Time horizon

The time horizon of chart formations is an important factor that traders should consider when interpreting the signals generated by these formations. There are different types of chart formations with different time horizons, ranging from short-term patterns that can last only a few days to middle-term patterns that can persist for several weeks or even month.

For example, short-term chart formations like flag patterns, rectangles, and pennants are usually formed over a period of a few days to a few weeks. These formations provide traders with potential entry and exit signals for quick trades. On the other hand, middle-term chart formations like head and shoulders, double and triple tops and bottoms, and cup and handle patterns are usually formed over a period of several weeks or even month. These formations provide traders with potential signals for trend reversal and indicate major changes in the trend.

It is important to note that the time horizon of chart formations can affect the reliability of the signals generated by these formations. Shorter-term formations are generally considered less reliable than longer-term formations because they are more susceptible to short-term market noise and volatility. Longer-term formations are considered more reliable because they provide a better representation of the underlying market trend.

This categorisation is taught in this lesson.