Unlike in financial fundamental analysis, which attempts to aggregate financial data about a company, a commodity, a currency, or other for the purposes of forecasting how that entity or platform will perform...the world of financial technical analysis tracks past and current results in order to anticipation future trends. As such, technical analysis is completely dependent on charts in order to measure and compare market activity in real time, as well as the minutes, hours, days, weeks, months, and years before.
A chart formation occurs when certain patterns emerge as indicators for buying or selling activity that will drive a market up or down. An analysis will likely take note of increased trading volume, a change in trend between bearish or bullish sentiment, and outlier scenarios, such as when news may create a temporary trading spike.
A chart formation is a pattern that can be recognized on a chart, and is indicative of a buy or sell indication. Chart-based technical analysis has been in use for centuries, and is credited originally to Japanese rice traders, who first made charts of the rice market. They created what is known in technical analysis as “Candlestick Charts." The charts are in the forms of daily bars that indicate the high and low intraday price. It's white if the closing price was higher than opening, and colored in if lower.
Charts are indicative of human emotion and trends, when viewed objectively. They cannot predict outcomes, only probabilities, and this is also why people sometimes blind themselves to the data, even when the chart graphically illustrates it. It's also why the growing defaults of CMOs were ignored by so many before the 2008 banking crisis. And why the mainstream media is reluctant to report on the 2017-2018 dramatic drop in unemployment. And why the Harry Potter series is so popular in spite of its advocacy for students and teachers to essentially be armed at all times. And why the New York Knicks NBA franchise continues to appreciate in value despite not winning a championship in nearly half a century.
