Successful Trading Chart Patterns – Part 1 of 7

Chart patterns contribute an essential role in effective technical analysis. Chart patterns are routine sequences of price action that occur in all time frames and in all markets. Because these patterns are a consequence of human nature and psychology reacting to the markets, we can anticipate these patterns will carry on occur. Knowing these patterns and knowing when they are forming in real time can present you with a competitive advantage in the markets. Just as time, volume, support and resistance, and Fibonacci retracements can help you to work out price movements, so too can recognition of chart patterns help you anticipate trend reversals and continuations.

 

 

How to use this guide:

1.Draw the patterns listed and have them visible or on-hand during your trading.

2.Read about and grow knowledgeable about each chart pattern under.

3.When trading (simulation or live), decide if your specific market is in an uptrend, downtrend, or consolidation. Depending in the marketplace you are trading and the time frame of your charts, you may have conflicting trends on two different time frames. Use the longest schedule chart that use on a consistent basis. For day traders and scalpers who use a 1-minute and a 5-minute chart, use the longer schedule chart to determine trend.

4.Navigate to the attached trend section below and consider your charts to see if any of the below patterns match up to your current market, either now or potentially one day.

5.If you are familiar enough with your charting program, draw trend lines for market direction and chart pattern lines to help determine potential patterns.

6.Practice your pattern recognition skills in simulation first, then move to live trading once you achieve consistent profitability in simulation.

7.Execute what you’ve learned by trading the turns away from key support and resistance lines and on key breakouts from recognizable patterns.

 

Uptrend Continuation Patterns

1. Symmetrical Triangle

Symmetrical triangles, a pattern with two lower highs and two higher lows, represent a steadily-increasing equilibrium among traders. Once this equilibrium reaches its tipping point, bears, in the situation above, have to abandon their stance on price as volatility grows in the background. As the price all of a sudden breaks far from this equilibrium, violent moves tend to occur. Be alert to false breakouts, specially the first one, if the amount reaches the aim of the triangle. Many traders are conscious of these patterns, and they are inclined to wait for the formation, then jump in simultaneously.

2. Ascending Triangle

Ascending triangles are typically a bullish pattern in an uptrend. Owing to the easily-defined and visible buildup of call for to the upside, this pattern is believed one of the most dependable patterns. Ascending triangles are acknowledged by their level highs and rising lows, which often leads to a low volume equilibrium. The organization is only complete if the price action stays within the predetermined borders of the triangle. If whenever the amount breaks through these borders, consider the triangle broken and look for the following possible pattern.

3. Falling Wedge

A falling wedge in an uptrend is commonly a continuation pattern, but it can likewise be a reversal when the uptrend is weak or fictional. When falling wedges occur in a downtrend, they are invariably reversal patterns.

Uptrend falling wedges are ordinarily the start of a more substantial reversal, so be conscious of the breakout may rise up of the triangle and turn around. Observe volume as this pattern develops. Volume will be high during the initial downturn from the high, then dwindle as traders wait for a definitive direction. Once the breakout occurs, volume will are inclined to spike as everyone jumps in. Look for an immediate test of the wedge line after the first breakout. If the test holds, you may want to get in.

4. Bull Flag

A bull flag in an uptrend is commonly bullish. Bull flag patterns have two important elements – 1. a near-vertical, short-term price increase with high volume, and 2. a lower volume consolidation of profit-taking as the market takes a breather from the recent dramatic increase. Be certain that the bull flag is fairly brief, otherwise the consolidation may stifle the current uptrend. Most bull flags occur during the middle of a bigger move upward.

 

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