In the last few years, trading chart patterns have become more common among traders. This is because these patterns have proven to be useful in calculating take profit and stop loss levels. Even if they fail on smaller time frames, these patterns still have a large following. For example, author Peter Brandt, whose bestseller, “Diary of a Professional Commodity Trader,” uses these patterns to determine his take profit and stop-loss levels. His Twitter account has over a quarter million followers, shares his favorite trading chart patterns.
A bearish pattern indicates that the price is about to go down. In bear market trading strategies, bearish patterns are common. These patterns may be due to a continuation of a trend via a break of a resistance level or a reversal off of a support level. Examples of bearish trading chart patterns include the sideways channel, symmetric triangle, and candlestick reversal patterns. These patterns are a great way to profit from the bear market.
Another common pattern is the flag pattern. The flag pattern occurs when the price of a security consolidates after a long uptrend. The flag’s ‘pole’ should be higher than the middle of its connected flagpole. Technical analysts look for breakouts above and below this pattern. A bearish flag, on the other hand, indicates a prolonged downtrend after a temporary pause. This pattern activates when the first resistance line is broken, and the second trend line has an increasing slope.
The most common trading chart patterns are price channels and symmetrical triangles. These are continuation patterns formed using two trend lines. A trend line on the upper and lower sides of the price channel shows resistance or support. The breakout of either trend line indicates a change in trend. This trading chart pattern is often a sign that a price is headed downward or upward. This pattern will signal a break in trend if the price breaches either support or resistance.
When a downtrend resumes, it will likely form a W pattern. The high at the middle of the W becomes resistance. When the W pattern breaks this resistance, a reversal of the bottom two occurs. This will then lead to a huge uptrend. A buyer can either wait for the breakout or buy as soon as the trend line is breached. Alternatively, a buyer may decide to buy when price breaks the resistance and confirms a breakout.
The Head and Shoulders pattern is a classic example of a trading chart pattern. It is created when a stock price makes a series of three highs and lows. The first and third highs are roughly equal in price, and the second high and low are higher. The neckline connecting the highs and lows serves as a target price. If it breaks through the neckline, it is an excellent trading opportunity. Aside from the head and shoulders pattern, traders may also use a symmetrical chart pattern known as a Cup and Handle.
The Double Bottom chart pattern is the most popular and easiest to trade. The first low is formed at a similar level to the double bottom, but the downward trend fails to reverse back to this level. Then the price creates a second bottom, creating a support level. This reversal will often trigger a reversal, creating a new support level. With this strategy, you can take a large amount of profit.