A Price pattern is a pattern that is formed within a chart when prices are graphed. In stock and commodity markets trading, chart pattern studies play a large role during technical analysis. When data is plotted there is usually a pattern which naturally occurs and repeats over a period. Chart patterns are used as either reversal or continuation signals.
Some people[who?] claim that by recognizing chart patterns they are able to predict future stock prices and profit by this prediction; other people respond by quoting "past performance is no guarantee of future results" and argue that chart patterns are merely illusions created by people's subconscious. Certain theories of economics hold that if there were a way to predict future stock prices and profit by it then when enough people used these techniques they would become ineffective and cease to be profitable. On the other hand, predicting what others will predict the market will do, would be valuable information.
Examples of "classical" chart patterns as popularized by Edwards and Magee and used widely by traders and investors include:
- Head and shoulders
- Trend lines
- Cup and handle
- Double top and double bottom
- Triple top and triple bottom
- Broadening top
- Price channels
- Wedge pattern
- Triangle (technical analysis)
- Flag and pennant patterns
- Flat channel breakouts
Automated chart pattern detection and screening: