Trading Fibonacci

Identifying Chart Patterns

Tweet

Identifying and Evaluating Chart Patterns

A chart pattern aims to explain the repeating behavior of human nature when trading the global financial markets.

What is a Chart Pattern? (our definition)

A chart pattern is a set of identifiable price formations that occur during the analysis of a data series. After filtering and eliminating the random market noise, a recognizable chart pattern can be used for evaluating the potential continuation or reversal of the master price trend.

General Insights about Patterns in a Time Series

In a time-series, a pattern is a formation of data which is based on a trend, on seasonality, or on both. There are three general categories of recognizable patterns:

(i) Trend Patterns (following a certain trend)

(ii) Seasonality Patterns (repeated over time)

(iii) Multiplicative Seasonality Patterns {(i) and (ii) combined}

Note that the chart pattern described below are based on a price trend (i), and not on seasonality (ii). Nevertheless, there are some types of financial patterns that are based on seasonality, and these patterns are called financial circles.

Chart Patterns

The ability to recognize chart patterns is very important, no matter the timeframe you trade. Chart patterns can reveal the real dynamics of the market, and at the same time, they can forecast the direction of the upcoming price action.

A chart pattern can emerge anywhere, from the 15-Minutes to the 1-Month timeframe, and it is able to spot both the continuation or the exhaustion of the trend.

Key Benefits from Identifying Chart Patterns

• Can be very helpful in analyzing the market dynamics

• Can spot trend reversal and trend continuation

• Can often explain the real price action when indicators can’t

• Can generate reliable trade signals

• Can be combined with any other technical analysis method

• Can be instantly visualized (in any timeframe)

Read more: Identifying Chart Patterns