How To Read A Stock Chart Pattern

Reading a stock chart pattern, or that is interpreting it correctly, requires not only skill,  but objectivity.  It requires skill to properly read a stock chart in that you must have knowledge and experience with the meaning behind the chart.  This is called Technical Analysis.  Traditional investing and / or trading is based on Fundamental Analysis.  Fundamental analysis is a way to analyze a security by using information about the general economy, the industry in question and information about the company itself.  For example considering their earnings reports, sales, profits, expenses, liabilities, etc.  Then armed with all or part of this information, you compare the figures to company / analysts projections or competitors / industry performance.  Then you decide if the company is under or over valued.

Technical analysis, or stock chart reading is based upon the idea that all of the decision making that has taken place by other investors and traders is already reflected on a stock chart. The actions of these traders develop patterns that one can learn to identify as a means of projecting the price movement.  Analysts will scrutinize the price chart and other indicators, such as moving averages.

Stock chart pattern recognition requires objectivity in that you must discipline yourself to remove your hopes, desires and fears so that only the facts will effect your interpretation.  If not properly disciplined,  mirages will start to form on the stock charts.  Just like the dehydrated, lone traveler in the movies crossing the desert and believes he sees an oasis off in the distance.  He is partly influenced by the heat and partly influenced by his desires.  Developing the discipline required to trade successfully is a whole other subject all by itself.

While learning how to read a stock chart is not a small subject, the good news is that to become a successful trader, one only needs to learn one stock chart pattern well in order to make consistent profits.  You can learn cup and handle chart pattern.  Some books go into great detail about the science of candlestick chart patterns. 

Some stock chart patterns are more reliable than others, some show themselves less frequent than others, requiring more patience if you are intent on using them.  There is one pattern however, that not only shows itself regularly on a stock chart, but has a high degree of reliability, and one can learn how to read it rather easily.  It is the 1-2-3 pattern.  It is very easy to spot once you know what to look for.  Because it is easy to spot, plentiful and highly reliable, it is an excellent pattern for new traders to start with. 

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