We have been exploring chart analysis over the last few articles. Mainly, we have been discussing support and resistance levels, and polarity. Now, a quick look at chart pattern basics, a topic worthy of our time.
Chart pattern basics
Over any sort of chart pattern analysis, chart patterns are of huge help. These are small price fluctuations that often appear on charts. They are indicators of future price points, that you may not predict otherwise. Basically, if you want to find out what the price of an asset will be, this is worth learning about. The benefit is obvious if you are investing. People tend to develop patterns and ways of trading over the years. Charts reflect this. Therefore, with the price movement guidance, you could figure out where people will likely move. Likely is the keyword here. These are not set in stone and do not indicate anything for 100% certainty. Therefore, using these chart patterns can become more of an art, overall. You slowly gain a feel for how stock markets move, overall.
Every pattern has a likely outcome that you need to know separately. There is also a percentage for completion, showing the likeliness of outcome. According to analyst Thomas Bulkowski, there are over 14,000 chart patterns to look out for. This is what he learned in his decades of experience in trading. All of these patterns are quite close in their alignment with Wyckoff’s market cycles.
The better defined a chart pattern, the better it is. If a chart pattern makes vague and very basic predictions, it is unlikely to be a promising indicator.
You should also keep in mind any long-term price patterns. This means looking deep into the past of an asset’s price. Price patterns tend to repeat themselves over time, for specific assets. This could be downsides at a particular time of the year or any number of factors.