Our team at Trading Strategy Guide is launching a new series of articles. They can be found in the Chart Patterns Trading Strategy Step by Step Guide. These articles will enhance and take your trading to the next level. This technique will give you a framework to methodically examine the fight between bulls and bears.
By trading the most profitable chart patterns, you can infer who is the winner of the bull vs bear battle. This strategy can be used to identify a stock chart pattern. It is also used to identify any instruments you plan to use for day trading.
We share this because it will greatly improve our ability to understand price movements and dumping. Ultimately, this will make you a much better trader. The key to this style of trading will be determining how a pattern forms. You will also have a greater understanding of market analysis in general. This article will introduce some entry-level templates and then dive into some special ones.
These patterns are symmetric triangles and double bottoms . We also believe it is important to use these points with the bottom line. This type of training will set you apart from the average trader.
To get started, I recommend getting some basic stock charting software with some very simple tools, such as moving averages and other indicators. This can help you do market analysis and also keep you on top of the charts when a pattern forms. The ascending triangle will be a valuable pattern in your trading arsenal.
Rounded bottoms, head and shoulders , inverse head and shoulders , inverted head and shoulders, triple bottom, cup and handle and descending triangles, are also valid. These patterns will help you find trading ideas faster than the average trader will be able to find. It will help you ensure that you enter the trade at the right price.
These patterns will allow you to trade any currency pair. Trades do not depend on market trends or economic calendar to find successful trades while day trading. This article will not be like other blog posts you have read. This is because we will provide you with step-by-step instructions on how to place trades using the correct price pattern for the strategy.
There are thousands of traders around the world that trade in specific types such as the triangle pattern . Renowned trader Dan Zenger turned $10,000 into $42 million in under 23 months using a chart pattern trading strategy.
To really succeed in trading, you just have to start mimicking what professional traders do. Start testing the strategy and then measure the results.
We spent a lot of time studying price action. You can see some proof by researching some of the best pure popular chart pattern strategies here:
- Forex Strategy: How to Trade Bullish Flag Pattern
- Simple wedge trading strategy for big profits
- Pin Bar Price Action Strategy
Let’s go ahead and define exactly what we’re looking at. More importantly, we will determine how we can profit from them.
What is the chart pattern?
In technical analysis , chart patterns are simply price formations represented graphically.
It is without a doubt one of the most useful tools when doing price chart technical analysis. Chart patterns are a very popular way to trade any type of market. The most beneficial chart patterns give us a visual representation of the forces of supply and demand. They also show the relative strength of specific price levels.
If we are on the topic of supply and demand, we recommend that you study more on this topic here: Supplier and Demand Trading – Understanding Market Movements .
What makes chart patterns so appealing is that it also brings to light what happens behind the scenes. This refers to buying and selling pressure.
Note * A chart has its own language and it speaks through chart patterns and they leave a footprint of big money or smart money. These footprints can lead us into highly profitable trades.
Why are chart patterns so important?
If you remove all momentum indicators and indicators from the chart and everything else that can make your chart less clear and just look at the price action, whether it’s a 5 minute chart, daily chart or similar, which is your preferred timeframe. You will really understand more about what happens in the market.
As long as the candle has open, high, low and close variables; you can use them just to confirm your position or enter a new transaction. You can build a really successful chart pattern trading strategy without any other technical indicators. Here is an example of a master candlestick setup .
There are bullish and bearish chart patterns. What makes them work is that they tend to find back over time, making it possible to retest them and find their probability of success rate.
Types of chart patterns:
Throughout this series of articles, we will discuss how to make money with the most profitable chart patterns. Some of the most profitable chart pattern trading strategies include:
- Top three chart pattern trading strategy
- Trading strategy with handle
- Bump and Run chart
- Price channel pattern
- Symmetrical triangle
- Double chart pattern strategy
- Double bottom chart pattern strategy
- Rectangle chart pattern strategy
- Forex chart pattern
- Reversal chart pattern
- And much more.
