Chart patterns are graphical representations of price movements that can be observed on a price chart over a period of time. These patterns are formed when the price of an asset moves in a certain way that can be recognized and interpreted by traders to predict future price movements. Chart patterns can be categorized into two types: continuation patterns and reversal patterns.
Continuation patterns indicate a temporary pause in the prevailing trend before the price continues to move in the same direction. These patterns include flag patterns, pennant patterns, and triangles.
Reversal patterns, on the other hand, indicate a change in the direction of the trend. These patterns include head and shoulders patterns, double tops and bottoms, and the triple top and bottom patterns.
Chart patterns are important in technical analysis because they provide traders with an opportunity to predict future price movements and make profitable trades. They are also used in conjunction with other technical analysis tools, such as indicators and oscillators, to confirm trading signals and identify potential entry and exit points.
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