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 do I build a profitable strategy when spotting a Rounding Top pattern?

    Learn a simple stock trading strategy that is designed to profit from a bearish trend reversal following the formation of ... Read Answer >>
  2. What trading opportunities do Broadening Formation patterns give to traders?

    Profit from recognizing a broadening formation pattern on a chart that allows you to enter low-risk, high profit potential ... Read Answer >>
  3. 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 >>
  4. 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 >>
  5. What is the logic behind trading securities that exhibit Broadening Formation patterns?

    Read about broadening formation patterns, a rare market trend typified by prices reaching increasingly higher highs and lower ... Read Answer >>
  6. How should a risk-averse investor build a retirement portfolio?

    Learn about a strategy to take advantage of a higher high failure on a chart, as well as the basics of trend trading and ... Read Answer >>
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