Chart patterns cheat sheet for day trading

Technical analysis refers to the study of the financial market based on price movement. It uses the assumption that the price of a share reflects all information about the share including market sentiment as well as its perceived value.

Charting refers to technical analysis that is performed through careful inspection of share price data for identification of well know the pattern that emerges in share prices; for example head and shoulder, channels, triangle, and wedges.

1. Chart patterns are well-documented in technical analysis literature and are based on psychological phenomena between buyers and sellers of financial instruments in the liquid market.
2.  Pattern formation does not form a trading system but rather provides an indication of future trends of a share as a price break key psychological barriers in support and resistance line.

There are numerous types of chart patterns all named according to the shape of the price graph forms between the support and resistance line. The general types of patterns are triangle, wedge, channel, head and shoulder, Flag, cup, and handle.

Triangles

1. A triangle is formed between converging support and resistance lines.
2. A negative sloping resistance line indicates a reducing level of profit-taking or more uncertainty about the value of stock 
3. With a positive sloping support line, the price level is squeezed into a corner.
4. Once the support or resistance line is broken pressure that has built up as a result of uncertainty is released and a certain amount of momentum is added to the price change in the direction of the breakout.

Ascending and Descending Triangles

1. There are specific variations of triangles that can occur namely ascending and descending triangles.
2. An ascending triangle has a horizontal resistance line and the descending triangle has a horizontal support line
3. An ascending triangle usually occurs as a continuation of bullish trends while a descending triangle usually occurs as a continuation of a bearish trend.

Using Triangles to trade

1. It is important to note that an ascending triangle can also be found in a downtrend.
2. So the combination of the name of the triangles and the market trend is deceiving,
3. Thus the financial asset needs to test the resistance level twice and the asset's closing price needs to be higher than the previous closing price.
4. In other words, the closing price has to follow the resin trend line
5. Next, we came to volume 
6. When in an ascending triangle volume usually contracts.
7. Although there are a few numbers of cases that show volume has not contracted but the pattern has been displayed 
8. This has been signified by the blue line at the bottom of the chart.

1. So the distance between the rising trendline and the resistance level will give us our projection
2. So if our resistance level had a value of 1 and the start of our trend line had a value of 0.5. 
3. Then our projected value will be 1.5 upwards.

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