Chart patterns alone will get you into more trouble than they are worth. It is safe to assume that your ultimate trading system will influence your success with chart patterns. If currently available information is already priced in, only new information can cause price changes. Now, here we run into a problem-at least as far as chart patterns are concerned. This suggests that regardless of how high or low the price is, it must be the correct price based on currently available information. The traditional academic view has always centered on the notion that investors are rational and market prices properly reflect whatever information is available to them. Why Do Chart Patterns Occur?Ĭhart patterns occur because people behave in similar ways as they did in the past. The idea is that if you can develop an understanding of various forex chart patterns, you can become a better trader. Since then, countless books, YouTube videos, and websites have talked about chart patterns.
Edwards and John Magee were the first to provide a systematic overview of the most commonly recognized chart patterns. In their book, Technical Analysis of Stock Trends, Robert D. The distinguishing feature of chart patterns is that they take a long time to form and consist of several price bars. These are called candlestick patterns and not chart patterns. Some forex patterns relate to only one or a few price bars. Thus, while fundamental analysts rely on economic data, technical analysts examine patterns of past price behavior. Technical analysis assumes that “history repeats itself” and that past price behavior is indicative of future price behavior. Fundamental analysis uses financial data such as GDP reports or expectations of future interest rates to determine proper exchange rates.
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