Glossary Term

Equilibrium Pattern

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In technical analysis, an equilibrium pattern occurs when the market has set a high, a low and then begins trading within an ever-tightening trading range within these two levels. To do this it has to start setting progressively higher-lows and lower-highs. As the range between the highs and the lows continues to tighten it reaches an equilibrium point beyond which it will either break bullish or bearish. Equilibrium patterns are a good indication that a break is coming, although they cannot tell you the direction of the break. For this you must keep an eye on whether the price action begins breaking above the lower-highs or below the higher-lows.

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