There are tons of trading technics available online. Some people use only indicator as a tool of confirmation some use pure price action.Price action traders only trade with price and price patterns. There are also many types of price pattern. Candlestick pattern,geometry pattern,chart pattern etc.Today I will discuss about only chart pattern. Because as per my experience it works best always in any market such as stock,future,commodity, and obviously in forex. Chart patterns always rock. So lets start.
What is chart pattern?
Well,chart pattern is a type of price pattern that repeat itself over and over again in any financial market.It is a fractal in nature.
Why it works?
Market moves by two factors only, one is supply-demand and another is human mass psychology.
Human psychology never change that’s why people react to a particular incident in the same way of previous. Market is driven by fear and greed. People wil always react to these two factor. A price pattern is nothing but the alternative name of fear and greed.When people see a pattern they will make their trading decision based on it over and over again.Thats why it works most of the times.
How many price patterns are there?
There are hundreds of price chart patterns available but there are only few patterns that I like most. Such as-head and shoulder,double top,double bottom,triangle,flag,zigzag etc. These are the most profitable and reliable.
Head and shoulder:
Head and shoulder is found after the end of the trend.It might be uptrend or downtrend .Before a major reversal occurs this pattern is seen.In head and shoulder pattern you will see a left shoulder and a had and again another right shoulder. If you draw a trend line from the bottom of the left shoulder to the bottom of the right shoulder in an uptrend you will get neckline. After breaking the neckline you can place the trade with the opposite of the current trend. You can expect a major trend reversal after seeing this pattern.
Double top and Double bottom:
Double top and double bottom are two trend reversal patterns.In an uptrend the double top patterns forms and in downtrend double bottom forms.You can identify this pattern with an open eye within two seconds.After a strong trend if you find that price has made a high and it has tried to break the high with weak effort and failed then consider it is a double top or bottom.Again draw a neckline from the low of the most recent swing low and wait for the price to break this neckline .After breaking the line with a confirmation you can place a trade with confidence.Because after a double top or double bottom a major trend reversal take place.
Triangle is my favorite one among all others patterns.Triangle is a trend continuation pattern that is formed in the middle of a dominant trend. When price starts to narrow down it’s trading range then triangle pattern forms clearly. There are many types of triangle but every triangle represents the same thing. After clearly seeing the triangle draw a trend line from the upward to the downward and wait for the price to break the trend line.After breaking the line wait for a clear price action signal and place the trade with the direction of the trend.
ZigZag is a famous Elliot wave pattern. It is also a trend continuation pattern.When price retraces back from the dominant trend and tries to go in the direction again but fail and again shows another retracement that is called zigzag pattern. You can only teade the zigzag after the second swing high get broken.
Flag pattern exactly looks like a flag. It is a trend continuation pattern.After seeing a price range in the dominant market trend just draw two horizontal lines . First line is at the top and the second one is at the bottom of the range.Wait for a clear breakout of the price range and place a trade with the direction of the current trend with further price action confirmation.
Chart patterns work well more than sixty percent of the time.If you can manage your trade properly you will end up making hot money.