The figures of technical analysis is used by many traders not less, than the various charts and indicators. This is due to the comparative simplicity of their understanding: if once to understand the essence of the issue, in the future there will be no problems.
These figures, like any other trading measures, are used to make the most accurate forecast of market fluctuations and, as a result, to profit from it.
Bounces, kickbacks and breakdowns is often based on an analysis of the figures (triangles and rectangles). It is on these figures that such a concept of the stock market as a trend is based. According to many financial analysts, a trend almost always cycles, so it is enough simply to follow closely the dynamics of prices and quotations to predict further development of the situation.
2 main types of figures of technical character are identified:
- Reversal. Signal the beginning of a trend (its reversal).
- Confirming. The trend is over and is clearly visible (stable).
At the same time, experienced traders often agree that not one figure does not have an exact outline and therefore it is wrong to base their strategy solely on them. Analysts recommend taking figures as a basis, but at the same time decide to make based on a number of other indicators and trends.
The Most Popular Figures
At once it should be noted that in different sources it is possible to find absolutely different names of the same figures. This is not due to errors or nuances of translation. The fact is that the figures are mostly put into circulation by the stock market participants themselves and therefore between themselves traders can slightly modify the names, using not only the “book” name, but also spoken language.
The most commonly used technical analysis figures include:
- double top (and a double bottom). Reversal pattern. Indicates that the price has already twice failed to break through the upper boundary. Double bottom indicates that the price could not break through the support line at the lower boundary line. Entry is recommended at the second top;
- head and shoulders. The trend has clearly visible 3 peaks (average – the highest). Entry should be at the third top;
- rising wedge. The most suitable figure to show a trend reversal;
- rectangles. Here, input is possible within breakdown (as well as bounces and kickbacks with it). The most stable and understandable figure with which almost all traders prefer to work.
Experienced traders never recommend basing their bets on something one. Even the most advantageous strategy can sometimes lead to collapse and therefore it is better to use different approaches not only depending on the raw materials against which bets are made, but also the situation. That is why it is so important to focus clearly on different market indicators in order to be able to base the strategy on multiple parameters of choice.