Stock chart patterns are an essential part of technical analysis. They can be a valuable asset to all traders. You can profit from breakouts or reversals if you learn to recognize patterns. Here are 13 chart patterns that you should know.
Stock Chart Patterns are an essential part of any Technical Analysis. They can be a valuable asset for any trader.
We all naturally love and look for patterns in our daily lives. It’s part of our nature. Trading psychology is a crucial part of using stock chart patterns.
You can profit from breakouts or reversals by learning how to recognize patterns. I believe in technical analysis, and chart patterns can be a powerful tool.
Why is stock chart pattern so important?
Stock chart patterns can be a simple way to view a series of price movements during a trading period. The timeframe can be monthly, weekly, or daily.
Chart patterns tend to repeat. This appeals to human psychology and traders’ psychology specifically.
You can gain a competitive edge in the market if you learn to recognize patterns early. Stock chart patterns are as crucial as technical indicators like volume, Fibonacci Retracements, RSI, and support and resistance levels.
What patterns of stock charts should I be looking for
You can always print this article and have the designs with you. You have the answer literally at your fingertips.
Here are the most common chart patterns and what they mean for you as a trader.
You will benefit from it in the future. You will learn to recognize these patterns subconsciously if you keep them in front of your face daily.
When there is a significant movement in the stock followed by a consolidation period, the lines converging create the pennant. The breakout movement occurs opposite to the stock’s big move.
They last from one to three weeks and appear similar to flag patterns. The volume will be high at the beginning of the stock movement. This is followed by a weaker book for the pennant sections and a growth in importance during the breakout.
Cup with Handle
The name of a cup with a handle pattern comes from the pattern on the chart. The cup has a curved U-shape while the handle slopes downward. The right-hand part of the chart has a low volume and can last anywhere from seven to 65 weeks.
This triangle is usually seen during an upward trend. It’s considered a continuation pattern. This is a bullish triangle. It can sometimes be created at the end of an upward trend as part of a reverse, but seeing it as a continuation is more common. Triangles that are ascending are bullish patterns.
In technical analysis, the triple bottom pattern can predict a trend reversal after a prolonged downtrend. Triple bottoms occur when the stock price makes three distinct downward movements at or near the same price before reversing its trend.
This triangle is also a continuation pattern. However, it is a bearish triangle created during a downward movement. It can sometimes be seen as the opposite of an ascending triangle pattern (a reverse during an upward trend) but is still considered a continuation.
Inverse Head & Shoulders
Inverse head and shoulder patterns predict a reversal in a downward trend. The design is sometimes called “head and shoulder bottom” or “reverse head-and-shoulders,” but they all mean the same thing in technical analysis.
The name comes from the fact that it has a more extended peak forming the top and two peaks of equal height on either side forming the shoulders.
Bullish Symmetrical Triangle
The symmetrical triangular pattern is easily recognizable thanks to the distinct shape created by the two trendlines convergent.
The pattern is created by connecting a series of peaks and valleys with trendlines. Once the price has broken through these trendlines, it will experience a sharp price movement.
This pattern, sometimes called “saucer bottom,” shows a long-term trend reversal that indicates the stock is moving away from a downward trend and towards an upwards direction. This pattern can last anywhere from several months to many years.
The pattern is similar to the cup with a handle, but there is no handle.
A rectangle is the basis of the flag chart pattern. The rectangle is formed by two trendlines: support and resistance until the price breaks. The flag will be a flag with sloping trends, and then the slope should move opposite the price movement.
Buy or sell signals are created when the price crosses the resistance or support lines.
Double tops are reversal patterns that show a bearish trend. They have two peaks or highs at the same level of price. Double tops are usually formed after a long upward trend. They have an “M”-shaped shape.
The head and shoulder pattern and the double top pattern are similar. The main difference is that the double-full design has twin tops instead of three peaks.
Bearish Symmetric Triangle
It is easy to identify the symmetrical triangular pattern due to the distinct shape created by the two trendlines that meet.
The pattern is made by connecting peaks and valleys with trendlines. Once the price has broken through the trendlines, it will usually be followed by a sharp price movement.
A falling wedge can be a continuation pattern or reversal, depending on the location of its appearance.
Wedges have a similar shape to triangles, but they slope in the opposite direction. A falling wedge can form when an upward trend falters.
Lower highs and lows characterize the falling wedge. However, the lower lows tend to be less prominent than the lower highs. This creates a wedge shape rather than a triangle.
Head and Shoulders
Head and shoulders chart patterns predict a reversal in an upward trend. The “head and shoulder top” is another name for it.
The name comes from the fact that it has a more extended peak, which forms the head, with two mountains of equal height on either side. These create the shoulders.