(+) Beginner Trading Strategies

Identifying Chart Patterns

Strategy’s Outlook:

Pattern recognition is a widely used trading strategy based on technical analysis of chart patterns. Financial markets tend to move in certain patterns, and traders who can identify these patterns may significantly increase their chances of success. Pattern recognition can also be combined with other trading strategies to confirm entry and exit signals. This method tends to be more reliable in mid-term and long-term trading than in short-term periods.

What Is a Chart Pattern?

A chart pattern is a distinct price formation displayed on a chart. There are many types of chart patterns; this article covers the most important ones. While patterns cannot predict the future, they can help traders improve their chances of winning. Generally, chart patterns fall into two main categories:

(1) Continuation Chart Patterns

(2) Reversal Chart Patterns

1. MAJOR CONTINUATION CHART PATTERNS

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

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1.1 Cup & Handle Chart Pattern

The Cup & Handle formation suggests that a price trend has paused temporarily but is unlikely to reverse. Once this pattern is confirmed, the price trend often becomes even stronger.

Timeframe: The Cup & Handle pattern is best identified on charts ranging from 1 month to 1 year.

 

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1.2 Triangles Chart Pattern

Triangles signal strong trends and their continuation. There are three main types of triangles:

■ Symmetrical

■ Ascending

■ Descending

Timeframe: The best timeframe to identify triangles ranges from a few weeks to several months.

 

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1.3 Flag & Pennant Chart Pattern

The Flag & Pennant chart pattern signals the continuation of a price trend following a brief correction. This pattern is confirmed by an increase in trading volume.

Timeframe: The best timeframe to identify Flag & Pennant patterns ranges from a few weeks to several months.

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2. MAJOR REVERSAL CHART PATTERNS

Definition: Reversal patterns signal a change in the direction 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 (signals a reversal of an uptrend)

■ Head & Shoulders Bottom (signals a reversal of a downtrend)

Timeframe: The best timeframe to identify Head & Shoulders patterns ranges from a few weeks to several months.

 

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2.2 Double Tops & Bottoms Chart Pattern

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

Timeframe: The best timeframe to identify Double Tops & Bottoms patterns ranges from a few weeks to several months.

 

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2.3 Triple Tops & Bottoms Chart Pattern

Triple Tops & Bottoms patterns usually form when the price tests support or resistance levels three times but fails to break through.

Timeframe: The best timeframe to identify these patterns ranges from a few months to several years.

 

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2.4 Rounding Top & Bottom Chart Pattern

Rounding Top & Bottom chart patterns, also known as Saucer patterns, signal a strong trend following a prolonged period of price consolidation.

Timeframe: The best timeframe to identify these patterns ranges from a few months to several years.

 

◙ Chart Patterns Trading Strategy

G. P. for ForexExperts.net (c)