• Chart Patterns are a “Historical Map” of the stock from a Macro perspective as represented by recognized patterns on a chart.
• The revealed pattern will allow the trader to identify the likely future direction of the stock.
• There are two broad categories of Chart Patterns 1) Reversal Patterns and 2) Continuation Patterns. 
• It will take some practice to become competent at pattern recognition, but once achieved, it will be a skill that will serve you well.
• The stock market is traded by human beings.  Even in an attempt to remove emotion and psychology from the market through program trading the human element is present and visible on the chart.
• Programs are designed by humans and buy/sell triggers are input to reflect specific market conditions such as perceived support or resistance.
• As chartists, we can see the psychology of the market through Chart Patterns as well as other technical analysis tools.

Reversal Chart Patterns & Psychology

Reversal chart patterns are those that denote the end of a trend and the beginning of a new trend.

   When combined with other indicators that confirm the reversal, Reversal Chart Patterns become quite powerful in predicting a turn in the market.

Double Top

This is a bearish reversal pattern that appears at the top of a trend and is characterized by a peak followed by a pullback and then a second peak that stalls at the level of the first peak and then retraces.

Double Top Psychology

• The buyers at the top of the first peak were victims of buying from the “smart money” as they sold to the “dumb money” at the top of the trading range.
• These unfortunate buyers will usually hold, refusing to take a loss and waiting for the opportunity to unload the stock at a break even.
  • When that opportunity presents itself, at the second top, selling pressure increases and drives the stock lower.
  • Other knowledgeable traders who know that the “Double Top” will present an opportunity to short and will do so thereby increasing the downward move.

Bookmark It

Hide Sites