A:

The identification of patterns and trends are techniques used by analysts studying the supply and demand of an asset traded on an open market. A trend is the general direction of a price over a period of time. A pattern is a set of data that follows a recognizable form, which analysts then attempt to find in the current data.

The three basic types of trends are up, down and sideways. Trends may be discovered in the short, medium and long term. Generally, investors take positions in assets that will be profitable as long as the current trend continues. Taking positions that profit only if a trend reverses is riskier. Analysts use trendlines and channels, which are essentially boundaries for price fluctuations, in an attempt to spot and define trends. Upward trends are characterized by an asset price hitting a series of higher highs and higher lows, while downward trends are marked by lower highs and lower lows.

A pattern is a series of data that repeats in a recognizable way. It can be identified in the history of the asset being evaluated or other assets with similar characteristics. Patterns often include the study of sale volume, as well as price. Patterns can occur within a downward or upward trend, or they can mark the beginning of a new trend.

There are bottoming, topping and continuation patterns. A "follow-through day" pattern is an example of a pattern used by some analysts to identify market bottoms. The "head-and-shoulders" topping pattern is popular among day and swing traders, while continuation patterns include the "cup-and-handle," "flat base" and "three weeks tight."

RELATED FAQS
  1. How do I identify a stock that is under consolidation?

    Discover the three major characteristics stocks or securities exhibit when they are trading under a period of price consolidation. Read Answer >>
  2. Is the banking sector subject to any seasonal trends?

    Explore the unexpected seasonal trends that can be discerned regarding the banking industry and the financial services sector ... Read Answer >>
  3. What are the main differences between a Symmetrical Triangle pattern and a pennant?

    Understand the key differences between the symmetrical triangle and pennant patterns, including how they differ in formation, ... Read Answer >>
  4. What are the differences between a bar chart and candle sticks?

    Explore the difference between bar and candlestick charts. Learn how technical analysts use charts in the analysis of supply ... Read Answer >>
Related Articles
  1. Trading

    Technical Analysis: Triple Tops and Bottoms

    Triple and double tops and bottoms may be tough to spot but can be powerful patterns.
  2. Trading

    Introduction to Technical Analysis Price Patterns

    How to recognize price patterns that are key to technical analysis.
  3. Trading

    Continuation Patterns: An Introduction

    Learn the most common varieties of continuation patterns and how they work in market analysis.
  4. Trading

    Advanced Candlestick Patterns

    Learn how to identify and trade the island reversal, kicker, hook reversal and three gap advanced candlestick patterns.
  5. Trading

    Most commonly used forex chart patterns

    These chart patterns provide entries, stops and profit targets that can be easily seen.
RELATED TERMS
  1. Triple Top

    The triple top pattern is a type of chart pattern used in technical ...
  2. Inside Day

    A candlestick formation that occurs when the entire daily price ...
  3. Mat Hold Pattern

    A pattern found in the technical analysis of stocks that ultimately ...
  4. Double Bottom

    A double bottom pattern is a technical analysis charting pattern ...
  5. Continuation Pattern

    A continuation pattern suggests that a trend in a security price ...
  6. Gartley Pattern

    The Gartley pattern is a complex chart pattern, based on Fibonacci ...
Hot Definitions
  1. Current Assets

    Current assets is a balance sheet account that represents the value of all assets that can reasonably expected to be converted ...
  2. Volatility

    Volatility measures how much the price of a security, derivative, or index fluctuates.
  3. Money Market

    The money market is a segment of the financial market in which financial instruments with high liquidity and very short maturities ...
  4. Cost of Debt

    Cost of debt is the effective rate that a company pays on its current debt as part of its capital structure.
  5. Depreciation

    Depreciation is an accounting method of allocating the cost of a tangible asset over its useful life and is used to account ...
  6. Ratio Analysis

    A ratio analysis is a quantitative analysis of information contained in a company’s financial statements.
Trading Center