Blog

10 Essential Chart Patterns for Beginners

Chart patterns are the most essential tool for technical analysis. Chart pattern is a pattern within the market price chart. These patterns help you to forecast prices in future based on their past movements. Candle charts are mostly used for Chart patterns. Since they show the opened and closed prices to investors and they are easier to read. Chart patterns are divided into continuous patterns and reversal patterns. Continued pattern is the pattern which continues its existing direction and when the pattern signals a change in price directions it is a reversal pattern. Some patterns work better in a bullish market and some others work better in a bearish market. Ten patterns are explained below, however only familiarizing yourself with them does not help you. You should study more about chart patterns and their applications. Keep in mind that none of these patterns are superior, they just show an assets rise and fall price history. They have different applications for different chats. Nonetheless it is necessary to know The other patterns

 

1.double top

As it can be seen in the picture, the double top chart is a reversal chart pattern. An asset’s price reaches a top before it decreases to support level and after coming down to support level it goes up to the second top, after the second top it decreases and goes lower than the support line and continues that way for a long period of time.

 

 

2.double bottom

It is like a double top pattern so it is a reversal chart pattern as well, but it’s a bullish chart. In this pattern, after being high for a while, the asset’s price falls lower than the support line and then goes up to reach the support line. After that it decreases again and goes lower than the support line near the previous bottom. In this situation it is predicted that it will go high for a long period of time.

3.cup and handle

The cup is like a round bottom and the handle is similar to the wedge pattern that will be explained in the coming lines. This pattern is a continuous bullish chart. After a rising period, the price chart goes to a short period of bearish time which is the handle, this pattern forecasts that after a short bearish period of time, the chart will enter the long lasting bullish time.

4.wedges:

The rising wedge chart goes between support and resistance lines. In this chart the support line is steeper than the resistance line. This pattern shows that asset’s price eventually will decrease and will go on bearish.

In falling wedge chart support and resistance line are downward and the resistance line is steeper than the support line. Asset price is assumed to go up and experience bullish time in this chart pattern.

Both wedge charts are reversal charts.

5.head and shoulder

This pattern forecasts reversal bullish to bearish. In this chart there is a peak and two other tops which are lower than the peak. After the first and second peak the chart falls to the support line but after the third pick it falls lower than the support line.

6.rounding bottom

This chart can be a continuous pattern or a reversal one. In this picture it is a reversal. If in a bullish uptrend before going higher, the chart enters the downtrend part and then slowly goes up; it is a continuous rounding bottom. In reversal one the asset price is in downward trend and before it reverses to upward trend it goes to a rounding bottom it will be a reversal chart pattern.

7.pennant

It can be either bullish or bearish. Pennant happens when an asset’s price after a high upward trade enters smaller upward and downward trade. It is similar to the wedge or triangle pattern so there  are points to notice that pennants are always horizontal but wedges are ascending all the time and flags are smaller than triangles.

8.ascending triangle

It is a bullish continuation pattern. Top trending peaks make the resistance line and the lowest bottoms make the support line. In this pattern the support line is steeper than the resistance line. And it forecasts upward trending in total.

9.descending triangle

Descending triangle shows a bearish continuation of the downtrend. Horizontal line is the support line and the downward-sloping line is the resistance line. In this pattern the asset price goes lower than the support line and continues that way.

10.Symmetrical triangle

It can be either bullish or bearish. It is a continuous chart pattern which means the chart will act like it has been and repeats itself.

Copyrights © 2021 ZareTech.