| Charts are the ultimate technical indicators. The | | | | 2. Head and Shoulders pattern is usually seen as a |
| definition of a technical analysis is the interpretation | | | | reversal pattern and most often occurs in an uptrend. |
| of past price action. Charts take these past price | | | | What happens is that the market begins to slow |
| action and form them into a coherent manner | | | | down and buyers and sellers supply have equal |
| whereby you can see the data in a graphical manner | | | | strength. On the left shoulder the sellers try to |
| instead of all those figures. | | | | depress the market, the buyers come in and force it |
| As trading is a process of human interaction, (one | | | | up to a peak (head) then the sellers come in again |
| person wants to buy the other ones to sell) history | | | | and force it to a low (right shoulder) finally the |
| will repeat itself. If nothing else we humans are a | | | | buyers gather strength and the trend shifts to an |
| fairly predictable lot! | | | | upward motion. Head and Shoulders is best seen with |
| Chart patterns emerge because humans are | | | | a larger time line and is fairly accurate when used as |
| predictable creatures and that we cause history to | | | | such. |
| repeat itself. Thus technical indicators become | | | | 3. Lastly we have the wedge. In appearance it is |
| accurate and important for us traders. Charts give to | | | | rather similar to the symmetrical triangle. We can |
| us the graphical representation of the data and | | | | differentiate it be its noticeable slant either to the |
| visually prompt us that a high probability trade will be | | | | upside or to the downside. |
| coming up soon. Thus Chart patterns act as a | | | | A bullish trend is classified by a falling wedge and a |
| predictive indicator! This in itself is different from | | | | rising wedge usually shows a bearish trend. But this is |
| most technical indicators as technical analysis is based | | | | not always and they can reverse. As a tool I would |
| on historical data, and rarely acts as a predictive tool. | | | | not really recommend looking at wedges as there |
| Regardless of the charts you use here are some of | | | | needs to be a lot of secondary information before it |
| the more common chart patterns: | | | | becomes helpful. Stick to the easiest source and that |
| 1. Symmetrical triangles can be described as areas of | | | | is the best way. |
| uncertainty. The market is consolidating because the | | | | Chart patterns should not be used alone as a stand |
| forces of supply and demand at that moment are | | | | alone tool. Instead as a leading indicator they are |
| nearly equal. Each new lower top and higher bottom | | | | very useful to prompt the trader that a possible |
| becomes shallower than the last. This state doesn't | | | | breakout is occurring. Based on your trading plan, |
| last forever as the market will move and usually it | | | | then you can look to profit from this turn of events. |
| explodes out of this formation (which means that | | | | Most professional traders do have trading plans that |
| there will be a lot of energy in that movement.) | | | | trade breakouts. Over the years I have found it very |
| Research tells us that the movement will usually be in | | | | useful to have different trading plans for different |
| the direction of the trend. Thus when coupled with | | | | situations. That allows me to trade all trades. It gives |
| proper Fundamental analysis and trend studies, this | | | | to the trader more opportunities and that leads to a |
| patter becomes a good predictive tool to ascertain | | | | faster growth in your account. |
| new market movements. | | | | |