Day trading might seem like a daunting task if you don’t have the right trading setup. I’ve learned this the hard way, and during my early trading days, I spent a lot of time refining my day trading strategies using chart patterns along with candlestick charts and other technical analysis tools for price action trading.
Recently, I stumbled upon my most profitable trading chart patterns from back testing data. This discovery inspired me to conduct historical back tests on chart patterns optimized for intraday trading.
In this article, I’ve compiled a list of the seven most profitable chart patterns. These patterns are the result of data analytics and come with success rates for double tops, double bottoms, head and shoulders patterns, inverted head and shoulders patterns, flags, pennants, and triangle patterns.
Table of Contents
- BEST INTRADAY TRADING CHART PATTERNS
- HOW TO SELECT THE RIGHT TIMEFRAME FOR TRADING CHART PATTERNS?
- My Tips For Day Trading Chart Patterns-
- How To Use Trading Patterns Recognition In Trading View?
Let’s dive into each of these patterns and discuss how you can incorporate them into your day trading setup to improve your overall net gain while managing risk and increasing profitability.
BEST INTRADAY TRADING CHART PATTERNS
There are several common day trading patterns that traders often use to their advantage. Let’s explore some of the most prominent ones:
|Price Action Type
|Statistical Evidence (5 minute – timeframe)
|Double Top Patterns
|Bearish reversal with two peaks
|58% success rate in predicting bearish reversals (ITC Ltd. September – October Analysis)
|Double Bottom Patterns
|Bullish reversal with two troughs
|70% success rate in forecasting bullish reversals (Apple Inc. September – October Analysis)
|Head and Shoulders Patterns
|Bearish reversal with three peaks
|75% success rate in predicting bearish reversals (HDFC BANK September – October Analysis)
|Inverted Head and Shoulders Patterns
|Bullish reversal with three troughs
|83% success rate in anticipating bullish reversals (T-Mobile US Inc. September – October Analysis)
|Bullish continuation after consolidation
|75% success rate in predicting upward price movements (Alphabet Inc. September – October Analysis)
|Bullish continuation with converging trendlines
|60% success rate in forecasting bullish breakouts (SBIN Market Insights September – October Analysis)
|Ascending Triangle Patterns
|55% success rate in predicting bullish breakouts for ascending triangles (Reliance Inds. September – October Analysis)
|Descending Triangle Patterns
|80% success rate in forecasting bearish breakdowns for descending triangles (Netflix Inc. September – October Analysis)
1. Double Top Patterns (58% Success Rate)
Description: Double top patterns are bearish reversal patterns characterized by two peaks at approximately the same price level, separated by a trough. Traders often view this pattern as a sign that an uptrend may be reversing.
Intraday Trading With Double Top Chart Pattern:-
In given example of Bank Nifty, a double top pattern is visible in 5-minute candlestick chart. Here’s how you can make the most of it: First, patiently wait for a breakout confirmation. To do this, you need to identify the previous support level. Once you’ve got that, keep a close eye on the chart for a strong bearish candle that confirms the bearish reversal. After a bit of consolidation, you’ll likely see the market making its move in a downward direction. That’s when you can pounce on the opportunity.
2. Double Bottom Patterns (70% Success Rate)
Description: Double bottom patterns are bullish reversal patterns with two troughs at roughly the same price level, separated by a peak. Traders typically interpret this pattern as a signal of a potential bullish trend.
Example Of Double Bottom Pattern In 5 Min Candlestick Chart –
Much like the double top pattern, confirmation of a double bottom occurs when prices break above the established structure of this pattern. Let’s take a look at an example: Once you’ve identified both bottoms, keep a close watch on the breakout above the swing high of this structure. When that happens, it’s a clear signal that a bullish trend is in the making.
3. Head and Shoulders Patterns (75% Success Rate)
Description: Head and shoulders patterns are classic bearish reversal patterns with three peaks. The middle peak is the highest (the head), flanked by two lower peaks (the shoulders). This pattern often signals a shift from a bullish to a bearish trend.
Example Trade – Head and Shoulders Intraday Bearish Reversal
On the 10th of October in 2023, during a day trading session, I decided to go short on Apple Inc. Why, you ask? Well, it was all thanks to a gorgeous head and shoulders pattern that popped up on my 5-minute candlestick chart. Here’s what it looked like
4. Inverted Head and Shoulders Patterns (83% Success Rate)
Description: Inverted head and shoulders patterns are bullish reversal patterns. They are similar to head and shoulders patterns but inverted, signifying a transition from a bearish to a bullish trend.
Day Trading With Inverted Head & Shoulders-
What’s even better than a classic head and shoulders pattern? Try your hand at spotting an inverse head and shoulders pattern on a smaller time frame, and you’ll quickly see the difference. I’ve been trading these for a while, and let me show you how it played out in my trade with Meta Inc. on October 10, 2023. You’ll see that most of these setups offer an excellent risk-to-reward ratio.
