Without a doubt, chart patterns are one of the most useful tools when conducting chart analysis. Candlestick chart patterns are the foundation of technical analysis. Let's learn about all types of charts!
Introduction to Chart Patterns
Chart pattern is another technical indicator and a form of support and resistance lines. The two most common chart patterns are Japanese candlestick and Western-style chart pattern.
There are some key differences between them:
Range: Although Western patterns can serve as the cornerstone of certain trading strategies, candlestick patterns are not intended to form a trading system in their own right; instead, they are confirmed by other technical indicators. Candlestick patterns typically predict what will happen over the next few candles, while Western patterns can indicate longer-term moves covering a longer period and can suggest specific price targets.
Chart Types: Candlestick charts mostly indicate a reversal or indecision in a trend, while Westren chart patterns tend to indicate continuation (a pause in the trend before resuming) or reversal.
What both types of chart patterns have in common is that they are both useful for the following reasons:
They help us understand market sentiment and are easy to interpret because they make sense. For example, it is intuitively clear that candlesticks consist only of long bodies with no wick, meaning that the price rose or fell in a straight line, indicating a strong and decisive uptrend or downtrend with buyers or sellers in control. Candlesticks consist only of upper and lower wicks, with only a line for the body, the bid price moves back and forth but ends up almost unchanged. ,Here is the signal about the indecision in the market or the balance of power between buyers and sellers.
Both types of chart patterns provide graphical representations of collective trading sentiment, which do not change over time, so these patterns tend to repeat and are valid indicators of support and resistance points and how the price might behave in the future.
Chart patterns are generally divided into three categories: continuation patterns, reversal patterns, and binary patterns.
Continuation chart patterns indicate that the current trend will continue.
Reversal chart patterns indicate that the trend may be about to change.
Binary chart patterns allow traders to see when the market condition indicates that the price will move in any direction - meaning that the market is highly volatile.
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