Chart Patterns: Understanding A Stock’s Price Movement

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Stock investing requires knowledge of knowing when to buy and when to sell. Having such information gives one an edge and gives one an opportunity to take profits.

A stock’s price is like a bouncing ball. At times its up and at times its down. Its movement depends how hard or how strong in hit the ground and when it does there is a big force that make sit bounce higher. As the stock market world progresses, lots of stock analyst found out that such points do repeat and thus a new line of understanding called Technical Analysis emerged. A technical analyst believes that a stocks price movement can be predicted based on patterns that can be spotted in a price graph.

Patterns indicate the direction of a stock’s price. Bearish patterns signal that sooner or later the stock’s price will go down thus stock investors must start selling their holdings before its price go down below their purchasing cost. At the same time Bullish patterns indicate that the stock’s price will soon go up thus investors start buying and holding as much as they can so that by the time it reaches a high price they can profit from the stocks they have bought at lower prices.

Chart patterns can be made whether one uses a Candlestick chart, a Bar Chart, or a simple Closing Price Chart. These patterns are not exact and accurate answer to everyone’s question if a stock is a buy or a sell but mainly it guides one to at least know what is the probable price action of the stock in the next couple of days base on historical price movement.

Patterns as well can be viewed as a Reversal or Continuation.

Reversal patterns indicate an opposite action from what has already been happening in the stock’s price. If the stock has been on a downtrend for sometime a reversal pattern will indicate an expected upward thus investors anticipate such reversal and thus buy more of the stock to capitalize on the stocks lower price.

Continuation pattern on the other hand indicates that the stock price will be expected to go up further. With this expectation investors will buy more to ride with the stocks seemingly continuing rise.

A chart pattern serves as one’s guide in making one’s buy or sell decision. A careful study and understanding must be always made before because patterns are not one hundred percent accurate. As they say, “trade at your own risk.”

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