subject: Understanding Price Patterns And Their Benefit To Traders [print this page] Understanding Price Patterns And Their Benefit To Traders
Price Patterns are recognizable formations on a chart created by shifting prices of securities. When there's a constant movement within the exact same direction across several successive points on the chart, that's a pattern. The trick (and money) is in understanding what the pattern for the market or a particular stock will likely be . Practically speaking, it's a straightforward matter of the ratio of buyers and sellers. If you can find a lot more buyers than sellers, demand increases and the bullish trend feeds on itself by simply bringing in more buyers at increasingly higher prices. It functions the other way too, and a bearish trend falls in on itself with more and more sellers obtaining out at increasingly lower prices. This dynamic at some point loses steam and once it occurs, 1 of 2 things is sure to take place - the stock could stop going up or down and hold the line in a steady value, which indicates that the volume of buyers and sellers is equal. Or, the stock could reverse the existing trend and move in the opposite direction. The technical saying for both of these price patterns is continuation and reversal. Regardless of which of the two price patterns takes over, the important resistance point at which the previous trend can longer be sustained is where investors have to start thinking about what is going to happen next. There's not much point in waiting for it to occur and then making a choice. This is why technical analysts have to closely keep tabs on their real-time data screens and charts, to ensure that any early indicators about the direction can be picked up. It doesn't happen without warning, so traders can read charts like an astrologer's tea leaves and maintain 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 is an interim zone on the chart where by old trends are no longer in existence, but there isn't a new one visible either. At the end of this consolidation, generally there occurs a breakout point where the stock begins heading inside the direction of the new trend. No doubt this really is straightforward enough to comprehend, but it's not so straightforward when a investor is attempting to figure it out just before the fact. In order to get it right, an analyst has to spend countless hours monitoring screens and staying on top of real-time data. It is important to figure out the exact moments when all these zones, points and trends are going to happen, not to mention the direction of said new trend. It's a lot harder to earn significant profits once new price patterns kick in, because volumes commence climbing as a lot more traders ride the trend.
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