Chart Patterns  |  APR 2004

Do Price Patterns Really Work? by Martin J. Pring

Stocks & Commodities V. 22:4 (30-37): Do Price Patterns Really Work? by Martin J. Pring How far can you expect prices to go when they break out of a pattern? Here’s one technique you can use to find out. Technical analysis focuses on identifying trends early on and riding them until evidence of a reversal appears. Essentially, these trends are periods in which either buyers or sellers are in command, depending on direction. Fortunately for technicians, there is usually a transitional phase or trading range separating up- and downtrends. During these trading ranges, neither side is in control. Over the years, market participants have noticed that many of these ranges trace out fairly definable price formations, which, when completed with a breakout, signify that a new trend is under way (see Figure 1 for a bear/bull reversal). Once prices break out from such a pattern, it is possible to set an objective by measuring the pattern’s depth and projecting this distance in the direction of the breakout. In this article I will be concentrating on daily charts, but the principles apply to any time frame.

by Martin J. Pring