A price pattern is a type of a pattern that shows up on price charts. These patterns show both continuation and reversal and can be used by investors in predicting the potential future values of investments.
Price patterns are considered a valuable tool in investors' stock-trading arsenal.
If a price pattern is starting to form on a stock chart, you know the stock is starting to slow down, or consolidate, and that you need to slow down, take a step back and evaluate what may happen to it. It is hard to understand whether the stock is going to breakout and continue moving in the same direction after it slows down, or if the stock is going to turn around and change direction.
Price patterns are divided into two major categories: continuation patterns and reversal patterns.
Continuation patterns tell that the new trend is going to continue in the same direction that the old trend was moving.
Reversal patterns tell that the new trend is going to reverse directions and move in the opposite direction that the old trend was moving.