Types of Chart Patterns
What are the different types of chart patterns?
Chart patterns can be basically classified into: Reversal and Continuation Patterns
- Reversal patterns indicate that an important reversal in the trend is taking place.
- Continuation patterns suggest only a pause in the current trend, after which the main trend will resume.
There are some preliminary points which needs to be kept in mind for all reversal patterns.
- Existence of a prior trend.
- The first signal of an impending trend reversal is often the breaking of an important trendline.
- The larger the pattern, the greater the subsequent move.
- Topping patterns are usually shorter in duration and more volatile than bottoms.
- Bottoms usually have smaller price ranges and take longer to build.
- Volume study is very important.
Examples of common reversal patterns are: Head and shoulder, Double top / bottom, Cup and handle and many more.
- Continuation patterns are an indication that the current trend is in a pause mode.
- These patterns occur in the middle of a trend and signal that once a pattern has completed, the trend will most likely resume.
- All kinds of time frames can be scoured for continuation patterns, such as tick charts, daily or weekly charts.
Examples of common continuation patterns are: Triangles, flags, pennants, and rectangles.
Note: Under reversal patterns & continuous patterns, several types of chart patterns exist that we will learn in our upcoming units.