There are various patterns appearing on the charts. Each of these patterns gives indications on what the stock is going to do next. Identifying these patterns is helpful in predicting the future coarse the stock price is going to take.
Once the pattern is identified then the Strategy can be devised such that we can take the position such that if the stock moves as predicted then we make profit.
There are three directions in which the stock price can go on chart.
Sideways (ie no significant change with respect to time
with respect to above there are various types of chart patterns.
There are continuation patterns which suggest that the stock will continue to do what it was doing earlier ie if it was moving up it would continue to move up. Various continuation patterns are :
Flag / pennant
I can usually identify Trendlines, Channels and at times triangle. While I am more comfortable with trendlines.
There are reversal patterns which suggest that the stock will now do the reverse of what it was doing earlier. If the stock price was moving moving up it would now move down.
When stock is in up trend.
Double / Multiple top
Head and shoulder
When the stock is in down trend
Double /Multiple bottom
Inverse head and shoulder.
I am always suspicious about the trends hence I always look for reversal patterns if any. I have been reasonably successful with these reversal patterns.
I have always found people trying to identify pattern in their favorite stock or the stock which they are holding. I keep telling people stay away from the word “Favorite” if you are using Charts. Never try to FORCE FIT any pattern. If pattern is not seen in stock you are holding then forget it and move to next stock there are more than 3500 stocks actively treaded on the NSE or BSE at any point of time hence go for next chart.
There are no good or bad stocks in the market. If we are able to make profit from its price movement then it is good for us. I do not think that we want to marry or buy the so called FAVORITE company which.