What are classical chart patterns?

There are many different ways to analyze the financial markets using technical analysis (TA). Some traders will use indicators and oscillators, while others will base their analysis only on price action.

Candlestick charts present a historical overview of prices over time. The idea is that by studying the historical price action of an asset, recurring patterns may emerge. Candlestick patterns can tell a useful story about the charted asset, and many traders will try to take advantage of that in stock, forex, and cryptocurrency markets.

Some of the most common examples of these patterns are collectively referred to as classical chart patterns. These are some of the most well-known patterns out there, and many traders see them as reliable trading indicators. Why is that? Isn’t trading and investing about finding an edge in something that others have overlooked? Yes, but it’s also about crowd psychology. As technical patterns aren’t bound by any scientific principle or physical law, their effectiveness highly depends on the number of market participants paying attention to them.