In technical analysis, chart patterns are simply price formations represented in a graphical way.

Chart patterns are without a doubt one of the most useful tools when doing technical analysis of price charts. Chart patterns are a very popular way to trade any kind of markets because the most profitable chart patterns give us a visual representation of the supply and demand forces.

What makes chart patterns so appealing is that it also brings to light what happens behind the scene aka the buying and selling pressure.

Note* A chart has its own language and it speaks through chart patterns. And chart patterns leave footprints of the big money or the smart money. These footprints can lead us into highly profitable trades.

Why are Chart Patterns Important?

If you remove all your indicators from the charts and everything else that might make your chart less clear and just look at the price action, whether it’s 5-minute chart, daily chart or whatever it’s your preferred time frame you’ll actually gain more insights into what actually happens in the market.

As long as the candlesticks have the variable open, high, low and close; you can use them just to confirm your position or even entering a new trade. You can build a really successful chart pattern trading strategy without the need of any other technical indicator.

There are bullish and bearish chart patterns and what makes them work is that they tend to reoccur over time making it possible to backtest them and find their probability of success rate.

✅ CHART PATTERN TYPES

Throughout this article series, we’re going to discuss how to make money with the most profitable chart patterns. Some of the most profitable chart patterns and chart pattern trading strategy includes:

  • Triple Top Chart Pattern Trading Strategy

  • Cup With Handle Trading Strategy

  • Bump and Run Chart Pattern

  • Price Channel Pattern

  • Symmetrical Triangle

  • Double Top Chart Pattern Strategy

  • Double Bottom Chart pattern Strategy

  • Rectangle Chart Pattern Strategy

  • And many more …

It doesn’t matter what time frame or what market you trade because chart patterns are present everywhere there is a battle between buyers and sellers.

Now…

Let’s discuss how we can use the chart pattern trading strategy and make money trading any market.

Chart Pattern Trading Strategy – Rules

We have developed five step-by-step guidelines that would be important to take in consideration when trading any of the chart patterns:

Step 1: Always determine if the market is in trend mode or consolidating

This step is important because although some of these simple chart patterns often are forms of consolidation they are actually continuation patterns of an underlying trend.

For example, a bullish flag pattern – you can read more about it HERE – is a pattern that forms after a larger move up, and the pattern itself is just a brief form of relief (or consolidation) from the underlying trend, before breaking to new highs.

Basically, the bullish flag pattern is a continuation pattern.

We can distinguish mainly two types of chart patterns:

  • Continuation Patterns: signals that the trend will continue

  • Reversal Patterns: signals the possible end of a trend and the start of a new trend.

An example of a reversal pattern is the double top pattern highlighted in the figure below:👇

It’s important to determine whether the market is trading or consolidating because this will reveal what type of chart patterns will work best for each trading environment.

Note** The reason why many price action traders fail is because they don’t follow this first rule and they try to trade every pattern regardless of the whole picture.

Step 2: Decide what Chart Patterns you want to use

Do you like to trade reversal patterns or you’re more comfortable trading continuation chart patterns?

Figure that out, and once you have decided which way to go try master that particular trade setup.

Repetition is the mother of all learning and the more you trade the most profitable chart patterns the better you’ll become at spotting these chart patterns in real time.

Step 3: What is the story behind the Chart Patterns?

What you have to do here is to construct a story behind your favorite chart patterns.

What do we mean by that?

Simply, look at the whole price picture not merely focusing on the chart patterns. What you need is that this story to confirm your price action pattern. Everything else must point in the same direction as your chart patterns.

For example, the narrative behind the bullish flag highlighted in Step #1 is quite easy to spot. We’re moving in an uptrend because we have developed a series of higher highs and higher lows.

Secondly, we broker and close above an old high; no resistance spotted above market price are all good ingredients that speak volume in favor of our bullish flag pattern

Step 4: Trade Chart Pattern Trading Strategy in confluence with good price location

Chart patterns work best in conjunction with a good price location which can add confluence to our trade.

What do we mean by price location?

In simple terms, a price location is just an important area on the chart from where normally we would expect a price reaction. That price location can either be a support/resistance level, swing high/low points or some pivot points and even technical indicators if you choose to combine the two.

For example, the price channel pattern highlighted in figure 3 worked out because we had confluence with the higher time frame resistance level. The EUR/USD was simply trading in an upward channel, but heading right into a resistance level.

Step 5: Make non-subjective trading rules for trading these Chart Patterns

The last step to build a chart pattern trading strategy is not just to have some non-subjective trading rules, but you also have to write them down and follow your plan strictly.

There are many possible ways a trader can profit from these chart patterns.

For example, the bullish flag pattern can be entered either at the retest of the flag support or at the breakout above the flag.

Become a master of only one setup and one chart pattern trading strategy; prove yourself that you can be profitable trading one pattern before you move on. So, find a pattern that you like and become very good at that chart pattern trading strategy

Conclusion

One of the ways that we learn how to trade correctly is by gaining the right education and screen time and Leon Tech takes pride in providing you with top-notch education.

We can fast track your career by giving you the most profitable chart patterns which is easy, but the one thing we can’t give you is screen time and experience. That’s something that you need to gain over a period of time.

When it comes to chart pattern trading strategy, there are no magic bullets because you’re going to make mistakes and secondly, you’ll still be having losing trades. The whole idea is to become very selective on the chart patterns you trade.

Finally, do your own research #dyor #BTC #chartpatterns #Binance #leontech