Identifying chart setups is simply a system for gaining access to high probability stock market trends! Hundreds of years of price charts have shown that prices tend to move in trends. A trend is merely an indicator of an imbalance in the supply and demand of a stock. These changes can usually be seen by market action through changes in price. These price changes often form meaningful chart patterns that can act as signals in trying to determine the beginning, or continuation, of trend developments.
In my experience there are two key trade types:
1. The ‘buy on weakness’ trend reversal trade, and
2. The momentum trade.
The first develops from a reversal from low levels where long term support is showing and or accumulation price action has developed. The ’breakout’ from these zones is often a precursor to a strong market imbalance and trend move.
The second is a signal that forces the extension of an existing trend. These can be very frenetic, powerful, and highly lucrative but must be systematically risk managed to achieve a consistent optimum result.