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Graphic patterns are traditionally attributed to the classical system of technical analysis. They got their name because the analysis and forecasting use not only a certain number of candlesticks (bars) from the price chart but also additional constructions of graphic objects. Lines of support or resistance are necessarily drawn to the candlesticks forming any of these figures of technical analysis, and breaking through these lines serves as a signal for the beginning of a new movement (and a signal to enter the market). For the well-known pattern "Head and Shoulders", such a line is called the "Neckline". Its breakout indicates the start of a downtrend.
All these models relate to multi-candle (more than three periods of the price chart), and the number of bars for formation can vary over a very wide range. This complicates the identification somewhat.
Graphic patterns, like others, can be reversal figures, continuation of the trend, or bidirectional.
Reversal patterns:
1. "Head and Shoulders", "Inverted Head and Shoulders".
2.Double and multiple tops, double and multiple bottoms.
3.Pattern "Diamond" (an alternative name used in trading is "Rhombus").
4.Pattern "Dragon" - a more generalized version of a double bottom ("Inverted Dragon" - double top). Its significant extremes do not necessarily have to be at close levels. In fact, it can be considered as a W- or M-shaped figure, as Bollinger mentioned. The only difference is that here a line of support or resistance is constructed, rather than using the channel boundary.
Continuation figures:
1.Pattern "Cup with Handle" for a bullish trend and "Inverted Cup with Handle" for a bearish one.
2.Pattern "Rectangle" - movement in a horizontal channel after a price impulse. The channel boundary is broken in the direction of the previous movement.
3.Pattern "Flag" - an equidistant price channel in the direction opposite to the previous price movement. It ends with a breakout of the boundary in the direction of the previous impulse.
4.Pattern "Pennant" - a variety of flag, but in a converging channel. It ends, like the previous one, with a breakout of the boundary in the direction of the price impulse that formed it.
Note! "Pennant" is suggested to be considered a special case of a bidirectional figure - the "Wedge" pattern. But even in this case, the forecast direction of movement remains valid.
Bidirectional models do not give a definite answer as to whether the trend will continue or a price reversal is expected. The further direction of the quotations depends on the type of pattern. Such figures include:
1.Pattern "Triangle". Characterized by the presence of a horizontal line of support or resistance. Its location determines the direction of the breakout - the figure concludes with its breakout.
2.Pattern "Wedge". Represents a narrowing price channel in the direction that coincides with or opposes the price impulse. The further price movement depends on the direction of the channel itself - the breakout of the boundaries usually occurs in the opposite direction.
Graphic patterns were first identified and are widely applied specifically in working with securities. However, they also work well not only in the stock market but in other markets as well - they form quite reliable signals in cryptocurrency trading.
