Instead, wait to see if this pattern ascends from the bottom of the “handle” shape over the old high observed at the end of the 2 to 4 month time frame. If the handle sinks much lower than 5%, it is considered failing and extremely high risk for investors seeking stocks to buy. This activity is what creates the “cup” shape the “handle” is made with a 5% drop. Selling pressure is built by investors who bought shares closer to the old high and may cause the price to sink in a drifting, side-to-side motion anywhere from 4 days to 3 weeks. Investors start to sell off the stock at approximately 20% – 35% of the previous high. This distinct pattern signifies a market correction following a strong advance over a 2 to 4 month period. Moving away from angles, the first curve in chart patterns to identify when buying stocks is the “cup and handle” pattern. Like the previous two triangle formations, volume is typically shrinking and will swell again upon the resolve. The associated higher price arising with the oncoming new purchases attracts sellers who inevitably control and influence the lows demonstrated in this pattern. One may witness prices dropping so much the shares are oversold where more tentative investors are buying stocks. This pattern is identified as having a flat bottom with the top line moving in a downward slant. The third triangular chart pattern, the descending pattern, tends to indicate bearish trends when assessing stocks to watch. The uncertainty of the market tends to result in a heavy volume state. Volume characteristically starts out low as this chart pattern emerges, resembling a sideways triangle. One could strongly consider stocks continuing to move in this pattern as ready to trade. The precedent for this chart pattern frequently resolves in tandem with the upcoming trend. Often this pattern implies supply and demand have evened out. Similar to the wedge pattern are three variations on triangles: Here’s how to identify a symmetrical triangle when picking stocks to watch.Ī symmetrical triangle pattern indicates uncertainty in the market. A descending wedge pattern is considered bullish while a rising wedge generally indicates a bearish downtrend. Volume is diminishing as the pattern emerges and increasing as the shape closes. What makes a wedge pattern distinct is an obvious diagonal slant either reaching up or down. This formation occurs when converging trend lines meet at an apex similar to triangular patterns (more on those triangle patterns in the next three sections). Image by Īnother common stock pattern to identify before buying stocks is referred to as “the wedge” pattern. Once the stock starts to rise above this trend line, one may deduce more shares are purchased and volume is back on the rise. To verify what you see, sketch a trend line across the mildly jagged edge of the flat base. The flat base moves horizontally over a period of time, give or take nominal rises and drops the pattern indicates volume is decreasing. One of the common stock patterns observed when seeking stocks to buy is known as the “flat base” and looks like what it sounds like – a rough plateau. This guide will illustrate the most common chart patterns and how investors choosing stocks to watch would read these patterns. Many believe this form of technical analysis may accurately predict stock performance. When these factors shift, they stand as indicators to the observant investor to buy, hold, or sell stocks. Research shows prices tend to move in the same direction as market trends after studying hundreds of years’ worth of pricing charts. Learning to read chart patterns translates to identifying imbalances in the founding principle of the stock market, supply and demand. When choosing stocks to buy, a helpful skill to refine is following and deciphering chart patterns in the stock market.
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