Understanding the Three Major Chart Patterns

The chart pattern trading strategy is one of the most effective ways to find the best trades. In fact, it allows traders to trade the major reversals. Being …

Online Stock Trading

The chart pattern trading strategy is one of the most effective ways to find the best trades. In fact, it allows traders to trade the major reversals. Being a new trader, you might think chart pattern trading system is one of the most difficult tasks in the trading industry, but if do some hard work, it won’t take much time to understand how this market works. In this article, we are going to discuss three major chart patterns used by the professional traders in Hong Kong. These are:

  1. Head and shoulder pattern
  2. Triangle chart pattern
  3. Rectangle chart pattern

Head and shoulder pattern

The head and shoulder pattern is a bearish reversal pattern. The pro traders use it to trade the newly formed bearish trend. This pattern is usually spotted at the end of an uptrend. Those who are completely new to the trading industry might not understand how this pattern is formed. Basically, this pattern has three major highs which look like the head and shoulder of a human being. Behind the formation of these three highs, there is one major support level which is known as the neckline. If the price of a certain assets breaks below the neckline the pro traders execute short orders and ride the newly formed bearish trend.

Triangle chart pattern

The triangle chart pattern is commonly used by the intermediate and pro traders. It allows traders to trade in favor of the trend. However, you can also use this pattern to trade the major reversals. If you spot a triangle like a pattern in the price chart, you need to be careful with the trade executions. Being a new trader in the Forex market, make sure you have access to the best trading account so that you can get free access to the robust trading platform. If for any reason the price manages to break below the support level of the triangle, consider it as a bearish breakout. If the price breaks above the resistance level, you need to look for a buying opportunity.

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Rectangle chart pattern

The rectangle chart pattern is usually formed during the ranging market. Those who are intermediate trader can easily make a huge profit by trading the rectangle chart pattern. But just trading the breakout is not enough to ensure your profit factor. You need to find the long term market trend and execute the trade in that direction. Those who are new might not understand why are suggesting to trade along with the trend. If you look closely at the different rectangle patterns, you will notice many false breakouts. Most of the false breakout generates against the major market trend. So, in order to avoid the false trading signals, you need to trade along with the market trend.

Selection of the time frame

By now you have read a lot about the three major chart patterns in Forex market. But do you really think you can make a profit just by learning this pattern? The simple answer is no. You need to use the higher time frame to find quality trades. For instance, if you spot any head and shoulder patterns in the lower time frame consider it a retracement signal. So, if you execute short orders, chances are very high you will lose money. Moreover, the lower time frame trade setups are extremely risky since the market often exhibits false spike and hunt the stop loss.

Conclusion

Becoming a professional chart pattern trader is not easy. However, if you use a demo account it won’t take much to develop your trading skills. First of all, you need to learn the details of this chart pattern. Use the demo account and try to find these patterns and execute your trade with managed risk. If you can make a profit for six consecutive months using these three chart patterns, start trading the real market.

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