What are Chart patterns?
A chart pattern is a shape within a price chart that helps to suggest what prices might do next, based on what they have done in the past. Chart patterns are the basis of technical analysis and require a trader to know exactly what they are looking at, as well as what they are looking for.
There is no one ‘best’ chart pattern because they are all used to highlight different trends in a huge variety of markets. Often, chart patterns are used in candlestick trading, which makes it slightly easier to see the previous opens and closes of the market.
Chart patterns fall broadly into three categories: continuation patterns, reversal patterns, and bilateral patterns.
The most important thing to remember when using chart patterns as part of your technical analysis is that they are not a guarantee that a market will move in that predicted direction – they are merely an indication of what might happen to an asset’s price.
Some chart patterns:
Head and Shoulders
Cup and Handle
Pennant or flags
Ascending, Descending, and Symmetrical Triangle