A chart pattern or price pattern is a
pattern
A pattern is a regularity in the world, in human-made design, or in abstract ideas. As such, the elements of a pattern repeat in a predictable manner. A geometric pattern is a kind of pattern formed of geometric shapes and typically repeated l ...
within a
chart
A chart (sometimes known as a graph) is a graphical representation for data visualization, in which "the data is represented by symbols, such as bars in a bar chart, lines in a line chart, or slices in a pie chart". A chart can represent tabu ...
when prices are graphed. In stock and
commodity market
A commodity market is a market that trades in the primary economic sector rather than manufactured products, such as cocoa, fruit and sugar. Hard commodities are mined, such as gold and oil. Futures contracts are the oldest way of investing ...
s trading, chart pattern studies play a large role during
technical analysis
In finance, technical analysis is an analysis methodology for analysing and forecasting the direction of prices through the study of past market data, primarily price and volume. Behavioral economics and quantitative analysis use many of the same ...
. When
data
In the pursuit of knowledge, data (; ) is a collection of discrete values that convey information, describing quantity, quality, fact, statistics, other basic units of meaning, or simply sequences of symbols that may be further interpreted. ...
is plotted there is usually a pattern which naturally occurs and repeats over a period. Chart patterns are used as either reversal or continuation signals.
There are three main types of chart patterns which are used by technical analysts:
traditional chart patternHarmonic Patterns*
candlestick pattern In financial technical analysis, a candlestick pattern is a movement in prices shown graphically on a candlestick chart that some believe can predict a particular market movement. The recognition of the pattern is subjective and programs that are us ...
Traditional Chart Pattern
Included in this type are the most common patterns which have been introduced to chartists for more than a hundred years. Below is a list of the most commonly used traditional chart patterns:
Reversal Patterns:
# Double Top Reversal
# Double Bottom Reversal
# Triple Top Reversal
# Triple Bottom Reversal
# Head and Shoulders
# Key Reversal Bar
Continuation Patterns:
# Triangle
# Flag and Pennant
# Channel
# Cup with Handle
Harmonic Pattern
Harmonic Pattern utilizes the recognition of specific structures that possess distinct and consecutive Fibonacci ratio alignments that quantify and validate harmonic patterns. These patterns calculate the Fibonacci aspects of these price structures to identify highly probable reversal points in the financial markets. This methodology assumes that harmonic patterns or cycles, like many patterns and cycles in life, continually repeat. The key is to identify these patterns and to enter or to exit a position based upon a high degree of probability that the same historic price action will occur.
Below is a list of commonly used harmonic patterns:
# Bat
# Butterfly
# Gartley
# Crab
# Deep Crab
# Shark
# 3 Drives
# AB=CD
# 5-0
Traders use the Potential Reversal Zone (PRZ) as an important level of support/resistance in their trading and price action strategy.
Candlestick Pattern
In
technical analysis
In finance, technical analysis is an analysis methodology for analysing and forecasting the direction of prices through the study of past market data, primarily price and volume. Behavioral economics and quantitative analysis use many of the same ...
, a candlestick pattern is a movement in prices shown graphically on a
candlestick chart
A candlestick chart (also called Japanese candlestick chart or K-line) is a style of financial chart used to describe price movements of a security, derivative, or currency.
It is similar to a bar chart in that each candlestick represents all ...
that some believe can predict a particular market movement. The recognition of the pattern is subjective and programs that are used for charting have to rely on predefined rules to match the pattern. There are 42 recognized patterns that can be split into simple and complex patterns.
Steve Nison is the person who introduced candlesticks to the West.
There are hundreds of candlestick pattern available which are discussed in Steve's boo
Japanese Candlestick Charting Techniques
See also
*
Candlestick chart
A candlestick chart (also called Japanese candlestick chart or K-line) is a style of financial chart used to describe price movements of a security, derivative, or currency.
It is similar to a bar chart in that each candlestick represents all ...
*
Elliot wave
*
Market trends
A market trend is a perceived tendency of financial markets to move in a particular direction over time. Analysts classify these trends as ''secular'' for long time-frames, ''primary'' for medium time-frames, and ''secondary'' for short time-fram ...
*
Price action trading
*
Trend following
Trend following or trend trading is a trading strategy according to which one should buy an asset when its price trend goes up, and sell when its trend goes down, expecting price movements to continue.
There are a number of different techniques, ...
References
{{DEFAULTSORT:Chart Pattern
Technical analysis
Chart patterns