Common Stock Patterns
The ability to read charts is critical for stock investors to enjoy profits in the Bombay stock exchange. The chart is the start point for all analysis because they provide comprehensive information in a short time. Investors use several types of charts, however here are 5 chart commonly used patterns in online share trading:
Head and Shoulders
The most reliable and popular chart pattern for technical analysis in the stock market is the Head and Shoulders. Like the name indicates, the pattern appears like a head that has two shoulders. It is a reversal type of pattern and is formed when the stock most likely is moving against the previous trend. There are two versions of the head and shoulders. First, the head & shoulder top indicates that the price of the stock will fall with the completion of the pattern. The second is the head & shoulder bottom indicates that the price of the stock will rise and is formed in a downward trend.
There are four categories of commodities that have been a part of the trading industry - Energy (natural gas, crude oil, gasoline and heating oil), Livestock and Meat (cattle, hogs, feeder cattle and pork belly), Metals (copper, silver, gold and platinum) and Agriculture (rice, coffee, wheat, cocoa. soybeans, corn, sugar and cotton).A few commodity tips to note are:
Cup and Handle
This pattern resembles the shape of a tea cup in a chart. This is a bullish pattern where there is a pause in the upward trend, however it will continue to trend upwards till the pattern is complete. The cup and handle pattern precedes an upward movement, which stalls and heads for a sell-off. The sell off is the initial part, after the sell off the stock trading will be flat for an extended time period without a clear trend. The next stage of the pattern is the upward movement towards the peak which precedes the upward movement. The last stage of this pattern is a smallish downward move before the stock movement is higher in continuum with the previous trend.
A few commodities are sensible to trade and a few are risky in nature. Volatile markets usually come across traders and investor who wish to store their money in precious metals like gold which has been considered reliable over the years and ensured a certain return on investment. Investors incurring losses in stock market can always shift to trading commodities like metals.
A gap in charts indicates that there is an empty space between a trading period and the previous one. It is formed because of a vital and material event that has an impact on the stocks. It may be a merger, surprise earnings, economic instability etc. This occurs when there is a large difference in the opening price and the subsequent price movements do not fall in the range of the previous trade period.
The chart pattern here clearly forms the shape of the triangle. Here two trend lines converge: ascending, flat or descending where the price of the security moves between two trend lines.
Flags and Pennant
These patterns, flag and pennant are two continuous patterns that closely resemble each other. They differ in their shape only during the consolidation period of the pattern. A flat is rectangular in shape and the pennant appears like a triangle. These two patterns form when there is a sharp movement in price followed by a movement in price sideways, which will be a pennant or a flag.
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