A series of peaks and troughs in stock price indicates which pattern?

A series of peaks and troughs in stock price indicates which pattern?

• A. Rectangular pattern
• B. Head and shoulders pattern
• C. Flag pattern
• D. Triangle pattern

Answer: (B)

The series of peaks and troughs in stock price is indicative of the head and shoulders pattern, which is a well-known technical analysis tool used by traders to predict future price movements. This pattern consists of three peaks: a higher peak (head) between two lower peaks (shoulders). The pattern typically forms when a stock has reached a certain level of support and resistance and is a signal of a potential reversal in trend. When this pattern is established, traders often look for confirmation of a trend reversal, typically when the price breaks below the neckline formed by the lows between the shoulders. This is considered a bearish signal, suggesting that the stock may begin a downward trend after the pattern completes. Understanding the head and shoulders pattern helps traders make informed decisions regarding entry and exit points in the market, as identifying such formations can be crucial for planning trades and managing risk.

The series of peaks and troughs in stock price is indicative of the head and shoulders pattern, which is a well-known technical analysis tool used by traders to predict future price movements. This pattern consists of three peaks: a higher peak (head) between two lower peaks (shoulders). The pattern typically forms when a stock has reached a certain level of support and resistance and is a signal of a potential reversal in trend.

When this pattern is established, traders often look for confirmation of a trend reversal, typically when the price breaks below the neckline formed by the lows between the shoulders. This is considered a bearish signal, suggesting that the stock may begin a downward trend after the pattern completes.

Understanding the head and shoulders pattern helps traders make informed decisions regarding entry and exit points in the market, as identifying such formations can be crucial for planning trades and managing risk.