Chart patterns, in technical analysis, is a formation on price charts of various cryptocurrencies, stocks, commodities, forex currencies and more that develops in a particular, recognizable shape.
Introduction To Chart Patterns
Each chart pattern consists of support and/or resistance trend lines that allow the pattern to develop over time. The support and/or resistance levels are further driven by specific psychological characteristics.
For example, in many patterns, volume or volatility may reduce as it develops, only to increase significantly upon a subsequent breakout or breakdown.
As market participants begin to recognize the shape, the chart pattern can be a self-fulfilling prophecy. However, it is important to prepare for the occurrence of false breakouts and breakdowns, or what Bulkowski referred to as “busted patterns.”
In a busted pattern, price moves less than 10% outside of the pattern, taking out buy or sell stop orders, only to reverse through the other side of the pattern in a vicious reversal.
Bullish Patterns
Bullish chart patterns have a higher probability of breaking upward. However, it is important to note that all bullish patterns can fail or break downward instead.
Proper risk management practices such as stop loss placement are critical to successfully trading these setups. Look for additional confirmation from various technical indicators and oscillators to support the direction of the expected move.
Click each pattern below to learn more about what they might indicate for traders and investors.
Bearish Patterns
Bearish chart patterns have a higher probability of breaking downward. However, it is important to note that all bearish patterns can fail or break upward instead.
Proper risk management practices such as stop loss placement are critical to successfully trading these setups. Look for additional confirmation from various technical indicators and oscillators to support the direction of the expected move.
Click each pattern below to learn more about what they might indicate for traders and investors.
Neutral Patterns
Neutral chart patterns have a no bias towards a particular direction. Proper risk management practices such as stop loss placement are critical to successfully trading these setups.
Look for additional confirmation from various technical indicators and oscillators to support the direction of the expected move.
Click each pattern below to learn more about what they might indicate for traders and investors.