Chart Patterns For Swing Trading – 7 Best Reliable Chart Patterns
7 Successful Chart Patterns For Profitable Trading
Chart patterns for swing trading or positional trading are powerful trading tools, but most traders do not understand the correct entry and exit points for trading chart patterns.
If market swings are traded with chart patterns along with RSI, volume indicators and moving averages, Win rate of 60% or more can be achieved.
In this article, we will learn about highly effective chart patterns for swing trading that a positional trader may employ to achieve good returns.
In addition, we’ll learn how to align candlestick patterns to build a high-probability setup.
Table of Contents
What is Swing Trading ?
Swing Trading is a medium-term trading approach where traders keep their positions for a few days to many weeks.
Swing Traders generally recognize market swings and then determine whether to enter or exit the market.
A trader, for example, seeks to buy at swing lows and sells at swing highs.
Best Chart Patterns For Swing Trading
In Swing Trading, chart patterns are crucial. A trader can predict the prospective movement of the market, which would either continue or reverse, by identifying chart patterns at swing points. Chart patterns for swing trading in stocks, currencies, commodities, and cryptocurrency are all effective. It all depends on the market you choose to trade chart patterns for swing trading. Many traders use swing trading indicators, support and resistance, and other useful swing trading tools to maximize profits.
Here are 7 top chart patterns for swing trading that may be beneficial in the long run.
- Head and Shoulder Pattern
- Inverse Head and Shoulder Pattern
- Double Top
- Double Bottom
- Ascending Triangle
- Descending Triangle
- Symmetrical Triangle
Let’s go over them one by one-
1. Head and Shoulders :
Head and Shoulders is a bearish reversal chart pattern. It is made up of a shoulder (high), a head (higher high), and another shoulder (lower high).
A neckline can be drawn by connecting the two lowest points of the head.
How to Trade Head and Shoulders Chart Pattern ?
Breakout of head and shoulder’s neckline confirms a bearish reversal action and provides a short selling opportunity.
Traders might also wait for a price pullback (retest of the broken neckline) before entering a short position.
The stop loss order should be set either above the head or the recent lower high.
The price target would be estimated by calculating the distance between the pattern’s head and neckline.
2. Inverse Head and Shoulders :
The Inverse Head and Shoulder chart pattern is a bullish reversal pattern that appears during a downtrend.
It occurs when the price makes a low (shoulder), then a lower low (inverted head), and then another higher low (shoulder).
A neckline can be drawn by connecting the highest points on the head.
How to Trade Inverse Head and Shoulders Chart Pattern?
Breakout of the neckline indicates a bullish reversal and a buying opportunity.
If the price retests the broken neckline, a pullback entry can be placed.
Stop loss should be positioned below the head or higher low (shoulder) of the pattern.
The price target would be set up by measuring the low point of the head to the neckline.
3. Double Top :
A Double Top is a bearish reversal pattern that is formed when the price forms almost two identical highs, indicating the bullish trend is losing strength.
The lowest point of the two tops can be used as a neckline or support level.
How to Trade Double Top Chart Pattern?
When the neckline is broken, a short entry order can be placed.
A trader might also wait for the price to retest the neckline before entering a short position.
A stop loss can be set above the pattern’s top.
The price target is determined by the length of the double top formation.
4. Double Bottom :
A double bottom pattern is the inverse of a double top pattern, which indicates a bullish reversal.
It is created when the price makes almost two equal lows, signifying the weakness of bearish momentum.
The highest swing point between the two bottoms can be used to draw a neckline (resistance).
How to Trade Double Bottom Pattern ?
Neckline breakthrough is a sign of bullish reversal, and it can be used as a buying opportunity.
Retesting the broken neckline would also give an excellent long entry.
Stop loss orders can be placed below the pattern.
The price target would be at the same height as the length of the double bottom formation.
5. Ascending Triangle :
An Ascending Triangle pattern occurs in an uptrend when a horizontal resistance level and a slope of higher lows are formed.
This pattern indicates that buyers are putting pressure on the resistance level, implying that a breakthrough is imminent.
Breaking past resistance with volume signals that the prevailing rally would continue.
How to Trade Ascending Triangle Chart Pattern ?
A trader can enter a long position soon after the candle closes above the resistance level.
A pullback entry on a broken resistance level can also be used as a buying opportunity.
Stop loss order can be placed below the pattern’s most recent swing low.
The length of the ascending triangle’s back may be used to calculate the price target.
6. Descending Triangle :
A Descending Triangle pattern is the inverse of an Ascending Triangle, formed in a downtrend. It is made up of a horizontal support level and a steep slope of lower highs.
The support level indicates that selling pressure is rising, and a breakout is bound to happen.
The breach of a support level with volume implies that the decline would continue.
How to Trade Descending Triangle Chart Pattern?
When the candlestick closes below the support level, a short entry can be executed.
A stop loss can be set near the recent swing high point, that is formed within the pattern.
The price target would be calculated by measuring the back of the descending triangle.
7. Symmetrical Triangle :
A Symmetrical Triangle pattern can be observed when the slopes of lower highs and higher lows converge to create a triangle.
This sort of chart pattern represents consolidation. The breakout is imminent as the two slops approach one another.
Due to the bilateral nature of this stock chart pattern, a breakout with the volume on either side signals the further movement of the market.
How to Trade Symmetrical Triangle Chart Pattern?
If the resistance level is broken, a long entry would be placed with a stop loss below the pattern’s most recent higher low.
Similarly, a support level breach suggests to traders a short selling opportunity. A stop loss order would be set above the pattern’s most recent lower high.
The price target would be determined by measuring the backside of the triangle.
Chart Patterns with Candlesticks
Candlestick patterns during breakout and pullback situations provide traders with a good entry signal. Traders can forecast future price movement by observing the following candlesticks on significant levels.
| Breakout | Pullback |
| Marubozu Candlestick Pattern | Engulfing Candlestick Pattern |
| Engulfing Candlestick Pattern | 3 Inside up/ 3 Inside down |
| 3 Soldiers / 3 Crows | Harami Candlestick Pattern |
| Morning Star/ Evening Star |
Conclusion
- Swing Trading is all about maximizing your gains by going with the trend.
- Risk Management is essential. There is no guarantee that these patterns will always work in favor.
- The formation of continuation chart patterns for swing trading provides excellent opportunities in direction of major trend.
- A reversal chart pattern, on the other hand, shows a trend reversal.
- A triangular pattern is said to be formed when it has at least five touches of support and resistance (3 touches of resistance and 2 touches of support and vice versa).
- Position size is an important component of any trading strategy. Buying too little won’t help your account grow. Buying too much may result in the demise of your account.
- Always enter a trade with a well-defined trading strategy. Execution, price target, stop loss, and risk aversion are the four elements.
At Bulls Arena Trading
info@bullsarenatrading
New Delhi
India
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