On a price chart, you will notice many recurring and repeated price patterns that not only form curious shapes, but also provide predictive value which way price is going to move once the pattern is completed.
Thus, learning how to identify and trade these patterns can be very lucrative.
What are price chart patterns, how do they form, and how can we identify them?
There are 2 main types of chart patterns, each with different patterns that fall under each type.
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Continuation patterns are a pause in the trend. and they are useful for trend-followers and breakout traders who want to wait for a good opportunity to get onto the exiting trend, and ride on the momentum.
Reversal patterns usually lead to a change in direction of the trend, and they are useful for contrarian traders who want to get in early on a new trend, or trend traders who want to know when the current trend will come to an end, so that they can be ready to change direction.
When it comes to actual trading, there are many other factors to consider besides the price patterns, which can affect the probability of success of your trades.
For example, one needs to consider the importance of the trend, how to combine chart patterns with other tools, and how to take into account multiple timeframes when using chart patterns.
Conclusion
I hope you have enjoyed this guide on how to tackle price chart patterns.
Now I’ll like to hear from you: what is your key take-away from this trading guide?
What is your favourite price pattern setup for trading?
Do you have any difficulty identifying the patterns on your charts?
How can you combine these patterns with your existing trading tools?
Let me know by leaving a quick comment below right now.
I’m learning to be a scalp trader I’m going to implement patterns into my trading strategy which I haven’t before. My strategy is reading candle sticks but not the patterns. Thank you
You are welcome! As I mentioned in my “Beginner’s Guide”, there are 3 main kinds of analysis: classical (including chart patterns), price action (including candlestick patterns), and indicators. It is best to combine these methods together.