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chart_analysis:introduction_to_chart_patterns [2019/06/24 19:38] 127.0.0.1 external edit |
chart_analysis:introduction_to_chart_patterns [2023/05/22 14:39] (current) jayanthi |
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| ====== Introduction to Chart Patterns ====== | ====== Introduction to Chart Patterns ====== | ||
| - | ===== Introduction ===== | + | ===== What Are Chart Patterns? ===== |
| - | There are hundreds of thousands of market participants buying and selling securities for a wide variety of reasons: hope of gain, fear of loss, tax consequences, short-covering, hedging, stop-loss triggers, price target triggers, fundamental analysis, technical analysis, broker recommendations and a few dozen more. Trying to figure out why participants are buying and selling can be a daunting process. Chart patterns put all buying and selling into perspective by consolidating the forces of supply and demand into a concise picture. As a complete pictorial record of all trading, chart patterns provide a framework to analyze the battle raging between bulls and bears. More importantly, chart patterns and technical analysis can help determine who is winning the battle, allowing traders and investors to position themselves accordingly. | + | Hundreds of thousands of market participants buy and sell securities for many reasons: the hope of gain, fear of loss, tax consequences, short-covering, hedging, stop-loss triggers, price target triggers, fundamental analysis, technical analysis, broker recommendations, and so on. Determining why investors are buying and selling can take time and effort. This is how making sense of chart patterns can help. |
| + | Chart patterns put all buying and selling into perspective by consolidating the forces of supply and demand into a concise picture. This visual record of all trading provides a framework to analyze the battle between bulls and bears. More importantly, chart patterns and technical analysis help determine whether bulls or bears are winning the battle. This allows traders and investors to position themselves accordingly. | ||
| - | In many ways, chart patterns are simply more complex versions of trend lines. It is important that you read and understand our articles on [[:chart_analysis:support_and_resistance|Support and Resistance]] as well as [[:chart_analysis:trend_lines|Trend Lines]] before you continue. | + | In many ways, chart patterns are simply more complex versions of trend lines. It's important that you read and understand our articles on [[:chart_analysis:support_and_resistance|Support and Resistance]] as well as [[:chart_analysis:trend_lines|Trend Lines]] before you continue. |
| Chart pattern analysis can be used to make short-term or long-term forecasts. The data can be intraday, daily, weekly or monthly and the patterns can be as short as one day or as long as many years. Gaps and outside reversals may form in one trading session, while broadening tops and dormant bottoms may require many months to form. | Chart pattern analysis can be used to make short-term or long-term forecasts. The data can be intraday, daily, weekly or monthly and the patterns can be as short as one day or as long as many years. Gaps and outside reversals may form in one trading session, while broadening tops and dormant bottoms may require many months to form. | ||
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| Pattern analysis may seem straightforward, but it is by no means an easy task. Schabacker states: | Pattern analysis may seem straightforward, but it is by no means an easy task. Schabacker states: | ||
| - | <box 80%>//The science of chart reading, however, is not as easy as the mere memorizing of certain patterns and pictures and recalling what they generally forecast. Any general stock chart is a combination of countless different patterns and its accurate analysis depends upon constant study, long experience and knowledge of all the fine points, both technical and fundamental, and, above all, the ability to weigh opposing indications against each other, to appraise the entire picture in the light of its most minute and composite details as well as in the recognition of any certain and memorized formula.//</box>\\ | + | ---- |
| + | "The science of chart reading, however, is not as easy as the mere memorizing of certain patterns and pictures and recalling what they generally forecast. Any general stock chart is a combination of countless different patterns and its accurate analysis depends upon constant study, long experience and knowledge of all the fine points, both technical and fundamental, and, above all, the ability to weigh opposing indications against each other, to appraise the entire picture in the light of its most minute and composite details as well as in the recognition of any certain and memorized formula." | ||
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| Even though Schabacker refers to "the science of chart reading", technical analysis can at times be less science and more art. In addition, pattern recognition can be open to interpretation, which can be subject to personal biases. To defend against biases and confirm pattern interpretations, other aspects of technical analysis should be employed to verify or refute the conclusions drawn. While many patterns may seem similar in nature, no two patterns are exactly alike. False breakouts, bogus reads, and exceptions to the rule are all part of the ongoing education. | Even though Schabacker refers to "the science of chart reading", technical analysis can at times be less science and more art. In addition, pattern recognition can be open to interpretation, which can be subject to personal biases. To defend against biases and confirm pattern interpretations, other aspects of technical analysis should be employed to verify or refute the conclusions drawn. While many patterns may seem similar in nature, no two patterns are exactly alike. False breakouts, bogus reads, and exceptions to the rule are all part of the ongoing education. | ||