Technical analysis chart patterns are used by traders and investors. The innovation of online trading and investing has made it more practical to learn about these patterns and to make money using them. On this website, we promote the use of learning about fundamentals and technical analysis chart patterns. We explain the logic behind this on the accounting page. Technical analysis chart patterns should be a secondary tool for you as an analyst because like we said, someone has to do the fundamental analysis in order to create the patterns.
Dow Jones Theory
Technical analysis charts patterns revolve around what is known as the Dow Jones Theory which shows that stocks or any security follow patterns. The dow theory eventually created the technical analysis chart patterns and methods we understand today.
Technical Analysis Charting Patterns Basics
The basics of using charts in finance aren’t too complicated. The first important thing to learn is some of the different terminology associated with Technical analysis chart patterns. There are 3 different things that most charting experts will investigate when they look at a chart.
A lot of Technical analysis chart patterns revolve around using moving averages as a starting point. One of the most popular moving averages for equity traders is the 200-day moving average. From the moving average, they try to learn about the momentum of the security. The would like to use this to spot a bull or bear trend. In the equities market if you see the price staying above the 200-day average then this pattern shows you this stock is bullish. If it crosses that 200-day average and stays below it then it is in bear territory.
Learn More on Moving Averages
There is a resistance level for almost any type of security. The resistance level is a price that a security is stuck under. As an example, if a stock pattern shows a stock that goes up to $100 and won’t cross it then we can assume this is the resistance level. After it has hit that price and gone down in value, then gains momentum to hit $101 traders would say this is a breakout and expect it to go higher.
The support level is another price level in technical analysis chart patterns that shows it’s technician what the low price is. So as an example, if a stock continues to move down to $50 per share and bounces back off of that then $50 is it’s support price. If the stock falls below that support, it is considered to be bearish and traders will think it is going to continue losing value.
Learn More About Support and Resistance
Other Technical Analysis Charts Patterns
There are actually a lot of different chart patterns that you can learn. One thing that is important is the probability that the technical analysis chart patterns will be correct in predicting the price movement. With that being said, we will show you some of the different chart patterns on other pages.