Understanding Chart Patterns

Identifying chart patterns is simply a system for predicting stock market trends and turns! Hundreds of years of price charts have shown that prices tend to move in trends. Well, a trend is merely an indicator of an imbalance in the supply and demand. These changes can usually be seen by market action through changes in price.

These price changes often form meaningful chart patterns that can act as signals in trying to determine possible future trend developments. Research has proven that some patterns have high forecasting probabilities.
These patterns include:

• The Cup & Handle
• Flat Base
• Ascending and Descending Triangles
• Parabolic Curves
• Symmetrical Triangles
• Wedges, Flags and Pennants
• Channels
• the Head and Shoulders Patterns

11 Most Common Stock Chart Patterns

The Cup & Handle Pattern

The Cup & Handle Pattern The Cup & Handle is the corrective action after a powerful stock advance.

The Flat Base Pattern

The Flat Base is a stock pattern that goes horizontal for any length of time. Very powerful advances can be had from this formation.

The Ascending Triangle Pattern

The Ascending Triangle is a variation of the symmetrical triangle. Ascending triangles are generally considered bullish and are most reliable when found in an up-trend.

The Parabolic Curve Pattern

The Parabolic Curve is probably one of the most highly prized and sought after pattern. This pattern can yield you the biggest and quickest return in the shortest possible time.

The Wedge Formation Pattern

The Wedge Formation is also similar to a symmetrical triangle in appearance, in that they have converging trend lines that come together at an apex. However, wedges are distinguished by a noticeable slant, either to the upside or to the downside.

The Channel Pattern

Channel Patterns should generally be considered as a continuation patterns. They are indecision areas that are usually resolved in the direction of the trend.

Symmetrical Triangles

Symmetrical Triangles can be characterized as areas of indecision. A market pauses and future direction is questioned. Typically, the forces of supply and demand at that moment are considered nearly equal.

The Descending Triangle Pattern

The Descending Triangle, also a variation of the symmetrical triangle, is generally considered to be bearish and is usually found in downtrends.

The Flag & Pennant Pattern

Flags and Pennants can be categorized as continuation patterns. They usually represent only brief pauses in a dynamic stock. They are typically seen right after a big, quick move.

Head & Shoulders Pattern

The Head and Shoulders Pattern is generally regarded as a reversal pattern and it is most often seen in up-trends. It is also most reliable when found in an up-trend as well.

Inverted Head & Shoulders Pattern

The Head and Shoulders Pattern can sometimes be inverted. The inverted head and shoulders is typically seen in downtrends.