Patterns and its trend requirement to qualify as a pattern
in charting, thr can be only 2 types of patterns possible
1... continuation pattern
2... reversal pattern
Simply it means there has to be trend behind every pattern to either continue or reverse.
1/7
that means u cannot draw a pattern,
after a sideways move
be it anything like head and shoulders, cup and handle, triangle etc,
u need to find a pattern after a strong trending move
in other words,
patterns are mere consolidations after a trending move
2/7
Such consolidation usually takes some geometrical shapes
which we name it based on the overall shape of the price action
if there was no trading move prior to the pattern u r finding out,
there is no such pattern exists.
3/7
another aspect is the nature of the pattern
Suppose u are finding a cup handle pattern,
u cannot find it at the bottom
cup handle is an uptrend continuation pattern
u need steady uptrend before price consolidated in the form of a cup and handle
4/7
Likewise u cannot plot a flag pattern on a scrip which is not making continuous HH and HL
that means there was an existing uptrend which was under slight pullback or sideways move
From here if we saw a furious rally lasted few days,
thats an ideal pole of a flag pattern
5/7
if that goes for a few days of sideways consolidation, u can call it a flag pattern
what i wanted to convey is a mere geometrical shape in isolation means nothing
6/7
it has to combine with two things for a shape to b valid as pattern
1. if there was a trending move prior to the pattern
2. pattern we found justifies the previous trend at all
(like mentioned abv there is not cup&handle in a downtrend)
7/7
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