Despite the passage of time, human nature and behaviour over the years, remains constant. All market participants are driven by similar emotions and will often react to situations in the same way. Moreover, there are always a continual flow of new participants into the market and they are generally ignorant of the way the market has behaved in the past.
For this reason, the same mistakes are often repeated by each new group of market participants.
Technical analysts develop an understanding of the way crowds of people will react to certain situations, and are able to identify certain patterns in price charts. Therefore, they are able to form a view on the likely direction of the price of a security.
In the realm of technical analysis, there are numerous patterns which can provide you some insight into the prevailing sentiment in a security and any potential future movements. Loosely, you can categorise some of these patterns as reversal patterns, continuation patterns and dual purpose patterns.
In this section, we will cover a variety of patterns as follows:
- support and resistance
- double tops and double bottoms
- head and shoulders