5. Flag Patterns (75% Success Rate)
Description: Flag patterns are bullish (or bearish) continuation patterns that resemble a flag on a flagpole. They typically occur after a strong price movement and suggest a brief consolidation before another upward (or downward) surge.
Trading Flags In Day Trading-
Let me share a quick example from my trading journal that illustrates bullish and bearish flag entries. As you can see, these trusty old flags are among the best when it comes to risk-adjusted rewards in the trading business.
6. Pennant Patterns (60% Success Rate)
Description: Pennant patterns are also bullish (or bearish) continuation patterns, forming after strong price moves. They are characterized by converging trendlines and a triangular shape. A breakout from the pennant suggests a potential upward (or downward) move.
Example Trades In Bullish & Bearish Pennant (5 min Time Frame)-
7. Triangle Patterns (55% Ascending, 85% Descending Success Rate)
Description: Triangle patterns are versatile and can be either bullish or bearish. An ascending triangle indicates a bullish continuation, while a descending triangle signals a bearish continuation. These patterns consist of a series of higher lows (for ascending) or lower highs (for descending) and horizontal support or resistance.
Example Of Ascending & Descending Triangles-
HOW TO SELECT THE RIGHT TIMEFRAME FOR TRADING CHART PATTERNS?
Key points to consider when choosing the appropriate timeframe for day trading are outlined.
- Intraday vs. Scalping: Intraday traders typically focus on shorter timeframes, such as 1-minute or 5-minute charts, for quick entries and exits. Scalpers may even go down to tick charts for ultra-short-term trades.
- Volatility and Liquidity: High volatility stocks or currency pairs may require shorter timeframes to capture swift price movements, while less volatile assets can be traded on longer timeframes.
- Risk Tolerance: Shorter timeframes often require more active trading, while longer timeframes can be less stressful but may involve holding positions longer.
- Trading Plan: Ensure your timeframe aligns with your trading plan and goals. Flexibility in timeframe selection can be an advantage in varying market conditions.
My Tips For Day Trading Chart Patterns-
- Patience is the key. Avoid the ‘jumping the gun’ mistake, which means entering a trade without confirmation of a breakout or when a chart pattern is still forming prematurely.
- For those who primarily rely on price action, I strongly recommend studying average volume and using it to filter out fake breakouts.
- Creating a well-defined trading setup is essential. I can’t stress this enough; trading solely based on chart patterns without a proper setup won’t lead to a consistent equity curve.
- Prior to live trading, make sure to conduct thorough backtesting and practice your setup through paper trading. This approach can save you from costly optimization errors.
- Above all, remember that historical back tested data is like a swimming reference book – it can teach you the basics, but there’s a world of difference between reading about swimming and actually learning how to swim.
Incorporating day trading patterns into your trading strategy can significantly enhance your chances of making informed decisions and achieving profitable outcomes. By understanding these common patterns and their statistical significance, traders can gain a substantial advantage in the fast-paced world of day trading.
While the statistical evidence provides valuable guidance, it’s vital to bear in mind that there’s no magic bullet in day trading. Achieving success in day trading requires a blend of pattern recognition, astute risk management, and a commitment to perpetual learning. By implementing the strategies we’ve discussed in this guide and staying attuned to the ever-evolving market dynamics, you’ll be well-equipped to unleash the potential of these patterns and elevate your trading endeavors. So, here’s to informed trading and a future filled with profitable opportunities!
What are the seven most profitable day trading patterns with their success rates?
The seven most profitable day trading patterns we've identified are double top, double bottom, head and shoulders, inverted head and shoulders, flag, pennant, and triangle patterns. While the success rates can vary, these patterns often provide favorable risk-to-reward opportunities, making them popular among day traders.
How can I use these day trading patterns to improve my trading performance?
These patterns can be used as part of your technical analysis to identify potential entry and exit points for trades. By recognizing these patterns and using them in conjunction with other indicators and strategies, you can make more informed trading decisions.
Are these day trading patterns suitable for beginners, or are they better for experienced traders?
These patterns are accessible to traders of all levels. However, beginners may want to start with simpler patterns like double tops and double bottoms before moving on to more complex ones. As you gain experience, you can incorporate a variety of patterns into your trading strategy.
Can you provide examples or case studies of successful day trades using these patterns?
While we can't provide specific case studies here, you can find real-life examples of successful day trades using these patterns in online forums, trading books, and educational resources. Analyzing historical charts with these patterns can also help you understand how they work.
Are there any specific tools or indicators you recommend for identifying and confirming these trading patterns?
Tools like charting software with pattern recognition and indicators such as moving averages, Relative Strength Index (RSI), and volume can be helpful in identifying and confirming these patterns. However, it's crucial to tailor your toolkit to your trading style and preferences. Experiment with different tools and indicators to find what works best for you.