Introduction to Price Patterns

   

So far in our The Technician: Technical analysis series we have covered Dow Theroy, Support & Resistance, Trendlines, Channel lines, Fan Principle, Climax & Island Reversal. Now, we are all set ot begin price patterns.

Price Patterns:

According to John J Murphy, "Price Patterns are pictures or formation which appear on the price charts of stock or commodities, that can be classified into different categories, and that have predictive value"

In our previous post we discussed about trend analysis, which explains the overall direction of price movement. If price is making higher highs and lower lows, it will be uptrend and if it is making lower highs and lower lows it is downtrend. But, at times we see price action to be moving sideways. It is the sideways movement in the price when the analyst has to decide whether the trend will continue or it is going to reverse. There can be two types of price patterns:

1) Reversal Pattern- Reversal patterns when occur Indicate that a major change or shift in trend is going to take place. Means if the stock is in uptrend reversal patterns suggest that the stock may start correction soon while if a stock is in downtrend the occurrence of reversal patterns would suggest that the stock will begin upmove soon. Our aim while learning these patterns will be to spot the reversal as early as possible

2) Continuation Pattern- While a stock is in consolidation mode or is moving sideways the occurrence of continuation pattern signals that the stock's ongoing trend prior to consolidation will continue. Here, also is to spot such signals at right time and to get benefited from it.

We will be discussing both these price patterns in our coming posts. In order to make sure you can make most of them please go through the following major lessons, in order to form a strong base for upcoming lessons:

Introduction to Charting

The Trend is your friend

Support & Resistance

The Trend Lines

Happy Learning

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