Currently, in the world of trading, there exist various categories of technical traders. Among these, the chart-watcher trader is a prevalent type who heavily relies on analyzing chart patterns to influence their trading profits. Additionally, each trader has their own distinct blend of chart patterns and trading strategies to optimize their profit margins.
Nevertheless, not all price patterns are equally profitable, as only specific types of patterns occur frequently and are readily accessible in the market
3 Types of Chart PatternsThe market is replete with recognizable chart patterns such as double top, head and shoulders, triangle, and more. As a result, this article aims to offer a concise overview of these three types of pricing patterns.
1. Reversal Patterns
Reversal chart patterns are indicative of a potential change in the direction of a trend. They can serve as signals that the price might shift from a downward trajectory to an upward trajectory, or vice versa. There are 4 commonly observed reversal patterns as follow:
- Double Top
The double top pattern in the market is characterized by two peaks in the price movement, forming a wavy pattern. It occurs when the price attempts to reach a new high but fails, only managing to rise to the same level. As a result, the price reverses and moves lower, indicating a change in direction from an uptrend to a downtrend.
- Double Bottom
The double bottom pattern occurs when the price attempts to reach a new low but fails to do so, causing a reversal in direction towards the upside. As a result, this pattern is widely used in trading and is considered easy to analyze due to its popularity.
- Head and Shoulders
The head and shoulders pattern is a significant pattern in trading as it is easily identifiable and shares similarities with the double top and double bottom patterns. However, it consists of three peaks, with the middle peak being the highest or lowest, and the first and last peaks being at the same level. It is important to consider that the head and shoulders pattern can occur in both upward and downward trends, and when it appears in a downward trend, it is known as an "inverse head and shoulders."
- Inverse Head and Shoulders
In order to trade this pattern, it is simple to place an order based on the neckline breakout and follow the new trend.
2. Continuation Patterns