Forecasting Price Patterns And Their Benefits To Traders
Price Patterns are usually chart trends signifying a directional change in prices for securities. When this change in direction is spread across successive points on the chart, it becomes the new pattern. The primary problem here is finding out about this pattern change prior to it occurs.
Practically speaking, it's a easy case of the ratio of buyers and sellers. If you will find a lot more buyers than sellers, demand increases and also the bullish trend feeds on itself by simply attracting much more buyers at increasingly higher prices. It works the other way too, and a bearish trend falls in on itself with more and more sellers acquiring out at increasingly lower prices.
At some time, this dynamic runs up against resistance and one of only 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. Both of these scenarios are the two main kinds of price patterns, referred to 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 where investors have to start considering what is going to transpire next. There's not much point in waiting for it to occur and then making a choice. This is why technical analysts need to tightly monitor their real time data screens and charts, to ensure that any kind of early indicators concerning the direction can be picked up.
It doesn't happen without warning, so traders can read charts like an astrologer's tea leaves and keep track of stocks as they move through the stages that lead to new price patterns. These stages include the old trend which gives way to the consolidation zone, which in turn ends at a breakout point where the new trend starts. The old trend here is the one currently in existence which is either going to plateau or reverse.
The consolidation period may well be an interim zone on the chart where by old trends are no longer in existence, but there isn't a new one visible either. Towards the end of the consolidation, there occurs a breakout point in which the stock begins heading within the direction of the emerging trend. No doubt this really is straightforward enough to comprehend, however it is not so easy when a investor is trying to figure it out prior to the fact.
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 happens, it's relatively difficult to earn high profits because trade volumes go up which further fuels the cycle.
Practically speaking, it's a easy case of the ratio of buyers and sellers. If you will find a lot more buyers than sellers, demand increases and also the bullish trend feeds on itself by simply attracting much more buyers at increasingly higher prices. It works the other way too, and a bearish trend falls in on itself with more and more sellers acquiring out at increasingly lower prices.
At some time, this dynamic runs up against resistance and one of only 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. Both of these scenarios are the two main kinds of price patterns, referred to 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 where investors have to start considering what is going to transpire next. There's not much point in waiting for it to occur and then making a choice. This is why technical analysts need to tightly monitor their real time data screens and charts, to ensure that any kind of early indicators concerning the direction can be picked up.
It doesn't happen without warning, so traders can read charts like an astrologer's tea leaves and keep track of stocks as they move through the stages that lead to new price patterns. These stages include the old trend which gives way to the consolidation zone, which in turn ends at a breakout point where the new trend starts. The old trend here is the one currently in existence which is either going to plateau or reverse.
The consolidation period may well be an interim zone on the chart where by old trends are no longer in existence, but there isn't a new one visible either. Towards the end of the consolidation, there occurs a breakout point in which the stock begins heading within the direction of the emerging trend. No doubt this really is straightforward enough to comprehend, however it is not so easy when a investor is trying to figure it out prior to the fact.
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 happens, it's relatively difficult to earn high profits because trade volumes go up which further fuels the cycle.
Source...