Goals of Chart Pattern Analysis:-
- Identify the most predictable patterns.
- Define rules for trading patterns which result in winning trades.
- We should have more winners than losers, and the losses should be smaller than the gains.
- Chart Patterns are Predictive.
- However, identifying Chart Patterns that “work” 100% of the time is difficult (or impossible).
- Rules are needed to assess and trade The opportunities.
1. Support / Resistance:-
“As market approaches support, and especially as
it reverses, the market participates – adding more
fuel to the fire. Support breaks can create PANIC.”
2. Trend Line Reversal & Break:-
“An invisible line forms as price reacts to it. This
creates a similar psychology as Support and
Resistance lines do. Breaks can create panic.”
3. Saucer Formations:-
“Saucers usually occur at support (resistance,
occasionally). Smooth transitions in price are
noticed, causing buyers (sellers) to enter.”
4. Fibonacci Retracements:-
“Markets typically reverse on eighths, especially 3/8,
4/8, and 5/8 – which is 38%, 50%, and 62%. This is
an observed truth of market psychology.”
5. Price Gaps:-
“Breakaway Gaps mark the beginnings of moves,
Measured Gaps mark the centers of moves, and
Exhaustion Gaps occur at the ends of moves.”
6. Volume Climax & Trend :-
“Climaxes form powerful patterns, indicating an
exhaustion of supply or demand. If the market
does not reverse, it becomes a trend indication.”
7. Consolidations:-
“Consolidations are the most powerful pattern.
Each consolidation will typically imply a move of
equal distance from the last significant low or high.”
SOME OF THE CANDLE STICK'S PATTERN AS BELOW :-
Candle chart:-
The next improvement from the anchor charts was
the candle chart. Although they are shrouded in mystery, the candles
probably started in the early part of the Meiji period (from 1868).
candle lines were a refinement of the anchor
chart. The use of black and white real bodies made analyzing the underlying
supply and demand situation visually easier to determine than
with the anchor charts.
With the arrival of the candle charts, Japanese technical analysis flowered
as people started thinking in terms of signals and trading strategies.
Patterns were developed and market prediction became more important.
Trying to forecast the market took on extra importance in the L870s when
the japanese stock market opened.
