Understanding Trends and Patterns

Any stock trader must look at what experts are saying and see if there can be some indication about the movement of shares. There is a vast amount of data available about the movements of share prices in the past. These historical data are used to arrive at some theories that can help in predicting the movement of shares. This is helping many people to deal in shares carefully with some indication of how the share prices are likely to move. Trends and patterns are terms commonly used in technical analysis. A trend is the way prices are moving over a period of time. There are up, down, and sideways trends. Uptrends have higher swing highs and lows, while a downtrend has lower swing highs and lows. The uptrend has the share prices moving up while downtrends mean the prices are moving down.

Knowing What a Triangle Pattern Indicates

Patterns are formed by charting the highs and lows in a particular period. Some lines connect the price movement to form the pattern. A pattern can indicate a continuation of the trend or a reversal. Patterns are identified by experts to know how the price movements will be in the future. One such pattern is the triangle pattern which is a continuation pattern. This means that whatever price movement was existing before the pattern will continue after the pattern. The pattern is named so because the lines connecting the upper trendline and lower trendline meet at the apex to form the triangle. There are different types of triangles namely ascending, descending and the symmetrical triangle.

The ascending triangle pattern is a continuation of the upward trend of prices. The trendline of the upper prices will be straight while the line connecting the lower prices will be ascending. The ascending triangle is a continuation of a bullish trend where the prices will go up after the pattern. In the descending triangle, the trendline of the lower prices will be straight while that of the higher prices will be sloping downwards. This pattern is the continuation of a bearish trend. The symmetrical triangle will continue the trend that was there before the pattern. But it is always better for traders to check the volume spike to make sure that the pattern is genuine and not a fake. They must also wait for two closes before making any decision.

Trading On a Bull Flag Pattern

The bull flag is a continuation bullish pattern that traders watch for. This pattern occurs when there is a slight pause in the steep upward price movement. During this pause, the prices will fluctuate. The lines connecting the price highs and lows during this period will form two parallel lines which will be sloping down. This will form the flag while the rise in price before the pattern will form the flag pole. The volume becomes very low during the consolidation which will again push the prices very high. This is why it becomes a continuation pattern.

The usual way to enter the trade during a bull flag pattern is to enter at the bottom of the flag or just above the breakout point. Traders will place their target at a price point that is as high as the price increase which preceded the flag pattern. Traders must be careful about the retracement position which is the flag. The slope should not be more than 37% of the original increase in price. If it is more than 50% it may not be a genuine flag pattern.