Chart patterns: why do they work?

A chart pattern is a shape that price draws on the chart over a period of time, appearing repeatedly across all markets and all assets. Once we learn to read it, we can anticipate what price may do after the shape completes: will it continue on its way, or reverse?

Why do these shapes recur?

There is no magic in patterns; behind them lies a single cause: crowd psychology. The market, in the end, is a mass of human beings driven by fixed emotions that do not change across the ages, chief among them greed and fear. When the same situations recur, people’s behaviour recurs, and so the same shape is drawn on the chart.