Price Patterns signify a chart trend where securities display sustained change within the exact same direction.
On the stock chart, this shows up as a line connecting successive points, and is known as a pattern.
As far as the benefit to traders is concerned, the essential thing is to recognize which way this new trend is going prior to it really appears on the chart.
In practical terms, it's pretty much the relative number of buyers and sellers.
Demand grows when you can find more buyers than sellers and this bullish trend lures in a lot more buyers so prices keep going up.
Conversely, when you can find a lot more sellers than buyers, prices start to drop which in turn convinces even more traders to start selling.
At some point, this dynamic runs up against opposition then one of two scenarios will occur after that.
Either the value of the stock stays steady and hits a horizontal plateau, or it's going to reverse itself and go in the opposite direction.
These two scenarios are the two principal kinds of price patterns, known as continuation & reversal.
Regardless of which of the two price patterns takes over, the crucial resistance point at which the old trend can longer be maintained is the place where investors ought to begin thinking about what's going to transpire next.
There's not much point in waiting for it to happen and then making a decision.
For this reason technical analysts are required to tightly monitor their real time data screens and charts, so that any early indicators concerning the direction can be picked up.
Traders who want to be able to read the charts like astrologers read tea leaves should commence by understanding all the phases that occur just just before new trends come into existence.
There are four distinct phases - the old trend, a consolidation zone, the breakout point and then the new trend.
The old trend, obviously, is the one which is currently in existence but not for long.
The consolidation zone is often a sort of twilight zone in which the old trend has simply been discarded however there isn't any indication of what the new one will probably be.
The breakout point happens towards the end of the consolidation zone which is where the new trend will come in to existence.
This could seem basic, however these points along with zones are somewhat difficult to forecast in advance.
To do this accurately, analysts have to spend an ungodly amount of time staring at screens and keeping track of real time data.
They need to predict the exact moments when all these stages take place, and know which way the new trend is going to go.
Once it occurs, it's relatively difficult to earn high profits because trade volumes go up which further fuels the cycle.