You are currently viewing
<span class="bsf-rt-reading-time"><span class="bsf-rt-display-label" prefix="Reading Time"></span> <span class="bsf-rt-display-time" reading_time="9"></span> <span class="bsf-rt-display-postfix" postfix="mins"></span></span><!-- .bsf-rt-reading-time -->Chart Patterns For Day Trading – 16 Ultimate Patterns For Profitable Intraday Trading

Chart Patterns For Day Trading – 16 Ultimate Patterns For Profitable Intraday Trading

Chart patterns for day trading refer to the buying and selling of financial instruments on the same day. Many traders believe day trading to be difficult, yet there are various approaches that may be used when analyzing an asset for intraday trading.


Table of Contents


Day traders use chart patterns to make trading decisions. Most traders employ chart patterns to their advantage.

This is because, in most circumstances, market prices tend to replicate specific moves.

In this post, we will look at some of the best chart patterns that can be used in day trading. We’ll also learn how to use chart patterns and candlestick charts for day trading to predict a positive market outcome.

What exactly are Charts?

Charts are visual representations of past and current price movements. Traders use this information to forecast how the price will change in the future.

The candlestick chart is the most prominent type of chart used by day traders in technical analysis.

Many patterns are formed on a candlestick chart based on prior price movement. These patterns assist a trader in identifying additional potential moves as well as specific predetermined patterns.

Chart patterns for day trading, swing trading, scalping are all same in visible appearance but really depends on time frame of trading.

5-minute candlestick chart
Candlestick Chart – 5-minute timeframe

Chart Patterns For Intraday Trading

Chart patterns are likely the most often used technique in technical analysis, assisting traders in identifying potential market entry opportunities. Knowing how to recognize these patterns can help a trader make appropriate decisions while executing trades in the market.

The formation of these patterns temporarily halts the continuing trend so that momentum may be restored to continue or reverse the general trend.

There are two categories of chart patterns for day trading:

  • Continuation Patterns

  • Reversal Patterns

Continuation Chart Patterns For Day Trading

Continuation chart patterns indicate the continuation of an ongoing trend, either upward, or downward, following a time of consolidation. A trader can place trades with regard to the breakout (in case of an uptrend) or breakdown (in case of a downtrend) levels by spotting such patterns.

The most typical intraday continuation patterns are Rectangle, ABC pattern, Flag Pattern, Pennants, Falling Wedge, and Rising Wedge.

chart patterns for day trading
Continuation Chart Patterns – Bullish and Bearish

Reversal Chart Patterns For Day Trading

Reversal patterns are chart formations that indicate that the current trend is likely to change shift.

When reversal chart patterns emerge during an upswing, the market is likely to reverse in a bearish direction. These patterns include Rising Wedge, Head and Shoulders, and Double Top.

Similarly, the formation of a reversal chart pattern during a downtrend signals a bullish turnaround.

The key reversal chart patterns for day trading are as follows: Double Bottom, Inverted Head and Shoulder, and Falling Wedge.

reversal chart patterns for day trading
Reversal Chart Patterns – Bullish and Bearish

Bullish Continuation Chart Patterns for Day Trading

Bullish Chart Patterns imply that the price may rise after a period of consolidation. The breakout of the resistance level confirms the trend continuation. Here are some examples of common chart patterns that confirm a bullish trend after a breakout.

A Bullish Rectangle Pattern

When the price is constrained by parallel levels of Support and Resistance, it creates a Rectangle Pattern, signifying that neither buyers nor sellers are ready to make a strong move.

Bullish Rectangle Pattern
Bullish Rectangle Pattern

How to Interpret?

To confirm the ongoing trend, wait for the price to break through the resistance level.

The breakout movement would be at least the rectangle’s width.

Bullish ABC pattern

This pattern appears when the market is moving upward.

Price shifts from point A to point B, forming a Higher High.

The price then reversed direction from point B to point C. The new resistance level is point B.

The price must reverse off point C in order for the pattern to be complete. It shouldn’t have to fall beyond point A.

Bullish ABC Pattern
Bullish ABC Pattern

How to Interpret?

A breakout of resistance level B could confirm the Bullish momentum.

The subsequent shift would be about the same magnitude as the last one from point A to B.

Falling Wedge

A Falling Wedge pattern occurs when support and resistance convert in a downward direction, forming lower highs and lower lows. When support and resistance become narrow, the breakout usually occurs.

Falling Wedge
Falling Wedge

How to Interpret?

