Timing Solutions for Swing Traders: A Novel Approach to Successful Trading Using Technical Analysis and Financial Astrology

PATTERNS CONTINUED

Patterns indicate the psychology of a market. Martin Pring, in his book, Martin Pring on Price Patterns, writes, “The more I work with markets, the more it becomes apparent that prices are determined by one thing and one thing only, and that is people’s changing attitudes toward the emerging fundamentals.” Another great technician, Garfield Drew, says, “Stocks don’t sell for what they are worth, but for what people think they are worth. If it were not for the fact that these changing attitudes move in trends and that trends tend to perpetuate, market prices would be nothing more than a random event, which would mean that technicians would be out of business.”

There are two general categories of patterns, reversal and continuation. Reading of patterns is based on the three basic assumptions in technical analysis: prices discount everything, trend will continue in the direction of the previous direction, and history tends to repeat.

When prices continue to trend up, they become more vulnerable to profit taking and the market becomes congested as sellers and buyers pit their strength against one another. On the other hand, when prices continue to trend down, buying support will reenter as prices seem more appealing to the buyers. If prices fail to continue in the direction of the previous trend, they change direction and reversal patterns are formed. The ability to detect reversal patterns often offers the best reward.

Continuation patterns allow the market to pause ...