Identifying Chart Patterns

Strategy’s Outlook:

Pattern recognition is a very popular trading strategy based on technical analysis chart patterns. Financial markets tend to move in certain patterns and those traders capable of identifying some of these patterns may increase significantly their likelihood of winning. Identifying patterns as a method can be combined with other trading strategies and be used to confirm the entry/exit signals of other trading methods. Trading patterns recognition as a method is a much more reliable method in mid-term and long-term trading periods than in short-term periods.

What is a Chart Pattern?

A chart pattern means a distinct price formation presented on the chart. There are many different types of chart patterns, in this article, you can find the most important patterns. Patterns can not forecast the future but it can help traders increase their likelihood of winning. In general, we can distinguish two main types of Chart Patterns:

(1) Continuation Chart Patterns

(2) Reversal Chart Patterns 

1. MAJOR CONTINUATION CHART PATTERNS

Definition: Continuation chart patterns signaling that a price trend will continue.


 

1.1 Cup & Handle Chart Pattern

Cup & handle formation suggest that a price trend has paused for a while but it will not probably be reversed. When this formation is confirmed then a price trend becomes even stronger.

Timeframe: Cup & Handle pattern can be best identified in charts from 1-month chart to 1-year.

 


1.2 Triangles Chart Pattern

Triangles are signaling strong trends and their continuation. There are 3 main types of triangles:

■ Symmetrical

■ Ascending

■ Descending

Timeframe: The best timeframe to identify triangles starts from a few weeks to some months.

 


1.3 Flag & Pennant Chart Pattern

Flag & Pennant chart pattern is signaling the continuation of a price trend after a small correction. The Flag & Pennant chart pattern is confirmed by the increase in volume activity.

Timeframe: The best timeframe to identify Flag & Pennant starts from a few weeks to some months.


 

 

2. MAJOR REVERSAL CHART PATTERNS

Definition: Reversal patterns are signaling the reversing of the current trend.

 

2.1 Head & Shoulders Chart Pattern

Head & Shoulders is one of the most popular and widely used chart patterns.

There are two main types of Head & Shoulders patterns:

■ Head & Shoulders Top (it is signaling reversal of an uptrend)

■ Head & Shoulders Bottom (it is signaling reversal of a downtrend)

Timeframe: Best time frame to identify Head & Shoulders patterns starts from a few weeks to some months.

 


2.2 Double Tops & Bottoms Chart Pattern

Double Tops & Bottoms is a common and reliable chart pattern.

Timeframe: Best time frame to identify Double Tops & Bottoms patterns starts from a few weeks to some months.

 


 

2.3 Triple Tops & Bottoms Chart Pattern

Triple tops & bottoms patterns are usually formed when the price tests support/resistance levels three times and although it proves unable to break through.

Timeframe: The best timeframe to identify this patterns starts from a few months to several years.

 


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2.4 Rounding Top & Bottom Chart Pattern

Rounding Top & Bottom Chart Patterns are also found as Saucer patterns. These chart patterns signaling a strong trend after a period of long price consolidation.

Timeframe: The best timeframe to identify this patterns starts from a few months to several years.

 

◙ Chart Patterns Trading Strategy

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