The breakthrough of the resistance level indicates that the trend will continue.

The additional movement would be equivalent to the height of the wedge’s back.

Flag PatternBullish Flag

This pattern forms after a strong uptrend and is distinguished by lower highs and lower lows that move counter-trend. The trendlines (that connect highs and lows) have to be parallel to one another.

Bullish Flag

How to Interpret?

The breakout of the resistance level suggests a favorable trend.

The strength of the breakout move is estimated by the height of the previous move, also referred to as the flag pole.

PennantBullish Pennant

A Bullish Pennant pattern occurs after a market’s steep upward movement. It is usually smaller in size and has a triangular shape.

Pennant and flags are very useful chart patterns for day trading, They provide very good risk to reward trades with high profitability.

Bullish Pennant Pattern
Bullish Pennant

How to Interpret?

With the breakthrough of the diagonal resistance level, the price starts another powerful upward surge.

The magnitude of the breakout move would be equal to the height of the previous move (also known as mast).

Bearish Continuation Chart Patterns for Day Trading

A bearish continuation pattern arises after a significant downturn when price movement consolidates inside a specific pattern. The breaking of a support level confirms the continuance of a trend.

The following chart patterns can be used to anticipate bearish movement:

The Bearish Rectangle

A bearish rectangle is formed when the price consolidates during a decline and creates horizontal support and resistance level, parallel to each other.

Bearish rectangle pattern
Bearish Rectangle Pattern

How to Interpret?

To confirm significant movement, wait for the price to break through the support level.

After breaking below the support, the price would make a move roughly the size of the rectangular pattern.

ABC Pattern – Bearish

The bearish ABC pattern appears when the market is in decline.

Price shifts from A to B, forming a lower low.

Then the price retraced from point B to point C.

Point B serves as a support level.

The price must reverse off point C in order for the pattern to be complete.

Bearish ABC pattern
Bearish ABC Pattern

How to Interpret?

Breakout of support level B confirms the pattern.

The additional move is usually a similar distance from A to B.

Rising Wedge

This pattern forms when support and resistance incline in an upward fashion. The lower line appears to be steeper than the upper one, forming higher lows and higher highs.

When these levels reach very close, a breakthrough occurs.

Bearish Rising Wedge

How to Interpret?

Breakout of the diagonal support level would be a good sign of continuation.

The price movement following the breakout is generally the same length as the formation’s height.

Flag Pattern – Bearish

This pattern appears after a significant decline. The pattern includes a support level of higher lows and a resistance level of higher highs, forming a counter-trend channel.

Bearish Flag Pattern

How to Interpret?

A breakout of the support level would confirm the current trend.

When the pair continues to fall below the support, it is likely to make a move that is around the magnitude of the previous move (flag pole).

Bearish Pennant

A bearish pennant arises after a steep downtrend.

Before breaking down, the volume inside the pennant drops. The diminishing volume forms converging trendlines.

Bearish Pennant Pattern
Bearish Pennant

How to Interpret?

A break of the diagonal support level may trigger bearish volume.

The magnitude of the breakout move is about equal to the height of the mast.

Bullish Reversal Chart Patterns for Day Trading

Bullish reversal patterns indicate that the current downtrend is set to reverse and the price will shortly begin to rise. The breakthrough of a resistance level would signal a trend reversal.

Here are some basic patterns that will get you going.

  • Double Bottom

  • Inverted Head and Shoulder

  • Falling Wedge

Double Bottom Pattern

This pattern is made up of two bottoms with about equal lows.

When the price fails to breach the first bottom (lower low), the second bottom is formed.

The second bottom serves as a support level and usually indicates a significant change in trend.

The highest point reached in the center of the two bottoms serves as a level of resistance.

bullish reversal pattern - double bottom
Double Bottom – Bullish Reversal Pattern

How to Interpret?

When the resistance (also known as the neckline) level is breached, the pattern is confirmed.

The breakout movement would have to be at least the same height as the double bottom formation.

Inverted Head and Shoulder

This pattern begins to form after a prolonged bearish movement.

It has two shoulders, an inverted head, and a neckline, with the inverted head at the bottom, and the shoulders approximately equal in size.

A neckline is formed by connecting the highest points of the inverted head, which acts as a resistance level.

inverted head and shoulder bullish reversal pattern
Inverted Head and Shoulder – Bullish Reversal Pattern

How to Interpret?

