Technical analysis becomes more complex when you start looking for standard patterns within the price chart, or to annotate your own interpretation of price and volume movement.
The idea is to identify patterns that are considered to have a proven correlation to a specific price move, based on whether price moves below support or above resistance levels.
That measurement is known as the Success Rate, but unfortunately, this isn’t an objective statistical value, such as the known value of one standard deviation. The whole area of Technical Analysis and charting is subjective, so there is no definitive reference table Success Rates. Much of the difficult comes from being able to create a set of explicit criteria for the formation of the pattern and the confirmation of breakout – up or down.
Depending on which trading study you pick – and there are many – the success rates for patterns can vary dramatically, which on its own should make any new trader cautious to put a huge amount of faith in them in isolation.
Trading patterns should instead be considered as one tool among a wider selection of methods for trying to discern price.
The reference table below, created by a user within the Tradingview community provides a very good summary of four pattern categories within which are common patterns with names describing the shape that price points create.
- Continuation – Temporary interruption of an existing trend
- Reversal – A reverse in the existing price direction
- Neutral – The expectation of a significant change in price direction, but no specific certainty of whether it is up or down
- Specials – These are specialist patterns that should only be considered by experienced traders.
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