Chart patterns Definition
Chart Pattern is the study of the pattern that is naturally formed within a stock chart when the prices are graphed. In stock and commodity markets trading, chart pattern studies play a large role. When data is plotted there is usually a pattern which naturally occurs and and repeats over a period of time.
Some people claim that by recognizing chart patterns they are able to predict future stock prices and profit by this prediction; other people respond by quoting "past performance is no guarantee of future results" and argue that chart patterns are merely illusions created by people's subconscious. Certain theories of economics hold that if there were a way to predict future stock prices and profit by it then when enough people used these techniques they would become ineffective and cease to be profitable. On the other hand, if you can predict what other people will predict the market to do then that would be valuable information.
Elliott Wave is also a theory developed by studying historical chart patterns.
These are some of the chart patterns widely in use in the trading community:
- Head and Shoulders
- Ascending Triangles
- Descending Triangles
- Price Channels