Trading Chart Patterns is a powerful trading method and useful tool to have in your trading arsenal, Many successful traders only use chart patterns as the ultimate trading strategy and plan.
Table of Contents
- Secret # 1: Trading Valid Chart Patterns
- Secret # 2: Timing The Chart Patterns
- Secret #3 Trends & Trading Chart Patterns
- KEY TAKEAWAYS
Why should you learn chart pattern trading?
Because it works!
There are many tools at your disposal for trading effectively, the reason trading chart patterns is so powerful is because they are visible to many traders, especially big hedge fund managers who use them to find trading opportunities and no serious trader ever ignores them.
But why do so many new traders fail to use chart patterns correctly and make profit?
That’s what the top 3 secrets are all about, I have used them in my trading for many years and they always help me get the best out of any chart patterns.
Secret # 1: Trading Valid Chart Patterns
It’s a skill to have – A better eye for identifying symmetries and reliable patterns.
Consider following chart of Nifty 50 –
Looks like a flag after a downtrend, breakout in direction of trend confirmed short entry, But before considering this trade its better to ask few questions-
- Is this pattern complete?
- Does this pattern look symmetrical enough to become reliable?
Now Let’s find out what happened with this trade –
As you can see trade proved to be a bad one, since prices continue to move against the direction of breakout.
Two important considerations while making decisions based on patterns:-
- Never trade premature pattern
- Never trade patterns that don’t look symmetrical enough to trade.
Example of a good, reliable pattern in Same instrument –
Secret # 2: Timing The Chart Patterns
Ever happened to you ?
1.You identified a good looking pattern and decided to enter!
2. Only to get stopped out
3. Prices move in direction of your trade idea
If this happens to you again and again, following tip is going to change your trading forever-
If breakout happens with a strong bullish candle from a pattern, it’s likely to retest the pattern – in such a scenario, wait patiently for a rejection candle and place the trade.
Another example –
[Suggested Reading : Double Bottom Chart Pattern]
Secret #3 Trends & Trading Chart Patterns
Sometimes a pattern may unfold trading opportunities against the ongoing trend, More often these patterns will result in fake pattern breakouts, one such example is shown below –
However flag breakout against the trend proved to be a fake pattern breakout signal –
As you can see prices did continue in the direction of trend, after fake breakout against the trend.
It is always advisable to trade chart patterns that support ongoing trend, although sometimes trend reversal might happen but probability of trend continuations with patterns that extend in direction of trend is significantly high.
Also Look : Top 10 Chart Patterns
- Chart Patterns are powerful trading tools to have.
- It’s important to trade chart patterns correctly to improve win rate.
- Look for symmetry and wait for the chart pattern to complete before entering a trade.
- Timing the trade in chart patterns is very important for high probability setups.
- Don’t trade against the direction of trend with chart patterns.
Finally, to improve trading with chart patterns, it’s important to practice price action trading, it will supplement your knowledge in trading patterns and help you become a better trader. I’ve explained complete support and resistance price action in another blog, which you can find here:
Good Luck!Author is Senior Trading Analyst
At Bulls Arena Trading