The two major categories of price patterns are reversal and continuation. These patterns are almost self explanatory. The reversal pattern indicates an important reversal in trend is occuring. The continuation pattern points to a pause, as when a correction for near term overbought or oversold conditions take place, after which the trend will continue on in its original direction. These two patterns can be difficult to distinguish, but a trader needs to make the distinction between the two as early in the formation as possible.

The five most commonly used reversal patterns are the head and shoulders, triple tops and bottoms, double tops and bottoms, spike (V) tops and bottoms, and the rounding (or saucer) pattern. These patterns are tricky and even the most experienced trader needs to use the volume and measuring techniques to confirm his conclusion.

The trader also needs to determine if the pattern can be trusted. Doubts can be alleviated by studying the volume pattern accompanying the price data.

Most price patterns have measuring techniques to help determine minimum price objectives. Even though they only help approximate the size of the subsequent move, they do help the trader pinpoint his or her reward to risk ratio.

Continuation price patterns are sited by using triangles, flags, pennants, wedges, and rectangles. Since the continuation pattern usually reflects pauses in an existing uptrend or downtrend, it is most often classified as being intermediate or minor.

Andy Swan is co-founder and head trader for DaytradeTeam.com. To get all of Andy's day trading, swing trading, and options trading alerts in real time, subscribe to a one-week, all-inclusive trial membership to DaytradeTeam by clicking here.