If you are studying chart parts, I prepared for you the list of 7 best chart patterns you should never miss.
In this article, I will share with you powerful chart patterns for trading Forex, Gold or any other financial market.
These patters work perfectly for day trading, swing trading and scalping.
We will study real market examples. I will explain the structure and meaning of each pattern and explain to you how to trade them.
Double Top Chart Pattern
The first chart pattern that we will discuss is double top.
The pattern is formed on the edge of a bullish impulse.
It is based on 2 equal highs and a higher low between them.
A higher low composes a minor support.
Double top is a reversal chart pattern that signifies the weakness of buyers.
A strong bearish signal is a breakout of a neckline and a candle close below that.
Entry is on its retest.
Stop loss is above the highs.
Target is the closest strong support.
Double Bottom Chart Pattern
The bullish version of a double top pattern is called double bottom
The pattern is formed on the edge of a bearish impulse.
It is based on 2 equal lows and a lower high between them.
A lower high composes a minor resistance - a neckline.
Double bottom is a reversal chart pattern that signifies the weakness of sellers.
A strong bullish signal is a breakout of a neckline and a candle close above that. Entry is on its retest. Stop loss is below the lows.
Target is the closest strong resistance.
Descending Triangle Chart Pattern
The next powerful pattern is a descending triangle formation.
The pattern is formed on the edge of a bullish impulse.
It is based on at least 2 equal lows and 3 lower highs between them.
A falling trend line should respect the lower highs.
Descending triangle is a classic reversal pattern that signifies the accumulation of selling volumes.
A strong bearish signal is a breakout of a neckline and a candle close below that.
Entry is on its retest.
Stop loss is above the highest high.
Target is the closest strong support.
Ascending Triangle Chart Pattern
A bullish variation of a triangle pattern is called an ascending triangle.
The pattern is formed on the edge of a bearish impulse.
It is based on at least 2 equal highs and 3 higher lows between them.
A rising trend line should respect the higher lows.
Ascending triangle is a classic reversal pattern that signifies the accumulation of buying volumes.
A strong bullish signal is a breakout of a neckline and a candle close above that. Entry is on its retest.
Stop loss is below the lowest low.
Target is the closest strong resistance.
Cup and Handle Chart Pattern
Chart pattern number 5 - Cup & Handle pattern.
Cup & handle pattern is the variation of a double bottom.
The only difference between 2 patterns is 1 lower low and a consequent higher low, instead of 2 equal lows.
Entry trigger and trade execution rules are absolutely the same as with a double bottom.
The pattern is considered to be more accurate than a double bottom because a higher low signifies the extra weakness of the sellers.
Stop loss is strictly below the lower low.
Inverted Cup and Handle Chart Pattern
A bearish version of a cup & handle is called an inverted cup & handle.
Inverted cup & handle pattern is the variation of a double top.
The only difference between 2 patterns is 1 higher high and a consequent lower high, instead of 2 equal highs.
The pattern is considered to be more accurate than a double top because a lower high signifies the extra weakness of the buyers.
Entry trigger and trade execution rules are absolutely the same as with a double top.
Stop loss is strictly above the higher high.
Horizontal Range Chart Pattern
The last and the most powerful chart pattern is the range.
Range is a strictly horizontal parallel channel where the price sets equal highs and equal lows, respecting the support and the resistance of the range.
This chart pattern signifies that the market found equilibrium, a fair value.
A strong bullish signal is a breakout of a resistance of the range and a candle close above that.
Target will be the next strong resistance, stop loss should lie below the lows of the range.
A strong bearish signal is a breakout of a support of the range and a candle close below that.
Target will be the next strong support, stop loss should lie above the highs of the range.
Of course, there are more patterns to study, but these 7 are essential.
Your ability to recognize them is the key for accurate price action trading.
Learn to spot these chart patterns and good luck in your trading.
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