A chart pattern is a recognizable structure in a price chart that can be used to extrapolate future price movement from past actions.
A chart pattern may be established by examining past price movements. The technical analysis rests on the identification of chart patterns, which requires the trader to understand what they are looking at and what they should be looking for.
It's great that traders, like us, have an innate curiosity for learning. However, there is a period when generalization is no longer fruitful and one must shift focus to a more narrow area.
However, we often make the mistake of trying to learn everything without stopping to consider whether or not we actually need it.
Some of the TOP chart patterns for traders are as follows:
Another popular bearish reversal pattern is the double top. Peaking, the stock price will fall back to a support zone. After reaching another peak, it will revert to the prior trend.
The double bottom is a bullish reversal pattern, the antithesis of the double top. The stock price will rise to a peak and then fall to a support zone. Then, after reaching another peak, it will begin moving in the opposite direction of the trend.
The descending triangle is a continuation chart pattern, similar to the ascending triangle. The only real distinction is that this pattern forms during a downtrend and is hence bearish.
Everyone has free and easy access to this scholarly resource. In reality, there is an overwhelming quantity of information to absorb.
It's natural to want to broaden your horizons and discover new ways of doing things now and then. Plus, it might appear that more data means better results.
As a beginner trader, such a statement is accurate. Nonetheless, as your career progresses, it's wise to ask yourself, "Do I really need one more strategy that I know on an average level, or should I maybe focus on one strategy, or one pattern of any given strategy - and truly master it, and refine it to a really deep level of understanding?"
DESPITE EFFORT, I CANNOT LET GO
It is physically unpleasant for traders to let go of the habit of trying to trade many patterns and learning new patterns, as has already been said, and this topic may be discussed at length.
There must be a psychological reason for this phenomenon, but in simple terms, it may be that traders see every new trading pattern as a potential opportunity to make a profit. Therefore, it might be unsettling to put an end to our pattern-learning habits.
Since we can enter the market based on a variety of patterns, it would seem that the more we trade, the more patterns we can apply — and, consequently, the more profit we can bank. Some exceptionally skilled traders may be able to pull this off, but it is far from the norm.
Even more importantly, we need not. Mastering just one or two of the patterns in a system we know and trust is adequate.
It's best if you "sever" 90% of your trading knowledge and concentrate on mastering just a couple of patterns. Think about it. Like me, you're probably feeling some serious apprehension about taking this step.
Perhaps even ridiculous. Simply put, that means you can stop spending time learning and, potentially, trading with the old methods.
It's an illusion, though, because your work and investment in it are now indelible parts of you and your experience, influencing your choice of what you want to devote your time and energy to in the future.
However, it is much more difficult to develop expertise as a professional trader if you stick to your previous knowledge and experience.
STICK TO WHAT WORKS BEST FOR YOU
When you've exhausted all of your options, it's time to stop looking into other systems and start learning as much as you can about just one.
In the event that you are trading head and shoulders, you should refrain from trading other common chart patterns such as double tops and bottoms, break and retest, and diamonds.
You may be wondering why.
Due to the fact that a head and shoulders pattern involves more than just five lines on a chart, it can take on many various forms in the market depending on the market, the session, and the time of day.
And you need to learn about it, study it, try it out, and refine it. If you can master the head and shoulders pattern, or any other unique pattern and trading approach, you will see success.
You can move on to the next pattern if the current one is successful, but you probably won't need to.
FIELD TEST, RETROACTIVE TEST, FUTURE TEST, PERFECT
It's wise to keep a "hindsight diary" and a backtesting record that zeroes down on the specific trading pattern you've selected. Of course, there could be a wide range of motivations for settling on a particular style.
However, the person who first instilled this habit in you is typically a role model or someone you saw accomplish sustained success with it.
Of course, that wouldn't be enough. Your mind is stubborn; give in. You need to show your rational mind and yourself that you're serious.
For this reason, you should only backtest this pattern for at least 150 trades. This will help you believe in the system for what it is.
Finding "your" system can be challenging.
It took me about three years to find anything to which I could give a serious commitment. I can't say for sure if there is any guidance available to help you find the appropriate system. Your unique character and way of life are the deciding considerations.
If I may provide some advice, it would be to always be open to new information and to trust your own judgment. You should seek out a mentor or fellow trader whose approach to the market you respect. Aim to recreate it in a manner consistent with his methodology.
Over time, with the help of journaling and real-world testing, your own personalized strategy will emerge. Sure, it will look a lot like your guide's, but it will be yours.
Once again, a trading method may use a number of different confirmations upon entry, but it is usually best to learn just one or two of them.
If you've made it this far, I appreciate it, and I have a FREE trade technique for you as a BONUS.
Recognize that your "monkey brain" is interfering whenever you feel that anything is off during trading, whether it's irritation, a lack of discipline, or even the thought of entering without an entry pattern or taking greater risk than usual. Hard to control but easy to manipulate. Here is what you need to do.
To paraphrase: "OK, I'll do whatever you want, deal with the risk of half the account if you want, but only after 20 minutes."
Simply set a timer for 20 minutes (try Googling "timer 20 minutes") and go about your business. You usually keep your cool and refrain from making rash decisions. It's a simple technique that gets the job done.