As the stock market welcomes new investors every day, the gap between seasoned players and neophytes often begins to reveal itself. To avoid the small end of the stick in the stock exchange ecosystem, being a dedicated student is a must. The most vital lesson in the commodity trading class is the chapter on technical trading and analysis.
Technical analysis is used to evaluate investments and recognize trading opportunities with statistical figures and changes assembled from recent market developments. One of the primary divisions of the stock market technical analysis department is chart analysis. Chart patterns help traders to analyze stocks efficiently and effectively. These graphs reflect past performance in a calculated manner. Two of the most important chart patterns in technical analysis are wedge and triangle charts.
The triangular pattern
Characterization: Triangle chart patterns are one of the most ingenious and advanced patterns in technical analysis. These charts are the foundation for a well-calculated move when it comes to evaluating risk and reward ratios. The pattern is often depicted by drawing trend lines along an intersecting price scale, suggesting a break in the current trend. Technical analysts classify triangle patterns as continuation patterns.
Types: The three variations noticed in the triangular patterns are-
Symmetrical triangular pattern: This style of pattern consists of a diagonal convergence
upper trend line and a diagonal ascending lower trend line. The price is heading towards the top, it will inevitably violate the upper trendline for an escalation and signify the rise in price while there might be a case where the lower trendline might be violated, forming a breakdown and continuing to rise. go down with falling prices. Enter a trade when the breakout/breakout is clear. As symmetrical triangles are tilted towards continuation break patterns, it rises or falls in the direction of the starting moves before the triangle forms. Good rewards are in store for those who incorporate the study of these investment models. Placing a stop-loss order below the major swing low and below the major swing high for a brief setup can be a good thing plan.
Ascending triangle pattern: It is formed by two trend lines – a horizontal line that connects to the swing highs and a slanted line that connects to the higher lows. This forms a bullish pattern, and it can be generated in any market condition. It is known to be quite reliable. A trade can be entered in this case when there is a clear break in the horizontal line. A long entry can be initiated when a candle closes above the horizontal line. This pattern has a high success rate and the target can be equal to the depth of the triangle.
Descending triangle pattern: It is essentially the inverted version of the ascending triangle pattern. It is considered a breakdown pattern and is bearish in nature. Here, the lower trendline is horizontal, joining the almost identical lows. The upper trendline meets the lower trendline through its diagonal slant to form a top. The trade can be initiated once the horizontal line break is confirmed. This pattern is very reliable like ascending triangles. Volume and other indicators should be considered as factors to confirm the breakdown before entering the trade.
The corner pattern
Characterization: It is a price pattern that is indicated by the intersection of trend lines on a price chart. Opposite trend lines are drawn to connect the respective highs and lows of an advance in price activity over a 10 to 50 period period. Lines can show the magnitude of highs and lows, indicating whether they are up or down; this pattern gives the appearance of a wedge, hence the name. The wedge pattern has a good track record for predicting price reversals.
Types: The two variations noticed in the wedge patterns are-
Rising bevelled pattern: The rising wedge pattern looks a bit like symmetrical triangles, but the rising wedge patterns form an angle while the triangle is mostly constructed horizontally. This pattern represents a bearish nature whether in an uptrend market or a downtrend market. It usually appears when a security has risen in price over a period of time, but can also be displayed in the middle of a downtrend. When the price is trading outside the lower trendline, it is suggested to initiate a potential short trade.
Falling corner pattern: When the price of a security continues to fall over time, a wedge is formed. This wedge pattern is bullish in nature and is formed by connecting lower highs to lower lows by drawing angled lines. If there is a breakout of the upper trendline, it is often a signal of a potential long entry, but the trade can only be initiated after the clear breakout. The trading targets for these patterns can be set at the highest swing level of the wedge pattern.
The stock market revolves around a roulette wheel and favors those who are capable of technical analysis. The stock market is like chess and not like a casino; it needs calculated maneuvers, not lucky shots. To become a successful investor, one must have an understanding of such vital trading charts as the wedge and the triangle.
The opinions expressed above are those of the author.
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