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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