Chart patterns are a parcel of buying and selling rules in technical analysis stock trading. These patterns give an excellent confirmation for the next trend move. They are one of the most dependable, yet simple to use technical analysis tools. They are patterns that appear on the charts of stocks that supply you with forecasting tools of imminent price movement. A number of patterns are more dependable than others for price forecasting.
Price is forecasted by patterns because basically, patterns are actually little more than an endeavor to predict trend continuation or trend reversal at the earliest achievable moment in time. These patterns are often the very first introduction that stock traders have to charting a stock. These patterns are part of a system for the common investor to accurately position herself for a better chance of making a profit in this backstabbing world of buying and selling stock.
These chart patterns are duplicated in all time frames and in all stocks because these patterns are a end result of human nature and emotional reactions to a stock’s price. These patterns appear over and over again for the reason that humans do not change and their emotions will cause them to make the same errors over and over again.
Almighty Triangle Patterns
Triangles are some of the most familiar chart patterns used in technical analysis today. The three kinds of triangles, which vary in form and inference, are the ascending triangle, descending triangle, and the symmetrical triangle. Whilst the form of the triangle is noteworthy of greater significance is the direction that the market moves when it breaks out of the triangle.
The reason behind why these patterns are so infamous is that they are quite easy to make out and are reliable market indicators. Technical stock traders should show caution in acting on them in advance, though (i.e. trying to deduce the direction of the breakout). Triangle patterns are not 100% accurate but rather are closer to 75% reliable, hence it is important to place a stop loss. This will save you from a huge loss on the trade.
Good Ascending Triangle
The ascending triangle consists of a flat upper trendline and a rising lower trendline. This formation suggests that the bulls are able to take the stock up to the flat upper trendline resistance time and time again as the bears are losing the ability to take the stock back down to the lower support line (specifically a rising lower trendline).
The ascending triangle is considered as a more reliable formation when they are formed in an uptrend. Buy signals are given when the stock price achieves a breakout above the top resistance level. An ascending triangle is bullish in both up trends and down trends. The presence of an ascending triangle pattern normally signifies a positive trend concerning the price per share of the stock you are analyzing.
Wicked Descending Triangle
The descending triangle is consists of a falling upper trendline and a flat lower trendline. This pattern implies that bears can take the stock back down to the horizontal lower trendline support over and over again while the bulls have lost the ability to bring the stock back up to the upper resistance line (i.e. falling upper trendline).
Descending triangles appear during an overall downtrend as the flat support level and the down-trending resistance level that encompass the consolidation zone converge. They often imply a continuation of the previous trend. Descending triangles, in a preceding uptrend, are predicted to break up and out, rather than down and out. A descending triangle gives technical traders the chance to make big profits quickly. The most common price targets are normally set to equal the entry price minus the vertical height between the two trendlines.
Wishy-Washy Symmetrical Triangles
Symmetrical triangles form with lower highs and higher lows. Because of the way they are shaped, they can forecast either a reversal pattern or a continuation pattern. The price action within the pattern is relatively neutral, but in time will do a breakout and go back into the direction of the original trend.
Symmetrical triangle patterns appear when the stock being charted achieves gradually higher daily low trading prices, while at the same time exhibiting lower intraday highs. This pattern of activity forms a triangle that is proportioned in nature.
Symmetrical triangle patterns are commonly referred to as coils. That’s because, over time, the stock trades within a smaller range, with the stock making higher lows and lower highs. Emotion builds as the stock goes further into the apex of the pattern and sooner or later a breakout occurs. Breakouts usually happen in the middle or the final third of the triangle as with the other sloping triangles.
Symmetrical triangle breakouts are fantastic entry points, when accompanied by high volume.
Additional Ponderings On Breakouts
Breakouts from a triangle, that has become narrow, can be decisive because buying or selling interest has accumulated while the price has gone sideways. Breakouts typically take place after going about two-thirds to three-quarters of the distance between the start of the formation and the apex, but there are exceptions. Furthermore, price can break out to the upside, in which case the pattern becomes a continuation pattern rather than a reversal pattern.
Source by Lance Jepsen