When the neckline level is broken, the price generally gains momentum to the upside.

The distance between the head and the neckline is about the distance that the price will move after breaking through the neckline.

Falling Wedge

A falling wedge reversal pattern forms near the bottom of a downtrend, signaling that an upswing will follow. It is made up of two narrow downward slanted lines. The resistance line appears to be steeper than the support line.

falling wedge bullish reversal pattern
Falling Wedge – Bullish reversal pattern

How to Interpret?

Breakout of a resistance level signals a trend reversal.

The price movement after the breakout would be about equal to the height of the formation.

Bearish Reversal Chart Patterns for Day Trading

Bearish reversal patterns are ones that imply that the price will fall. This could be due to a break of a critical support level near the uptrend, signaling the market’s dominance by sellers.

The following patterns are prevalent in bearish reversal trading strategies:

  • Double Top

  • Head and Shoulder

  • Rising Wedge

Double Top Pattern

A double top is a reversal pattern that occurs when two highs are at the same level. The two highs serve as a strong resistance level, while the low between these two highs serves as a support level (neckline).

double top pattern
Double Top Pattern

How to Interpret?

Breakout of the support level suggests a trend reversal.

The fall would be the same height as a double-top layout.

Head and Shoulders

This trend reversal pattern typically occurs at the peak of an uptrend. It is composed of a shoulder (high), a head (higher high), and another shoulder (lower high).

A neckline is formed by connecting the lowest points of the head to provide a support level.

Head and shoulders patterns are little hard to spot chart patterns for day trading, but their appearance do provide some very good returns once breakout is successful

head and shoulder pattern
Head and Shoulder Pattern

How to Interpret?

A breakdown of the neckline (support level) indicates a reversal.

The intensity of a further reversal would be approximately the distance between the formation’s head and neckline.

Rising Wedge

A rising wedge pattern is formed by two ascending trend lines near the uptrend, signaling that a trend reversal is coming. The resistance line appears to be steeper than the support line.

Rising Wedge Pattern
Rising Wedge Pattern

How to Interpret?

Breakout of the support level indicates a bearish reversal of the trend.

The bearish movement would be approximately equal to the formation’s height.

Using Japanese Candlestick Patterns with a Chart

When using Japanese candlestick patterns with a chart, we look for large candles for breakthrough entries and exhausted candles for pullback entries, This provides a good foundation for trading chart patterns for day trading.

When price breaks through a level, the candlestick’s formation plays a significant role to push the movement further.

For example, the formation of the Marubozu candlestick after a breakout of double high’s support level signals a bearish trend continuation, which can be used as a selling opportunity for traders.

Double top and marubozu candlestick
Double top and Marubozu candlestick

In contrast, when a key level is broken, wait for a pullback in the price to test the level that was recently broken.

For instance, the appearance of a bullish engulfing pattern close to the breakout level after a pullback indicates the continuation of the prevailing trend.

Double bottom - break and retest
Break and retest – Double bottom pattern

Using Stop Loss to Manage Risk

Stop loss may be used in a variety of ways depending on the trader’s risk tolerance.

One of the most typical methods for a trader to control risk is to place a stop loss order beyond the chart’s structure.

For example, if a rising wedge pattern has formed, traders might set stop loss orders beyond the resistance level.

Stop loss on Rising Wedge pattern
Rising Wedge- Risk Mangement

The Bottom Line

There are two approaches to trading: fundamental analysis and technical analysis. Based on economic parameters, fundamental analysis will give a conclusion. Using trading chart data and sentiment, technical analysis will provide a hypothesis. Popular trading patterns are one illustration of this.

Chart patterns for day trading can develop over time frames of 5 minutes, 15 minutes, or 30 minutes. Combining chart patterns with Japanese candlestick patterns gives a good indication of where the asset’s immediate direction may be heading.

Intraday trading is heavily reliant on technical analysis. An intraday trader seeks to capitalize on momentum and place trades for a limited time.

A trader can create a solid trade setup by combining technical indicators and chart patterns.


Author is Senior Technical Analyst
At Bulls Arena Trading
info@bullsarenatrading
New Delhi
India

Bulls Arena Trading

Author

  • Yash Nagarkoti

    Yash brings extensive trading knowledge and expertise in technical analysis. Specializing in short-term to medium-term trading, his research spans the Forex market to global stock markets. Since 2016, Yash has been a member of the bulls arena trading Technical Analysis Research Team.

Candlestick Patterns Trading Course