The key here is to increase the statistical probability by combining what you see in a chart pattern with other indicators and factors such as moving averages and historical volumes. It comes down to statistics.Ĭhart patterns are a raw technical analysis tool that points to statistically probable outcomes. That being said, chart patterns are not always accurate, and sometimes what is predicted to happen doesn’t happen, or even the opposite happens sometimes. So there is absolute reliability to them. Join Over 20.5k Followers who stay connected with us on Follow us Are Chart Patterns Reliable?Ĭhart patterns have been used for a long time by investors to help them make investment decisions in the market. So make sure you juxtapose with other forms of analysis like fundamental analysis, or other technical indicators like historical volume to give yourself the best chance at using patterns to know how a stock will move in the future. Lastly, chart patterns are an effective tool used in both simple and complex strategies for trading options, but they should not, and do not serve as a guarantee. Moving averages, trend lines, and support and resistance levels are key indicators that help investors identify the patterns. Now, the patterns themselves begin to ‘manifest’ as lines and curves are drawn on price graphs. Examples include rectangle, triangle, and wedge patterns. Some refer to this as “teeter-tottering”. Bilateral patterns indicate a stock’s price movement within a range of support and resistance levels. Examples include head and shoulders, double tops and bottoms, and trend line breaks. Reversal patterns indicate a change in the direction, or the reverse of a stock’s price trend. Examples include flags, pennants, and rectangles. There are several types of chart patterns such as continuation patterns, reversal patterns, and bilateral patterns.Ĭontinuation patterns indicate that the current trend in a stock’s price will continue. We’ll go over bullish, bearish, and neutral patterns so that you can spot patterns no matter what direction a security’s price is moving.Ĭhart patterns are a technical analysis tool used by investors to identify and analyze trends to help make decisions to buy, sell, or hold a security by giving investors clues as to where a price is predicted to go. This guide serves as a reference and a go-to guide to the most commonly used, and arguably most effective chart patterns used in trading. Still – the more you know and understand about chart patterns, the better you’ll be able to predict what’s next. Understanding stock chart patterns can help us to know what’s coming in the future, which is advantageous to us if we want to turn money into more money, of course.īut there’s no guarantee here. One common way to do this is to recognize chart patterns. We can tap into this ancient wisdom, and apply it to the stock market to help capture profit. Humans are designed to recognize patterns.

Stock patterns