What are Price Formations?
Price formations are, for example, reversal and trend continuation formations. Formations seen on charts, used to predict future price movements. Discovering and drawing conclusions from observed formations is the basis for buying assets based on technical analysis.
How to read price formations in technical analysis?
To find formations, it is necessary to determine resistance/support points on the chart, as well as to draw the corresponding trend lines. Only with these markings can you try to find the described price formations. For easier finding of such formations, it is also worthwhile to support yourself with appropriate software or professional technical analysis.
Is it profitable to use price formations?
Many investors – especially short-term investors, consider finding price formations as an important premise, allowing them to make appropriate investment decisions. If only because of their popularity and investors’ expectations, price formations can work as a self-fulfilling prophecy. However, let’s also remember that price formations are often traded on the basis of automations for this reason, the formation we discover is likely to be used more quickly by trading automation programs.
How to recognize price formations?
To recognize price formations, you need adequate knowledge (knowledge of them), the ability to draw trend lines or determine support points. In order to recognize and interpret formations, it is worthwhile to use professional literature or use programs supporting technical analysis. It is also a good idea to familiarize yourself with industry websites that publish detailed technical analyses of certain assets.
What are the price formations?
Price formations by type are most often divided into reversal and trend continuation formations. Among the former, the most popular formations include:
Formations heralding a trend reversal include, for example:
- head-and-shoulders formation;
- double bottom;
- double peak.
