Technical side: Chart Patters what are they?
In technical analysis, the distinctive formation created by the movement of security prices on a chart. It is identified by a line connecting common price points (closing prices, highs, lows) over a period of time. Chartists try to identify patterns to try to anticipate the future price direction. Also known as “trading pattern”.
So generally chart patterns are formations made by connecting some points of the stock’s movement for a period of time. With this definition one chartist may see a different chart pattern from another chartist if they have different time period and different movements as a connecting point.
Chart patterns can be made whether one uses a Candlestick chart, a Bar Chart, or a simple Closing Price Chart. These patterns are not exact and accurate answer to everyone’s question if a stock is a buy or a sell but mainly it guides one to at least know what is the probable price action of the stock in the next couple of days base on historical price movement.
Patterns can be classified as Bullish pr Bearish chart patterns.
Bullish chart patterns are patterns that signify an upward trend meaning price action is predicted to go up because sellers are pushing the price up and buyers are willing to buy at a higher price believing that stock price are still going up due to an expected market recovery or boom in the economy.
Bearish chart patterns are the opposite of a bullish market. A bearish pattern signify an expected decline in prices brought about by fear of economic downfall or an expected poor economy. Such fear spur panic to investors thus sellers sell down to grab as much profit they can take before market gets stuck. Buyers on the other hand bargain hunt thus they bid for lower prices.
Patterns as well can be viewed as a Reversal or Continuation.
Reversal patterns indicate a opposite action from what has already been happening in the stock’s price. If the stock has been on a downtrend for sometime a reversal pattern will indicate an expected upward thus investors anticipate such reversal and thus buy more of the stock to capitalize on the stocks lower price.
Continuation pattern on the other hand indicates that the stock price will be expected to go up further. With this expectation investors will buy more to ride with the stocks seemingly continuing rise.