What are Price Chart Patterns & How do they Form?

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What are Price Patterns & Chart Patterns?

Price patterns, or chart patterns as some people call them, are shapes and formations formed by price movements on the price chart.

By understanding the underlying psychology of how and why they form, it gives traders a deeper understanding of the intentions of various market players (buyers and sellers), and how their battle plays out on the chart.

From a more practical standpoint, it allows you to predict which side will likely win the battle (completion of the pattern), and prepare to take action (learning how to anticipate as the pattern is forming) when the odds are stacked in your favour.

How Do Price Patterns Form & Why are they Important?

As the market moves between the 3 main trends – uptrend, downtrend and sideways, prices have to transit from one trend to another, and these transitions are what leads to the price and chart patterns being formed.

So by studying the patterns, and also understanding the context in which they are formed, it will enable us to make useful predictions as to the most likely outcome of prices once the pattern is completed.

In other words, it gives us high probability predictions of future outcomes, which we can use to tilt the trading odds in our favour.

It is also useful to understand swing counts, and how you can use them to identify the current trend of the market.

These will work hand-in-hand when breaking down and understanding chart patterns as well.

If you would like to learn all the different price chart patterns, also check out: “The Definitive Guide to Trading Price Chart Patterns”

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Spencer Li

Spencer is an avid globetrotter who achieved financial freedom in his 20s, while trading & teaching across 70+ countries. As a former professional trader in private equity and proprietary funds, he has over 15 years of market experience, and has been featured on more than 20 occasions in the media.