern causes a change in the trend of market, it is Reversal Pattern. Otherwise, it belongs to a continuous family pattern.
4. Breakout Direction: This item is a consequence of pattern category and also influences further features like price target. Price can leave the pattern with an upward rise or downward fall.
5. Price Target: All these actions over the price chart are for having better analysis and prediction of further movement of market. Price target is the potential level that price may rich based on prior behavior.
6. Failure: It is possible that price takes another direction when it wants to pass out the pattern. For instance, as a continues bullish pattern expect an upper jump while when it changes into bearish, patterns failed.