the keys to successful chart analysis are application, concentration, and regularity.
Application Learn the basic of chart analysis, apply your knowledge on a regular basis, and continue learning all the time.
Concentration and consistency limit the number of charts, indicators and methods you use. focus only on a few and learn how to use them well.
Regularity update your chats on a regular basis after market hours and study them diligently . it has been a ritual for us to update our charts and analyze them after the market hours every day.
Table of Contents
Chart Patterns of Classification
the tug-of-war between the demand and supply of a particular security gets reflected as patterns or formations on price charts. such patterns, if read correctly, can be used by a shrewd trader to his or her advantage. these patterns are graphical depictions of the fear and greed present in the market. remember, chart patterns are the footprints of the bulls and bears of the stock market.
Charts pattern can be analyzed by looking at support, resistance and trend lines. traders all over the world use chart patterns to identify trends. and old stock market saying goes: “the trend is your friend.” accordingly, traders attempt to recognize the trend early by analyzing chart patterns.
- Reversal Patterns,
- Consolidation or continuation patterns, and
- Trend patterns.
Reversal Patterns
these are patterns that show imminent tops in bull market and bottoms in bear market and are analyzed by also taking into account the volume of trade. some of the well known reversal patterns are head and shoulders pattern, rounded bottom/ top pattern, double bottom / top pattern, wedge top, diamond reversal pattern, etc.
Consolidation or Continuation Patterns
these patterns indicate an indecisive tug of war between bulls and bears. these patterns reveal a temporary pause in the advancing, or declining ,price and indicate that the market/ security is taking a breather before starting its next move. volume is usually low during periods of consolidation. some common consolidation, or continuation, patterns include symmetrical triangles, ascending and descending triangles , wedges, flags and pennants ,rectangles, etc.
Trend Patterns
Trend patterns highlight the areas of support and resistance. some of these patterns are fan lines,gaps, trend lines and channels.
some chart patterns have a high rate of success in trading. chart patterns are useful gauges of momentum , support and resistance, and other indications of strength or weakness in a security. chart patterns also help traders determine market direction and in timing their entries and exits.
chart patterns provide a framework for analyzing the battle raging between the bulls and bears by providing a complete pictorial record of all trading.
Use of multiple time frames
use of multiple time frames can prevent a trader from getting swayed by whipsaws and noise accompanying the short, intermediate and long term trends.
by multiple time frames we mean plotting of two different time frames on a single price chart. when both the longer time frame and the shorter time frame charts are moving in the same direction, they are said to be in “gear”.
the higher time frame price activities are used to define the tradable trend as well as potential support and resistance levels.
markets exist simultaneously in several timeframes. they exist on a 5-minute chart, 30-minutes chart and hourly chart , a daily chart, a weekly chart, and so on. when charts of different time frames are in harmony, it’s easy to trade. when charts of different time frames are in harmony, it’s easy to trade. the challenge arises when one encounters two different patterns on two different time frames. the signals in different time frames of the same security often contradict one another; for example, a trader many come across a sell signal on the weekly chart and a but signal on the daily chart.
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