Chart patterns make a good strategy in the stock market. They have been proven effective many times in the past. Chart patterns work because:
1. Stocks Are Emotional
The majority of the people who invest in the stock market let their emotions be their guide. No one intends to make their financial decisions with their emotions, but if you are not prepared for it, it will play a big role in your trading.
This in turn makes the moves stocks make pretty emotional as well. And because chart patterns work with breakouts there is a lot of emotional participants out there willing to buy it and force it to go up.
2. Many traders Use it
There is a reason why many traders use chart patterns, they work. Once more because chart patterns are so widely used they tend to work better. The more people who use a strategy the better it tends to work.
3. It gives you a point to buy
You can do a lot of analysis on a stock to tell you what a good buy is and what is not, but that does not necessarily give you the best point to buy. Chart patterns on the other hand tell you exactly when to get into the trade so you can get in as it makes its move. Rather than just buy a stock and watch it go up and down
for months, or years before it starts to take off.
4. It Helps you cut your losses short
Cutting your losses is one of the keys to being successful in trading. You do not simply want to spend all your
money buying a stock and just hoping that it does not go all the way to $0. If a stock falls back into the pattern it is a good sign that the pattern has failed and will probably fall further. So getting out early can save you from taking a huge loss.