Price Action patterns are a powerful technical analysis tool used to help us anticipate how the price of a security will move. We use price action when trading stocks, options, and futures.
The black lines in the patterns below are the price lines, created by common price points over a period of time (i.e. highs, lows, or closing). These, therefore, represent the price movement of a security.
The red or green lines are trendlines. Trendlines are drawn by connecting multiple lows or multiple highs with one line (see below). These trendlines help us identify patterns in previous price movements, signaling price movement.
Price action patterns are most accurate at key points of support & resistance defined by Fibonacci lines and volume peaks.