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Chart pattern

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A chart pattern or price pattern is a pattern within a chart when prices are graphed. In stock and commodity markets trading, chart pattern studies play a large role during technical analysis. When data is plotted there is usually a pattern which naturally occurs and repeats over a period. Chart patterns are used as either reversal or continuation signals.

There are four main types of chart patterns which are used by technical analysts:

Traditional Chart Pattern

Included in this type are the most common patterns [1] which have been introduced to chartists for more than a hundred years. Below is a list of the most commonly used traditional chart patterns:

Reversal Patterns:

  1. Double Top Reversal
  2. Double Bottom Reversal
  3. Triple Top Reversal
  4. Triple Bottom Reversal
  5. Head and Shoulders
  6. Key Reversal Bar[2]

Continuation Patterns:

  1. Triangle
  2. Flag and Pennant
  3. Channel
  4. Cup with Handle

Harmonic Pattern

Harmonic Pattern[3] utilizes the recognition of specific structures that possess distinct and consecutive Fibonacci ratio alignments that quantify and validate harmonic patterns. These patterns calculate the Fibonacci aspects of these price structures to identify highly probable reversal points in the financial markets. This methodology assumes that harmonic patterns or cycles, like many patterns and cycles in life, continually repeat. The key is to identify these patterns and to enter or to exit a position based upon a high degree of probability that the same historic price action will occur.

Below is a list of commonly used harmonic patterns:

  1. Bat
  2. Butterfly
  3. Gartley
  4. Crab
  5. Deep Crab
  6. Shark
  7. 3 Drives
  8. AB=CD
  9. 5-0

Traders use the Potential Reversal Zone (PRZ) as an important level of support/resistance in their trading and price action strategy.

XABCD Patterns

XABCD Patterns[4] are the latest categories of candlestick pattern in which a pattern is measured using both Fibonacci time and Fibonacci price. XABCD Patterns are created by measuring both up and down and left to right. This leads to a much more consistently shaped pattern. The XABCD type of pattern is broken down into two main classifications:

  1. ETP (Extension Time Patterns)
  2. RTP (Retracement Time Patterns)
  3. XTP (X-Point Time Patterns)

These XABCD patterns can both be traded as a counter-trend trade or a trend continuation trade. Each pattern has a specific area defined as its reversal and targets.

Candlestick Pattern

In technical analysis, a candlestick pattern is a movement in prices shown graphically on a candlestick chart that some believe can predict a particular market movement. The recognition of the pattern is subjective and programs that are used for charting have to rely on predefined rules to match the pattern. There are 42 recognized patterns that can be split into simple and complex patterns.

Steve Nison is the person who introduced candlesticks to the West.[5] There are hundreds of candlestick pattern available which are discussed in Steve's book Japanese Candlestick Charting Techniques.

See also

References

  1. ^ "Chart Patterns". StockCharts.com. Retrieved 2019-05-23.
  2. ^ "Key Reversal Bar". FinanceStrategySystem. Retrieved 2018-04-10.
  3. ^ Harmonic Trading, Volume One: Profiting from the Natural Order of the Financial Markets By Scott M. Carney Published Apr 12, 2010 by FT Press.
  4. ^ The Complete Guide to XABCD Patterns by XABCD Trading Published Sep 6, 2017
  5. ^ Kilgore, Tomi. "The 'candlesticks man' says he's not buying stocks". MarketWatch. Retrieved 2018-12-31.
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