Why Chart Patterns Occur

[Sinis111]

Hi All,

I just started Learning Technical Analysis,I have been following this forum from past few months,This forum is very helpful for beginners like me,Thanks to all who are all responding to this forum,As part of my learning i started reading a Book "encyclopedia of chart patterns by thomas bulkowski",This book deals with different Chart patterns,But i am looking for some more information like why particular Chart Pattern Occurs and What is the reason behind that Pattern,Is there any Book which explains this,

Your answer will make my learning process easy,

Thank you Very Much
-SiniS

 

[Jai Mata Di]

Chart patterns are a result of human nature and trading psychology.

Chart Patterns occurs due to the effects of 4 Human Psychological States Of Emotion: Greed, Fear, Hope & Regret.

The key is to recognize those patterns very quickly & followed up by fastest emotionless action. :thumb:
It takes years of practice on live market & live trading with real money.

Happy Trading.
H.C.

 

[Sinis111]

Thank you very Much for your reply H.C.

I want to know what kind of psychology will create a such a pattern,for eg Cup and Handle What kid of Emotions and Psychology will create this pattern,What kind of actions from traders will create this kind of patterns..

P.S I am completely new to this Trading ,If my question is not valid or if my Understanding is wrong on Charts please excuse me ...

Thank you
-SiniS

 

[Riskyman]

Thank you very Much for your reply H.C.

I want to know what kind of psychology will create a such a pattern,for eg Cup and Handle What kid of Emotions and Psychology will create this pattern,What kind of actions from traders will create this kind of patterns..

P.S I am completely new to this Trading ,If my question is not valid or if my Understanding is wrong on Charts please excuse me ...

Thank you
-SiniS

What exactly forms a cup and handle or what forms an ascending triangle does not matter. What matters is that patterns form and thats all there is to it. Our job as traders is to identify those patterns and not question why they form. There are reasons to it, I must admit. But thats getting into complicated territory. If your interest are academic in nature, please pursue them. If you want to use these patterns to make money then dont give it too much thought. Too much thought clutters a trading mind. The lesser thoughts you have, the better trader you can make of yourself.

 

[Jai Mata Di]

As patterns occurred due to complex psychological reactions from human mind, no one can tell us exact recipe for a particular pattern. :lol: What percentage of that four emotions can create a pattern.

Remember, following famous quote by Jesse Livermore: who was one of the greatest traders who ever lived.

1. "All through time, people have basically acted and reacted the same way in the market as a result of: greed, fear, ignorance, and hope. That is why the numerical formations and patterns recur on a constant basis."

2. "There is nothing new on Wall Street or in stock speculation. What has happened in the past will happen again, and again, and again. This is because human nature does not change, and it is human emotion, solidly build into human nature, that always gets in the way of human intelligence. Of this I am sure."

--------

It is not important to find the reason in stock market.

Remember, famous saying, by John Maynard Keynes:-

"The market can remain irrational longer than you can remain solvent."

============

You only have to remember all patterns & find a pattern faster when it is forming and also faster to identify a failure of such pattern. U have to act instantly(faster than other traders). :thumb:

Try to identify pattern faster with plain eyes using only candle sticks without drawing trend lines. Many pattern trader see Fibonacci retracements on such patterns without drawing it. Believe it, our brains have such abilities. Practice..

Best Wishes & Happy Trading.
H.C.

 

[Sinis111]

Thank you very much for all the responses

 

[mastermind007]

Thank you very much for all the responses

Very good question to think about and unless you are a psychologist, answers will be boring...

Patterns on chart occur because we humans live in recurring patterns.

Cup and handle is simple .... stock after long decline has reached lower areas and is very attractively priced for purchases on fundamental terms

Usually, if a stock is good, people take position first and then tell others. As news spread in addition to more and more traders discovering it on their own, demand increases.

Once the potential for greater demand in future is confirmed (usually break of prior high), cup-portion of the pattern is complete and smart-money steps in.

They somehow drive the price to where they want to enter into desired positions... and then let the prices zoom ...

TATAPOWER at the moment is forming cups after cups but failing to take off and if you observe closely, cup portions of pattern is not completing....


Crude oil too seems to have reached a bottom but at the moment, there are no signs of it blasting upwards

 

[Sinis111]

Hi MasterMind
Thank you for your reply,From where can i get similar information for all types of patterns,Can you suggest some good book

Thank you
-SiniS

 

[mastermind007]

Hi MasterMind
Thank you for your reply,From where can i get similar information for all types of patterns,Can you suggest some good book

Thank you
-SiniS

The example I gave was made up by me... I have not found it in any book...

 

[Iron_Man]

Read Encyclopedia of the Chart Patterns by Thomas Bulkowski