UNDERSTANDING COMMODITY CHART FUTURE CHART PATTERNS

Bar Charts

show price movements over consecutive time periods. One vertical line -- or bar-- represents the trading range for each trading period (i.e., a day, a week, a month, etc.). Viewing one bar alone, it is not significant, however viewing it in relation to other bars (trading periods) occurring before and after, one see how these prices fit into a larger pattern. In this context, a single bar (and the prices of that period) becomes important and can serve as a guide to trading and timing decisions.Whether one uses minute, hour, day, week, month or year bar charts depends greatly on the time frame being analyzed (i.e., daily bar charts might provide too much data to analyze a year of activity, and monthly bar charts might not provide enough).

Chart patterns

are hills and valleys, patterns, shapes and curves that develop over time on a chart and which are found to have predictive value for future market direction. Patterns can either indicate a reversal or a continuation of an existing trend.

Reversal patterns often take a long time to form on the chart and represent major changes in trend. The larger the pattern, the greater the potential price movement. The height of the pattern measures volatility, while the width measures time required to complete the pattern. (Patterns at market tops are usually more volatile and shorter in time than bottoms.) Remember, a trend must exist for the pattern to be valid, and breaking a major trendline does not necessarily indicate a trend reversal (it might be the beginning of a sideways trend). Some of the more common reversal patterns include head-and-shoulders, double tops and double bottoms and saucers.

Continuation patterns suggest that a market is only pausing for a while before the prevailing trend will resume. Continuation patterns are usually shorter-term in duration than reversal patterns and are often classified as intermediate-term chart patterns. Some of the most common continuation patterns include: flags, ascending and descending triangles, pennants, gaps, and rectangles.

I've found that these patterns are great representations of mathematical indicators. Their signals often coincide with momentum and trend indicators. These patterns have the same predictive value within a chart of any time frame.

Definitions:

:::::>Head and Shoulders

is a reversal pattern consisting of three price peaks, the middle being the largest. It's potential in the opposite direction is measured by the distance from top of middle (head) to the base (neckline). This price distance is extrapolated from neckline at the point of breakout.

:::::>Double tops and double bottoms

are reversal patterns consisting of two peaks with a price valley. To confirm pattern, prices must form a pullback (decline below and close below previously established low). To predict move size, measure height from high to low and project under beltline (Vice versa for double bottom)

:::::>Flags and pennants

are continuation patterns, usually a pause in fast, or almost vertical, price movement. Flags are in the shape of a parallelogram, while pennants are very short triangles.

:::::>Broadening

a reversal pattern usually found at trend peaks rather than lows.

:::::>Triangles

can be continuation and reversal patterns, this usually determined by the direction which they point. Confirmation is at breakout, and the strongest signals are when breakout occurs between 1/2 and 3/4 the triangle length.

:::::>Ascending triangles

if the slope is upward, it is bullish

:::::>Descending triangles

if the slope is downward. it is bearish

:::::>Symmetrical triangles

means both triangle sides are approx. the same size and angle; it is a neutral indicator.

:::::>Saucers

are reversal patterns which are slow and rounding in form (at the end of a move). No clear breakout signals occur because it is so slow; no clear Support /Resistance areas are found either. This pattern can last a long time. Be on the lookout for any trending activity.

:::::>V-formations

are continuation patterns which begin as initial reversals in trend. V direction is opposite main trend. If it is a right triangle, the market will breakout on the horizontal side of the triangle.

:::::>Gaps

are areas in charts where no trading occurs and are usually continuation patterns.

:::::>Runaway gaps

have strong fundamentals behind move, are not quickly filled

:::::>Exhaustion gaps

are usually the largest gap, usually filled, and have blow-off characteristics.

:::::>Breakaway gaps

are at end of price pattern or when breaking major support ( or resistance), and are usually filled.

 

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