Price Patterns / Chart Patterns Part 1

Transitions between a rising and falling trend are often signaled by price patterns  or also known as chart patterns.

The concept and techniques of price patterns / chart patterns are concerned with analysis of any price trend that has been determined by the interaction of buyers and sellers in a free market. Typical price cycle in which there are three trends: up, sideways, and down.

Sometimes a highly emotional market can change without warning, but this rarely happens. Consider a fast-moving train, which takes a long time to slow down and then go into reverse; the same is normally true of financial markets.

To the market technician, the transitional phase has great significance because it marks the turning point between a rising and a falling market. If prices have been advancing, the enthusiasm of the buyers has outweighed the pessimism of sellers up to this point, and prices have risen accordingly.

During the transition phase, the balance becomes more or less even until finally, for one reason or another, it is tipped in a new direction as the relative weight of selling pushes the trend (of prices) down. At the termination of a bear market, the reverse process occurs.

These transition phases are almost invariably signaled by clearly definable price patterns / chart patterns or formations. The successful completion of such patterns or formations alerts the technician to the fact that a reversal in trend has taken place.