Technical Analysis is the art of reading and analyzing the Technical Charts.Traders tend to take their trading decisions on the basis of various Chart Patterns formed in a chart for a stock.If you follow these Chart Patterns,combined with other technical indicators,the likelihood of going wrong with your trade is diminished considerably.
A Chart Pattern is formed when a stock or a security makes a certain recognisable pattern on a technical chart after several minutes,days or weeks of trading.When the security breaks out of that Chart Pattern,it is supposed to hit new higher or lower targets.The targets are also calculated on the basis of analysis of these Patterns.There are several types of Technical Chart Patterns which are popular among the market traders.These are ;
1. Head & Shoulders Pattern (Bearish)
4. Ascending Triangle Pattern (Bullish)
5. Descending Triangle Pattern (Bearish)
6. Cup & Handle Pattern
7. Rounded Bottom Pattern
8. Double Top Pattern (Bearish) or Triple Top Pattern (Bearish)
9. Double Bottom Pattern (Bullish) or Triple Bottom Pattern (Bullish)
12. Wedge Pattern
These Chart Patterns suggest the possible trend about to start in a security.It can be bullish or bearish,depending upon the type of pattern or the type of breaking out of the pattern (it can be breakout or breakdown).
The time period likely to be taken to achieve the targets given by these Patterns depends upon the time period taken to form the particular Pattern.Pattern formed on Daily Chart may take take days to hit the target while weekly Patterns may take few weeks to achieve the target price.But this is not a hard and fast rule.The targets may be hit even earlier than we assume.The targets may not be hit sometimes when there is a false breakout and the stock again enters the trading range.
To minimize the risk of entering a trade on the basis of a false breakout,you should also take a look at the other technical indicators also.The most important to look for is the Volume of trades at the time of break out.The higher the Volume of breakout,the higher the probability of stock moving to its target.Lower Volumes can be the reason for false breakouts.