Must Know Chart Patterns

Chart Patterns Every Trader Should Know About

5 must-know chart patterns for every trader

Introduction to chart patterns

Chart patterns tell a robust story of demand and supply in any stock, which is why some hugely successful traders use only chart patterns as the key inputs in their trading.

Unlike straightforward indicators, chart patterns take time and a lot of practice to master. The good news is that you don’t need to know too many of them. Even if you become proficient in identifying and trading 2-3 chart patterns, you can bring about a significant improvement in your trading results.

For example, my preferred pattern is in the form of lateral consolidation, hence why I have created the new Consolidation Breakout Scanner for our members, Click Here to join.

When studied well, chart patterns can significantly improve the timing of entry and exit from stocks, but more importantly they provide logic to create a favorable risk reward structure.

Chart patterns can be continuation or reversal patterns based on where they are being formed in a cycle of a stock.

Here we discuss 5 other must-know chart patterns.

Head and Shoulders

Head and Shoulders is a reversal chart pattern that signals an end of a trend. It contains 3 back to back-to-back peaks that resemble the head and shoulders. The middle peak is higher than the ones on each side, as displayed in the image below. The line connecting the base of the pattern is called the neckline.

The ideal time to get into a reversal trade is when the price breaks the neckline on high volumes after forming the second shoulder.

Head and shoulders don’t only form during downside reversals but also during upside reversals, as shown in the image below. The upside reversal pattern is called an inverted head and shoulders and it signals the completion of the bottoming out process. Traders go long in inverted head and shoulders when the price pierces the neckline on the upside with high volumes.

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