Hello readers, we are happy to announce that our
team of MoneyWiseMind.com launched a new section “Investing Insights: Weekly Q&A For Stock Market
Newbies”, to spread the
basic stock market knowledge to the beginners.
This is your go-to resource for
demystifying the stock market from the scratch. Each day, we will present 10
carefully curated questions with answers that will cover essential concepts,
strategies, and terminologies. Whether you have just entered into the market,
or trying to starting your stock market journey, or looking to strengthen your
foundation, our weekly post will guide you through the basics and beyond,
making investing accessible and understandable for everyone. Happy reading.
Day
18: Basic Stock Market Concepts
Technical
Analysis for Beginners:
1. What is Head and Shoulders Pattern?
The Head and Shoulders
pattern is a bearish reversal pattern, forms at the end of an uptrend
indicating a change from an uptrend to a downtrend. It consists of three peaks:
the middle peak (head) is the highest, and the two side peaks (shoulders) are
lower. A break below the "neckline" after the right shoulder forms
typically signals a reversal.
The logic of the
pattern is that in the first peak, buyers are pushing the price higher rapidly.
In the 2nd peak, it is showing that there are slow buying and profit taking
happening. In the third peak the buyers are completely exhausted and sellers
taking control of the market to pull down the price lower which finally
indicates a trend reversal is on the card.
2. What is an Inverse Head and Shoulders
Pattern?
An Inverse Head and
shoulders is a bullish reversal pattern that forms after a downtrend. It
consists of three troughs: a deeper middle trough (the head) and two shallower
troughs (the shoulders) on either side. A breakout above the neckline signals a
potential upward reversal.
Once the neckline
breaks, the sellers lose control of the market and buyers aggressively push the
price higher taking full control of the market.
3. What is an Island Reversal Pattern?
An
Island Reversal is a reversal pattern that appears after a gap in price. This
pattern is formed after an extended trend signaling an upcoming trend reversal.
The price forms an "island" of consolidation before gapping again in
the opposite direction, leaving the island isolated. This pattern signals a
strong reversal in trend direction.
4. What is a Rectangle Pattern?
A Rectangle is a continuation pattern that forms when the price
moves between horizontal support and resistance levels for an extended period.
A breakout from the rectangle's boundaries signals the continuation of the
preceding trend, either up or down.
The psychology behind the rectangle pattern is that after a
prolonged move either upward or downward, the price consolidates as the buyers
and the sellers are in equilibrium, there is indecision in the market. So the
price jumps from a horizontal support and resistance making a rectangle.
5. What
is a Bullish Rectangle Pattern?
The bullish rectangle pattern is a continuation pattern which is
formed during the bullish trend as. During this period price consolidates
between horizontal support and resistance looking like a rectangle. In this
phase price makes higher highs so as to break out the resistance of the
rectangle as the buyers are in full control of the market.
6. What
is a Bearish Rectangle Pattern?
The bearish rectangle pattern is a
bearish pattern indicating a downward breakdown of a bearish side in a series
of price consolations. Before the breakdown, price consolidates between
resistance and support levels making lower lows which ultimately break lower
side.
The logic behind the bearish
rectangle pattern is that after a prolonged downtrend, the buyers try to push
the price higher. But the sellers are strong enough to block the wave of the
bulls. So, we see a series of price consolidations or sideways market signaling
an indecision in the market. Finally, the bears take control of the market and
pull down the price lower resuming further down ward movement in the
market.
7. What is the Diamond Pattern?
The Diamond pattern is a rare and complex chart pattern that
resembles the shape of a diamond. It typically forms after a strong uptrend or
downtrend and is characterized by a wide price range followed by narrowing
price action. A breakout from the diamond’s boundary indicates a reversal or
continuation in the direction of the breakout. When the pattern is complete,
this pattern shows that either side breakout may happen.
8. What is a Pennant Pattern?
A Pennant pattern is a small consolidation pattern that forms
after a strong price move, either up or down. It consists of two converging
trend lines forming a small symmetrical triangle. A breakout from the
pennant—above the resistance line (bullish) or below the support line
(bearish)—indicates a continuation of the prior trend.
9. What is a Rising Channel Pattern?
A Rising Channel is a bullish pattern that forms when the price
moves within two parallel, upward-sloping trend lines. The price tends to bounce
off the support line and face resistance at the upper line, continuing higher
within the channel. A breakout above the resistance line signals a potential
further uptrend. It is also known as ascending channel.
10. What is a Falling Channel Pattern?
A Falling Channel is a bearish pattern that forms when the price
moves between two parallel, downward-sloping trendlines. The price is generally
resisted by the upper trendline and supported by the lower trendline. A
breakdown below the lower support line suggests a continuation of the
downtrend. It is also known as descending channel pattern.
If you have any other questions in your mind relating to stock market basics or need any clarification, please put your query into the comment box, We will try our best to clarify the same
Disclaimer: The information provided on MoneyWiseMind is for educational and informational purposes only. It is not intended to be financial advice, and you should not rely on it as such. Before making any financial decisions, you should consult a licensed financial advisor.
