Chart patterns give us an opportunity to predict, with certainty, next market direction and levels where price will reach. Chart patterns as you know are two type – trend reversals and trend continues. These patterns usually show that market is indecision.
Market participants , that made last movement, are exhausted and need time to rest and movement is in pause. In such pauses we noticed, some chart patterns. Meanwhile opposite camp is not resting, they are gathering power and ready to fight. The nature of chart patterns represent the move of two camps (buyers and sellers). If those who were in command of previous movement, were prepared better – bars of the chart will gather in continuous pattern, otherwise in reversal.
There are some rules for these strategies:
- Presence of trend.
- The bigger the formation is, bigger will be potential for price movement. The height of formation measures volatility, while width time, needed to build and complete it.
- Forming of the high is more quicker than forming a low.
- Every pattern could be failed. You must not relay, that first break will be true one you need more conformation.
We will cover in this section: