Patterns play a very important role in Technical Analysis of stocks along with key support and resistance Levels. Patterns are of 2 types i.e. Bullish and Bearish. Further classification of patterns can be done in 2 parts i.e. Reversal Patterns or Continuation Patterns
|Bullish Pattern||Bearish Pattern|
|Reversal Patterns||Reversal Patterns|
|Head & Shoulder (Inverted)||Head & Shoulder|
|Rounding Bottoms (Saucer)||Rounding Tops|
|Descending Triangle||Ascending Triangle|
|Double/ Triple Bottoms||Double/ Triple Tops|
|Falling Wedge/ Channel||Rising Wedge/ Channel|
|V- Formations||V- Formations|
|Continuation Patterns||Continuation Patterns|
|Flags & Pennants||Flags & Pennants|
|Head & Shoulder (Continuation)||Head & Shoulder (Continuation)|
Many Traders are taking position for Intra-Day / Short Term or Medium Term depending upon the periodicity of charts if it is 5 Min/ 30 Min/ 60 Min/ Daily/ Weekly or Monthly Charts on confirmation of Breakout from any important pattern or Support or Resistance but often traders/ investors are faced with a dilemma of taking a position in:
1. anticipation of a break out,
2. taking a position on breakout itself, or
3. Waiting for the pull back or reaction after the break out occurs.
Although the arguments can be in favor of each approach or all combined, If a trader buys in anticipation of an upside break out, the profits are better if break out takes place.But at the same time, the chances of loosing increase if the break out fails to materialize.
If the trader waits for the actual breaks out, the chances of success increase but at the cost of entry at higher price.Waiting for a pull back after the break out may be a sensible approach provided the pull back occurs. Unfortunately, in many bull markets traders don't get second chance. The risk involved in waiting for the pull back is increased chance of missing the move.
The best strategy under the circumstances for a trader is to trade multiple positions.The traders should take a small position in anticipation of a break out buy some more on the break out and add a little more on the pull back move after the break out.
This is one of the most useful early entries of exit signals. If the trader is looking to enter a new position on a technical sign of a trend change or a reason to exist an old position, the break of tight trend line is often an excellent action signals. Other technical factors must, of course, also be considered to arrive at a conclusive approach. Trend lines can also be used as entry and exit points when they are made to act as support and resistance levels.
Support and resistance are the most affective chart rules to use for entry and exit points.The breaking of resistance can be a good signal. Enter into a buy position and the stop loss can be placed under the nearest support point. Rallies to resistance in a downtrend or declines to support in an up trend can be used to initiate new positions or add to old profitable ones. For purpose of placing stop losses support and resistance levels are most valuable.