Price Patterns
Technical analysis, by its very nature, deals not in certainties but in probabilities. The key to success in trading lies in focusing – more often than not on what has already happened in the market. Too often investors buy and sell a stock not knowing whether it is in an uptrend or in a downtrend, near a top or near a bottom, or at a resistance or support level. That is where price patterns come in picture. Knowing what to look for as prices change helps the investor make better informed buy and sell decisions.
The four basic price patterns are:
Rising prices (Upside)
Declining prices (Downside)
Sideways prices, and
Repeating cycles of rising and falling prices.
Contrary to popular belief, you do not need to know what the price will be in the future to make money. Your goal should rather be to improve the odds of making trades. The use of technical analysis will give you an edge; an edge that you would not have gained without technical analysis, even if your analysis is as simple as determined the long intermediate and short term trends of the security you are trading.
Volume and Price
Volume breathes differently than does price. Volume as a tool works well on daily charts but consistently damages intraday signals. It offers both early warnings and dead ends, often at the same time. Volume reflects crowd psychology that often makes little sense in the short term but turns highly predictable at key intersections of trend and time. A successful trader needs to have an intelligent interpretation of the herd mentality that drives price change, develop an understanding of volume’s impact on the chart, learn when to use it and how to ignore it when required.
Opportunity arises from recognition of key volume events and a correct interpretation of the crowd behaviour. You need to invoke both left and right brain functions to measure the complex struggle between greed and fear. However, keep in mind that profits depend on price change alone. The price itself offers the best indicator for price changes through out the pattern cycles. As price rises, it predicts that further gains will follow. As it falls, odds increase that it will fall even further.
Precisely, this is what we call the market sentiments. Most or so to say maximum times it happens that if some large volume is sold out than all the investors of that particular script or let’s say stock start to decrease their volume by selling the hold positions and it works the other way round the same way i.e. if a large volume is purchased than investors start to hold positions thinking that it might rise in near future.
Here one thing to keep in mind that news play a vital role, most of the times investors specially the ones who have entered the market recently start following the pattern based on media news without deep study about the script and fall in trap, whereas, successful traders have their plan handy at all times before entering a trade.
Remember, as I conclude my every post saying your ultimate goal is to come out as a Winner!
Technical analysis, by its very nature, deals not in certainties but in probabilities. The key to success in trading lies in focusing – more often than not on what has already happened in the market. Too often investors buy and sell a stock not knowing whether it is in an uptrend or in a downtrend, near a top or near a bottom, or at a resistance or support level. That is where price patterns come in picture. Knowing what to look for as prices change helps the investor make better informed buy and sell decisions.
The four basic price patterns are:
Rising prices (Upside)
Declining prices (Downside)
Sideways prices, and
Repeating cycles of rising and falling prices.
Contrary to popular belief, you do not need to know what the price will be in the future to make money. Your goal should rather be to improve the odds of making trades. The use of technical analysis will give you an edge; an edge that you would not have gained without technical analysis, even if your analysis is as simple as determined the long intermediate and short term trends of the security you are trading.
Volume and Price
Volume breathes differently than does price. Volume as a tool works well on daily charts but consistently damages intraday signals. It offers both early warnings and dead ends, often at the same time. Volume reflects crowd psychology that often makes little sense in the short term but turns highly predictable at key intersections of trend and time. A successful trader needs to have an intelligent interpretation of the herd mentality that drives price change, develop an understanding of volume’s impact on the chart, learn when to use it and how to ignore it when required.
Opportunity arises from recognition of key volume events and a correct interpretation of the crowd behaviour. You need to invoke both left and right brain functions to measure the complex struggle between greed and fear. However, keep in mind that profits depend on price change alone. The price itself offers the best indicator for price changes through out the pattern cycles. As price rises, it predicts that further gains will follow. As it falls, odds increase that it will fall even further.
Precisely, this is what we call the market sentiments. Most or so to say maximum times it happens that if some large volume is sold out than all the investors of that particular script or let’s say stock start to decrease their volume by selling the hold positions and it works the other way round the same way i.e. if a large volume is purchased than investors start to hold positions thinking that it might rise in near future.
Here one thing to keep in mind that news play a vital role, most of the times investors specially the ones who have entered the market recently start following the pattern based on media news without deep study about the script and fall in trap, whereas, successful traders have their plan handy at all times before entering a trade.
Remember, as I conclude my every post saying your ultimate goal is to come out as a Winner!
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