Earlier, we posted a clear price chart of EUR/USD. But if you look closer and read chart pattern language, we can identify some of the most beneficial chart patterns (see picture below).
It doesn’t matter what time frame or market you trade because chart patterns are everywhere when there is a battle between buyers and sellers.
Let’s discuss how we can use trading strategies and trade money in any market. The key is to look at the lower trendline and try to find a visible triple bottom anywhere on your chart.
Trading Strategy Charts – Rules
We have developed five very important step-by-step guides to consider when trading any chart pattern:
Step 1: Always determine if the market is in trending or consolidating mode.
This step is important because, although some of these simple chart patterns are often consolidation forms, they are actually continuation patterns of an underlying trend.
For example, a bullish flag pattern – read more about it HERE – is a pattern that forms after a larger move up. The pattern itself is just a brief form of relief, or consolidation, from the underlying trend, before breaking to new highs.
Basically, the bullish flag pattern is a continuation pattern.
We can distinguish mainly two types of chart patterns:
- Continuation pattern: signal that the trend will continue.
- Reversal pattern: signals the possible end of a trend and the start of a new one.
An example of an inverted pattern is the top one highlighted in the image below:
It is important to determine if the market is trading or consolidating. This is because it will reveal what type of chart pattern works best for each trading environment.
Note ** The reason many price action traders fail is because they don’t follow this first rule. They try to trade every pattern regardless of the whole picture.
Step 2: Decide what chart templates you want to use.
Do you want to trade reversal patterns or are you more comfortable trading continuation chart patterns?
This picture came out first! Once you’ve decided which way to go, try to master the particular trade setup.
Repetition is the mother of all learning. The more profitable chart patterns you trade, the more you will spot these chart patterns in real time.
Our team at TSG is a big fan of the triple chart pattern . This is because potential profits are available when a new trend has developed.
Step 3: Search for stories in chart templates.
What you have to do here is build a story behind your favorite settings.
What do we mean?
Simply, look at the big picture of price, don’t just focus on chart patterns. What you need is for this story to confirm your price action pattern. Everything else should point in the same direction. Finding the right direction to place your trade will help you increase your win rate.
For example, the narrative behind the bullish flag highlighted in Step #1 is easy to spot. We are moving in an uptrend because we have developed a series of higher highs and higher lows.
Second, we broker and close above an old high; No detected resistance above the market price is all good composition. They say volume favors our bullish flag.
Step 4: Trade chart pattern A suitable trading strategy for a good price position.
The best performing chart patterns combined with good price positions can add confluence to our trading.
What do we mean by price position?
Simply put, a price position is just an important area on the chart where we normally expect a price reaction. That price position could be support/resistance, swing high/low, or some pivot point. Positions can even be technical indicators if you combine the two.
For example, the price channel pattern highlighted in figure 3 worked because we had a confluence with higher timeframe resistance. EUR/USD is simply trading within a rising channel, but straight into resistance.
Step 5: Implement non-subjective trading rules for trading chart patterns.
The final step to building a chart pattern trading strategy is not only to have some unbiased trading rules, but to write them down and strictly follow your plan.
There are many possible ways a trader can profit from these chart patterns.
For example, a bullish flag pattern could enter at a retest of flag support or a breakout above the flag. You can also trade with triangle breakout strategy .
Become a master with only one setup and one chart pattern trading strategy. Prove to yourself that you can trade profitably in a pattern before you move on. Simply put, find a pattern that you like and become very good at that chart pattern trading strategy.
Conclusion – Trading chart pattern
We hope you enjoyed this article on trading chart patterns.
We can fast track your career by providing you with the most profitable charting templates, very easy. But one thing we can’t give you is screen time and experience. It’s something you need to achieve over a period of time. Here is another strategy called volume in forex .
When it comes to chart pattern trading strategies, there is no magic bullet. This is because you will make mistakes. Second, you will still lose trades. The whole idea is to be selective on the chart patterns you trade.