When the current price trend is losing strength, the market usually begins correction or it enters a period of consolidation. In such moments, there are forming local maximum and minimum that can be used to draw various lines of support or resistance. When these lines are combined, there can be clearly distinguished technical graphic configurations (chart patterns), which are divided into two main types – for reversal or continuation of the trend.
Basic rules in formation and development of these technical configurations:
- We may have configuration only if there is a distinct previous trend.
- If we have big configuration, the potential of the subsequent price movement will be greater.
- The formation of the top of the market is faster than the formation of the bottom.
- The flag waves in the opposite direction.
- Each configuration can be ruined.
Key strategies based on the formation of graphics configurations:
- Early detection of position in anticipation of a breakout configuration;
- Break of the configuration;
- Second break of the configuration;
- False break of the configuration.