Chart Formation

DEFINITION of 'Chart Formation'

A graphical depiction of a stock's price movements over time. Technical analysts use chart formations to identify trends in a stock's price and to help them decide whether and when to buy and sell - that is, to determine entry and exit points. Technical analysts also use chart formations to decide where to place initial and trailing stops.

BREAKING DOWN 'Chart Formation'

Types of chart formations include the head and shoulders pattern, which is used to identify trend reversals; the inverse saucer or rounded top, which indicates a peak in a stock's price; the triangle, which indicates the reversal or continuation of a trend and the double-bottom formation, which investors use to identify potential upside targets.

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RELATED FAQS
  1. How are Rounding Bottom patterns interpreted by analysts and traders?

    Understand what a rounding bottom formation is and how it is most commonly interpreted and acted upon by traders and market ... Read Answer >>
  2. A head and shoulders top formation chart: I. is a bearish chart II ...

    The correct answer is d. A head and shoulders chart, top formation, is a chart of a stock’s movement that resembles the outline ... Read Answer >>
  3. How effective is creating trade entries after spotting a Saucer pattern?

    Understand the basics of the formation and interpretation of the saucer pattern and why it is a useful tool for the creation ... Read Answer >>
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  5. How effective is creating trade entries after spotting a Rounding Top pattern?

    Understand the characteristics of the rounding top pattern and how traders can obtain better trade entry points based on ... Read Answer >>
  6. How are Saucer patterns interpreted by analysts and traders?

    Read about saucer patterns, when they form, how traders and analysts interpret them, and why they can be more difficult to ... Read Answer >>
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