Stock Chart Patterns

A stock chart pattern is a distinct formation on a stock chart which creates a trading signal or sign of future price movements. Chartists use the technical analysis of these chart patterns to identify current trends and trend reversals and to trigger buy and sell signals.

Technical Analysis of Chart Patterns

The technical analysis of chart patterns is based on the assumption that history repeats itself. The idea is that certain patterns are seen many times, and that these patterns signal a certain high probability move in a stock. Based on the historic trend of a chart pattern setting up a certain price movement, chartists are more likely to identify these patterns for trading or holding opportunities.

Reversal and Continuation in Stock Chart Patterns

Reversal and continuation are two types of patterns within this area of technical analysis. A reversal pattern signals that a prior trend will reverse upon completion of the pattern while a continuation pattern signals that a trend will continue once the pattern is complete. These patterns can be found over charts of any timeframe.

There tend be general ideas and components to every chart pattern, but unfortunately, there is no chart pattern that will tell you with complete certainty in which direction a security is headed. This creates some flexibility and deliberation as to what a good pattern looks like, which is why charting is often seen as more of an art than an absolute science.

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