Knowing your chart patterns in trading is important, but there are a lot of them! It can feel a little overwhelming at first as you try to work your way through fguring out which patterns you really need to pay attention to and which ones you can pay a little less attention to. One of the ways you can simplify this a little is to break the chart patterns into groups. There are three main groups of them that you need to know about.
Reversal Chart Patterns in Trading
These are chart patterns that indicate that a reversal in the trend may be about to occur. These are important
because they can help give you the early signal that you need to bail out of the position that you had taken up to this point.
Additionally, they may be useful in the sense that you can use them to figure out if you would now like to get on the opposite side of a trade that you had been involved with before. Would you like to try to ride the trade in the opposite direction and proft from it that way as well? That option is open to you when you use reversal chart patterns.
If a reversal chart pattern forms during an uptrend, it hints that the trend will reverse and that the price will head down soon. On the other hand, if a reversal chart pattern is seen during a downtrend, it suggests that the price will move up later on.
The six primary reversal patterns include:
1. Double top
2. Double bottom
3. Head and shoulders
4. Inverse head and shoulders
5. Rising wedge
6. Falling wedge
Continuation Chart Patterns
There are some other patterns that you might want to know about while you are trading as well. These are
known as continuation chart patterns, and they are indicative of a pattern that is likely to continue on into the
future.
What you can do when you see a continuation chart pattern is to realize that the trend that has been dominating the currency pair for some time now may be likely to continue into the future. It is not a guarantee, but you can rest assured that there is at least some backing to the idea that a continuation chart pattern is indicative of a trend that may continue into the future.
Patterns include:
1. Falling wedge
2. Bullish rectangle
3. Bullish pendant
4. Rising wedge
Bilateral Chart Patterns
These are chart patterns that are more challenging to use because they may indicate that a currency pair is
about to head in either direction. You may see it continue on the course that it has been on, or it may reserve
and head the other way. The only reason why this should matter to you is that it can at least let you know that
movement of some kind is likely to occur, and that is important by itself. At least it is letting you know that the
holding pattern that the pair may have been in before is about to break and that you can take advantage of that
break by placing trades in anticipation of movement.
You need to be extremely cautious when working with bilateral chart patterns because you do not want to get
caught up on the wrong side of the pattern. That said, you can probably make some pretty impressive trades for yourself if you are keenly aware of the bilateral chart patterns that exist out there and do what you can to make them work for you. It is a small thing, but it can provide you with some insight into how the markets work and how to position yourself to take advantage of them.
Bilateral chart patterns include:
1. Ascending triangle
2. Descending triangle
3. Symmetrical triangle
You can keep an eye out for these chart patterns in trading if you are interested in seeing when a breakout of
some kind is most likely to happen.
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