Old investors know that pattern theory is a more core part of technical analysis.
The market doesn't speak, but the market uses a lot of pattern combinations and candlestick language to express its meaning.
For example, if it is going to strengthen, what form will it use?
Understanding the technical patterns in the candlestick chart can give us a very good trading chance.
Each pattern has its meaning and expectations for future trends, especially in the state of market anxiety, the understanding of pattern theory can preemptively obtain market information and grasp favorable opportunities.
01 The concept of pattern theory (analysis) and the law of price movement
According to some typical patterns displayed by the price curve, the future trend of the market is judged and predicted.
The so-called law of price movement should follow 2 principles:
1. The price should fluctuate up and down in the position where both the long and the short have achieved equilibrium;
2, after the original balance is broken, the price will look for a new balance position.
That is, to continue to sort out, maintain balance→ break the balance→ a new balance→ break the balance→ and then find a new balance→...
02 Rectangular arrangement (box arrangement)
Morphological characteristics:
The price fluctuates up and down between two parallel, horizontal lines.
The upward straight position to the upper end will fall back, and the downward straight line position will rise.
Morphological Description:
It generally occurs in the process of a certain trend operation, with the nature of resting and gathering momentum.
For example, in the process of rising, using this box-shaped finishing, many parties can accumulate strength to launch a new offensive, and can gradually digest the profit plate accumulated in the previous rise.
Therefore, after the rectangle is sorted, the price will generally break through in the original trend direction and rise or fall again.
Pattern points:
Medium- and long-term investors can generally hold long orders when there is no sign of a change in the uptrend and there is a rectangular consolidation;
Conversely, for the rectangular arrangement in the downtrend, you can patiently wait for the lower buy point.
Short-term investors can take advantage of the box characteristics, buy low and sell high, and repeatedly and quickly enter and exit.
Therefore, we must always pay attention to the evolution of the pattern.
03 Symmetrical triangle
Keep the original trend unchanged, the volatility gradually shrinks, the volatility highs fall sequentially, and the lows gradually rise.
Usually does not change the original trend, is the original trend of the halfway rest process.
a. There will generally be about 6 turning points, including at least 4 turning points.
b. Finishing usually ends at half or 2/3 of the symmetrical triangle.
c. The shorter the time for symmetrical triangle finishing, the stronger the ability to maintain the original operating trend.
d. After the symmetrical triangle breaks through, the amplitude of the price further rising or falling will generally not be lower than the length of the bottom side of the symmetrical triangle, that is, the distance from point a to point b in the figure.
04 Ascending triangle finishing and descending triangle
The ascending (descending) triangle is a variation of a symmetrical triangle and is also the most widely used application of two morphological, logical and theoretically composite symmetrical triangles.
Although the high position of the ascending triangle is relatively fixed, the bottom is gradually raised, that is, the downside space is getting smaller and smaller, so the direction of the final breakthrough is generally upward. (Descending triangle opposite)
05 Flag finishing
The following figure shows two flag-shaped finishing patterns with opposite forms and opposite meanings.
As shown in the figure, before the flag finishing begins, there has been a fairly strong upward or downward process, which is manifested as a steep slope and almost vertical straight line, which we call the flagpole (from the a to the b point part).
Flag finishing, on the other hand, is reflected in the fluctuation of the price in a parallelogram opposite to the direction of the flagpole.
At the end of the flag finishing, the price usually breaks through the quadrangle to return to the original rapid upward or downward trend.
Flag finishing has a higher chance of appearing in the fourth wave.
1, flag finishing usually can not last too long, and the amount of reverse displacement of its finishing can not be too large.
Otherwise, its ability to maintain the general trend determined by the direction of the flagpole will decline.
2. The breakthrough after the formation of the flagpole and the finishing of the flag shape must have the cooperation of the volume:
The volume of transactions should be rapidly expanded when the flagpole is formed;
When the flag is sorted out, the volume should be gradually reduced, if there is no cooperation of the volume at the time of the breakout, it means a false breakout;
When the band breaks through the flag, it should be decisively bought or sold.
06 Wedge finishing
The wedge shape is similar to the construction process of the flag shape, and it is also a "flagpole" that must first have a wave of rising or falling.
The price of the wedge varies between two converging straight lines, differing from the flag in that the two lines simultaneously tilt up or down.
The volume change of the wedge is reduced to the top like the flag.
Wedges are divided into rising wedges and falling wedges, from the probability point of view, rising wedges are easier to break down; while falling wedges are easier to break upwards.
1, wedge finishing can be seen as a flag finishing or triangle finishing form of the deformation, from the wedge chart can be seen, as long as the flag arrangement in the parallelogram into a wedge, it becomes a wedge finishing.
The trend significance of wedge finishing and flag finishing is very similar.
In the descending wedge pattern, both lines are sloping downwards, and the volume gradually shrinks, indicating a reduction in selling pressure, often appearing in bullish markets.
The ascending wedge is the opposite.
2, the breakthrough must have the cooperation of the volume, the larger the transaction volume, the stronger the breakthrough.
If a trend has been going on for a long time and the rise or fall has been very large, that is, when the top or bottom of a trend is likely to occur, it may turn into a reversal pattern.
At this time, the trend that came out of the front is actually a substantial upward or downward process of exhaustion.
3. According to the statistics of actual combat experience, the ratio of upward breakthrough and downward breakthrough of generally falling wedge is about 7:3 (the same is true for rising wedges).
However, it should be noted that from a cyclical point of view, if the downward wedge is constructed for more than two weeks, then the probability of a downward breakout will increase a little (the same is true for the rising wedge).
The above patterns can be said to be the most commonly used in the market and the most frequently appeared.
To grasp these several forms clearly, is to lay a solid foundation, in the complex trading market, it is important for us to predict the direction of the future market in advance!
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