I will be changing my blog towards something a little more focused as we will start to look at patterns within the stock market.
Different patterns show themselves within the stock market often and can be used to help determine how the markets might act in the future. Realizing and understanding these patterns can be extremely beneficial to your success as a trader. Today we will look at megaphone patterns.
Megaphone patterns also known as "inverted symmetric triangle" usually occur after a strong up or downtrend in the market. It is comprised of 5 swings with each swing being larger than the previous. They have lower low points and higher highs than the previous which give it its distinctive looks and characteristics. Within the pattern, the first and last swing are the most important as they show a reversal of major direction within the markets.
Knowing how and when to trade this pattern can be found at the price reverses on the 5th swing as there will be a breakout either higher or lower depending on whether or not the megaphone is ascending or descending.