The discipline of “technical analysis” or “charting”, as it is sometimes called, consists of studying chart patterns with a view to establishing patterns that can be used to improve prediction of future price movements. This subject can be broken into three areas:

  1. Formations
  2. Line Charts
  3. Wave and cycle theories

There are many different types of formations which occur commonly in financial charts. For example, double tops and double bottoms usually signal a change in the direction of the trend. The head-and-shoulders formation and its opposite, the reverse head-and-shoulders formation usually indicate respectively a protracted downward or upward move. To get a clearer understanding of the various formations and how to interpret them you should refer to Lecture Module 21.

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