A chart pattern is an integral pattern of the technical analysis of a fund. But, they need some kind of getting accustomed to before they could be effectively used. For helping you get a grip of them, there are some chart patterns that every trader should know.
Chart pattern is the shape within the chart of the price which helps in suggesting the prices that may do next on the basis of what they have done previously. The chart pattern is the basis of the technical analysis and demands that the trader should know what he is looking at and what is he looking for.
There is no pattern for the best charts as they are used for highlighting the different trends in a wide range of markets. Often, the chart pattern is used in the candlestick trade which makes it easy to see previous opens as well as closes in the market.
Some of the patterns are far more suitable to the volatile market while some are not. Some of the patterns are best suited in the bullish market and some are best suitable when the market is in the bear form.
Having said that, it's very important to understand the fact that the pattern of the “best” chart for a particular market as utilizing the wrong one or understanding which one should be used might make you miss the opportunity to earn profit.
Read also - Candlestick Charts Beginners Guide
A candlestick chart is a technical tool that packs the data for different time frames in one single price bar. It makes them far more useful as compared to the traditional open high, close low bars, or the simple lines which connect all the dots of the closing price. The patterns of candlestick predict the direction of the price once done. Proper coding of color adds a lot of depth to the colorful tool which belongs to the 18th century rice traders of Japan.
Reliability of the candlestick pattern for the investors
Not all the candlestick patterns work so well. Their popularity has low reliability as they have been analyzed by the hedge funds as well as their algorithms. The well-funded names depend on the fast speed to trade as compared to the traditional funding managers and retail investors who execute the strategies of the technical analysis found in the popular texts.
In simple words, the hedge fund managers employ software for trapping the participants who are in search of high odds bearish or bullish outcomes. However, the reliable patterns still appear giving short term and long term opportunities for profit to the traders.
Below are the candlestick patterns which perform well as the precursor of price momentum or direction. Each of the works within the surrounding pricing bars for predicting lower or higher prices. They are even sensitive to time in 2 ways:
- They just work within the limitations of charts being reviewed
- Their potency reduces rapidly 3 to 5 bars after the pattern has been completed