Chart patterns play an important role in successfully conducting the stock market technical analysis.It helps in understanding the price movements and how these price movements can be used to predict the future of a stock.A successful investor always endeavors to devise innovative investing strategies through understanding hidden market trends by properly using these chart patterns. If you want to understand the trends, channels, conflict, triangles and reversals, you have to select most useful chart patterns,as they can be used to carry out the Stock Market Technical Analysis. Following are top 5 powerful chart patterns to identify the market changing events.
The gap chart is generally caused by a small interval of no trading in a trading session.In this chart pattern there is a large difference between the opening and closing prices. After any gap, the new price will represent an important price level.
The higher gap should allow the stock to move higher, and the lower gap may pressurize the stock for lower positions. The trend usually follows the direction of gaps until the next change in prices.
Head and Shoulders
It is a prevailing pattern that marks a top and low price targets. There are two types of head shoulders chart patterns.The one chart patterns is called head shoulder top and other chart pattern is called head and shoulder bottom.In the head and shoulder top chart pattern, initially left shoulder is created by high prices then prices fall down to a low level .Then they again climb up even higher creating a head.After that they fall from that level and climb up once again forming right shoulder.The prices at the right shoulders and left shoulders are always lower than the head.
The low points are connected to form and identify a neckline. The neckline shows the complete pattern and the lower or upper trends in the prices.The head and shoulders bottom chart patterns are totally opposite to the head and shoulders top chart patterns.In this chart pattern lowest prices form the head and highest prices form left and right shoulders.
The wedge chart pattern is the most popular pattern found among the stocks and other traded items.According to the detail both highest and lowest price patterns are found in the wedge chart patterns.
A falling wedge is formed at low prices and then it moves upwards with the high prices of the traded items.
Triangle is a very unique type of chart pattern.In this type of chart pattern the prices of the trading item move in a zigzag manner.This zigzag movement in the prices gives it a triangle shape.
This chart pattern is very useful for investors as it provides important information about the price movements of the trading items. There are three types of triangle chart patterns namely ascending triangle,descending triangle and symmetrical triangle.
Cup and Handle
The cup and handle is another very important chart pattern used in the stock market technical analysis.It indicates that bullish trend will continue in the market.The price movement in this pattern gives it a cup and a handle shape.
It also means that there will be more increase in the price of the trading items.Investors can easily predict the future of their favorite stocks by effectively using these chart patterns. This can be used in conducting a effective stock market technical analysis.