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Understanding the best chart patterns | 3 simple steps to find out

best chart patterns

Understanding Chart Patterns Webinar-

Every trader looks for Best chart patterns, if he likes to trade using chart patterns. Many of them believes that finding the best chart patter is very difficult. But, you will definitely be surprised that you can find out best chart patterns in simple three steps.

I’m a big believer in chart pattern and there are some patterns that can produce very reliable signals for us. However, never on the patterns themselves, but what the chart patterns tell you about is the market dynamics and how trade price moves.

In this article, I want to explain how to “decode” best chart patterns so that you will be able to understand price movements in a much better way. In the second part, we will take a look at the 4 of the best chart patterns and how you can use them to make better business decisions.

Part 1: The three components of the Chart patterns

All chart patterns if it comes to the head and shoulders, triangles, wedges, flags or cup and handle, are composed of the same components of 3. If you understand how to read these 3 components, you can do much better business decisions and understand the price of a new way.

# 1: The highs and lows Foundation

Although it sounds very basic, analysis of how to draw ups and downs in the chart builds the basis for any analysis chart pattern. We will soon enter the detailed part, but keep it mind that all future charts analysis is based on the understanding of highs and lows.

Higher highs and lows

The first premise is that the highest peaks indicate a healthy uptrend, while the lowest lows indicate a downward trend. soon we will learn about the nuances of highs and lows and enter the advanced concept, but this is the starting point.

Lower highs and lows

When you see that the price can not make a new high or low, which can serve as an early warning sign that a change of address is imminent.

The following screenshot shows that the price of first stopped making lower lows for the downtrend and then even started making higher and lower highs. This is a classic pattern of change of trend and patterns such as head and shoulders or Mango Cup and built on this principle as discussed below.

Understand the best chart patterns in 3 simple steps

# 2: The strength of a trend: the length and inclination of the trend waves

The strength of a trend is defined by the waves of individual trend between high and low. Here, you should look specifically at the length / size and the inclination of those waves of individual tendency to get an idea of ​​trend strength.

Most conventional charts analysis focuses only on the highs and lows in itself, but an important part is understanding what happens between high and low.

In the next picture you can see that the first wave trend (first arrow black) was very steep and long. The second wave was less pronounced and of shorter duration. The third trend last wave was much shorter and also just broke the previous record – also saw more wicks prices are another sign of rejection and exhaustion. Put all the clues together, the investment could have been anticipated by understanding the concepts of length and inclination wave trend.

2 Strength of a trend: length and steepness of trend-waves

#3: Strength of trends II: depth of pullbacks

You have Identified Once that price is in a trend, the trend pullbacks Within That can Provide valuable information of what Might happen next.

The screenshot below shows an uptrend With many consolidations and retracements in between. However, just before price into a downtrend reversed, the end retracement was much larger in size and duration, showing something HAD That changed in buyer-seller sentiment and balance.

Whereas a short and shallow retracement Means That the ongoing trend is still intact, When retracements Become more frequent and larger in size, it can foreshadow a trend shift as potential buyer and seller balance is slowly shifting.

depth-1-768x503

Part 2 – Understanding the 4 best chart patterns

Usually chart patterns are not as clear and far from the examples of textbooks that usually you find in commercial literature or other trading websites. Therefore, it is even more important to understand how to decode the graphic patterns to make the right business decisions.

Now let’s take a look at the 4 chart patterns most commonly traded and discussed and see how the above 3 principles apply to each.

Triangles

It is regarded as one of the best best chart patterns be many traders. A triangle shows a temporary period of consolidation within a trend or the beginning of a new trend. During an uptrend, a triangle is formed when setbacks and setbacks become smaller and smaller; Buyers previous step at any time to push the price up. The triangles are much more reliable for established trends, as they mean accumulation of positions before the next trend continuation.

triangle_up

Head and shoulders

Another important best chart patterns you must look at while having a price action trading. A head and shoulders pattern indicates a potential investment and by decoding the individual parts of this chart pattern you’ll quickly see how this pattern describes the feeling moves very well:

From the left shoulder of the head, the price makes a higher high. Often forms of left shoulder after an ongoing trend and the head is then usually only last push. Then the right shoulder fails to make a new high which is the first indication that the trend could be higher. The break of the neckline then points out that the price will do the lowest minimum, confirming the trend change.

Being able to interpret ups and downs is all you need when it comes to reading the head and shoulders pattern.

Head and Shoulders

Double top / double bottom

Both of these are important to find best chart patterns. Double tops and double bottoms are reversal patterns and, thus, similar to the pattern of head and shoulders, the reasons and the underlying dynamics are the same:

The second principle, which fails to break the first high, indicates that there are not enough buyers to push prices higher again. Therefore, when watching a top or bottom of double often indicates that a change in pricing dynamics. If the double top is followed by a lower and minimal new break, the turnaround is confirmed.

cupandhandle

The bottom line: Finding the best chart patterns

As you can see, you can understand and decode all major chart patterns, examining how the ups and downs goes their way, how waves are steep and long trend and how are the deep pullbacks. This knowledge also allows you to estimate the quality of chart patterns and that will help you to improve the trading skill with best chart patterns.

Let’s recap what we’ve learned about the basic components of chart pattern analysis:

  • The maximum and minimum values that build the foundation of any chart analysis
  • What changes are brought by higher and lower movements of prices
  • The length and slope of the trend waves define the overall strength of trend
  • The depth of the decline in the trend between waves set the balance balance between buyers and sellers

About the author

Yan

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