Tradingnewspaper.com – Chart patterns show how the basic principles of the Dow Theory work. The Dow Theory says that market prices will keep repeating themselves until certain patterns, or “history repeats itself,” are formed. A trader can guess where the next price will go by looking at the patterns in how prices move on the market.
Chart Pattern is a repeating pattern in a price chart that can be used to predict how prices will move in the future. In technical analysis, chart patterns are very important because they show the direction of prices and can be seen in all time frames, from daily to monthly.
There are three types of chart patterns in general:
- Reversal Pattern (trend reversal pattern)
- Pattern of Continuation (trend continuation pattern)
- Bilateral Pattern (trend reversal or continuation pattern)
1.Double Top & Double bottom
The double top is a sign of a change in direction that appears after a strong uptrend pattern. The double bottom is a reversal signal that forms after a strong downtrend pattern.
2.Bullish & Bearish Pennant
After a movement that tends to go up (an uptrend) or down (a downtrend), sellers and buyers get tired and rest for a while (consolidation) by making a pattern like a sideways triangle before continuing the previous movement.
3.Cup and Handle Pattern
The Cup And Handle Pattern is called that because it looks like a cup and its handle. This pattern belongs to the group of patterns that show a continuous uptrend.
4.Bullish & Bearish Flag Pattern
The Flag pattern is a continuous pattern. Prices move within a narrow range, which is a sign of a consolidation pattern before the previous trend continues.
5.Head and Shoulder & Inverted Head and Shoulders
The Head and Shoulders Pattern is a design that looks like a head and shoulders (left and right). The head and shoulders pattern is often seen during an uptrend, and it shows that there is a chance that the price will go down after this pattern is formed.
The opposite of the head and shoulders is the inverted head and shoulders pattern. Most of the time, you will see this pattern during a downtrend.
This pattern is also great for bottom fishing, which means you can get the best price on the market.
These are the five chart patterns that show up most often in the way prices move on the market. This, of course, needs to be backed up by other technical signs.
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