Stock Chart Patterns

Posted by Deb | Futures Trading Tips,Guest Post | Tuesday 24 April 2012 7:52 pm

This post was written by Steve Sollheiser.

When trading futures or stocks it is important to know which patterns are worth trading, and which just waste your money and time. In this article we will describe several of the best chart patterns for maximum results.

Double Top
The Double Top is a very powerful chart pattern that reaches 73-78% win rate in most stocks and commodities, and it allows you pin-point stock reversals with ease on many charts. The idea is that price reaches a Resistance level twice, and bounces off it just to continue downwards. It shows an inability of buyers to push through the Resistance level and eventually indicates that price will fall downwards.
We usually enter these trades by selling when price breaks the neckline, or when price pulls back to the neckline after the breakout (higher accuracy trade).

Triangle Patterns
The triangle pattern is a family of continuation patterns that can generate very good signals, however we will only focus on one type of triangle: The Asymmetric triangle.
The symmetric triangle is not a reliable chart pattern and we will tend to ignore it.
The triangle consists of one horizontal trend line and one diagonal trend line that converge together, causing price to break the horizontal level and continue in the direction of the diagonal one:

This is one of the strongest chart patterns and we trade it by entering trades right on the diagonal trend line in the direction of the imminent breakout. We will also trade the breakout of the horizontal trendline and pull backs to this level once it is broken.

Channel Pattern
The Channel pattern is another effective set-up that can give us very good signals on many timeframes and charts: the idea is that price is bound between two parallel trend lines, and we trade when price hits the trend lines (only with the direction of the trend). This results in high win-rate trades when low risk and high reward.
We recommend also trading the breakout of the channel, when it breaks the direction opposite eto current trade, and we will also enter pullback trades as well.

In conclusion, those 3 patterns are very effective and generate profits for many trades consistently. Master them and you will see your profits rise significantly.

Steve Sollheiser is a writer and a stock trader. Visit his site www.StockChartPatterns.org for more articles about chart patterns.

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5 Comments »

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