Chart patterns signal to traders that the price of a security is likely to move in one direction or another when the pattern is complete.
Before the arrival of computers and data feeds, the utilization of charts to formulate trading strategies was outside the mainstream of trading techniques. The reason, creating charts was difficult. Each chart had to be created by hand, with chartists adding another datum at the close of trading for every security they were following. Also, chart users were often misrepresented as a bizarre group of individuals huddled in the recesses of the brokerage house as they added the latest data point to their closely coveted charts.
There are two types of patterns in this area of technical analysis: reversal and continuation. A reversal pattern signals that a prior trend will reverse on completion of the pattern. Conversely, a continuation pattern indicates that the prior trend will continue onward upon the pattern’s completion.
Types of Chart Patterns:
- Double Top and Double Bottom
- Head and Shoulders and Inverse Head and Shoulders
- Rising and Falling Wedges
- Bullish and Bearish Rectangles
- Bearish and Bullish Pennants
- Triangles (Symmetrical, Ascending, and Descending)