hart patterns are an important part of technical analysis, but before they can be applied successfully, you will need to take your time to get used to them.
Basically, a chart pattern is a form that tends to show what prices might do next, depending on what they have done in the past.
The foundation of technical analysis is chart patterns, which allow you as a trader to know precisely what you are looking at, as well as what you are looking for.
There is no such thing as “the best pattern”. They all highlight different trends in a variety of situations in the market.
Consider that some of the patterns are better suited to a volatile market, while others are less so.
The main function of chart patterns is to teach you how to spot potential “explosions” on the charts before they even happen.
If you could predict the breakout prior to its appearance, you can make huge profits while riding them out longer than the other traders.
Chart formations usually help us spot conditions where the market is ready to break out or indicate whether the price will continue in its current direction or reverse, so we can prepare a trading strategy.
To get a grips of them, read the following questions:
- How do I find potential entry points in a rising (or falling) trend?
- How can chart patterns offer potential entry signals?
- How do I know when to get out (exit signal) either to take profit (if the chart pattern worked) or cut my losses (if the chart pattern failed)?
Chart patterns CAN answer all those questions.
Here’s the list of some basic chart patterns:
- Double Top and Double Bottom
- Head and Shoulders and Inverse Head and Shoulders
- Rising and Falling Wedges
- Bullish and Bearish Rectangles
- Bearish and Bullish Pennants
- Triangles (Symmetrical, Ascending, and Descending)
Chart patterns show you why the price moved in such a direction in the past and where will it move in the future. A real magician, knowing both the past and the future, right?
They highlight areas of support and resistance, so you would know where to open a position, but also they can indicate if you should close out your open positions in the event of a possible trend reversal.
Have a good look at them in the next lessons!