Introduction to Chart Patterns


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Video Transcript:

Chart patterns. In this video, I’m going to introduce you to what chart patterns are, how we’re going to use them to trade, and how we’re going to incorporate them into our advanced technical analysis. This is where things start to get really, really interesting, because this is where we actually can start seeing what price action tells us, when actually it reaches to important levels.

Let’s start with what chart patterns are. A chart pattern is a distinct formation on a financial assets price action chart. These patterns have been studied, and they repeat themselves with a very percentage of the same results. In technical analysis, history repeats itself. By analyzing past price action, we can determine that in future price action, the same patterns will emerge, giving us approximately the same results.

This is why the signals given to predict future price action when these patterns appear can be very accurate, and this is why trading these patterns can be highly profitable. Not only chart patterns are accurate, but we will actually use them, and apply them into our analysis, to get confirmation on our trade ideas.

Of course, you must bear in mind that spoiling and trading chart patterns alone can be a very profitable strategy, too. There are traders out there, and technical analysts, that only focus on levels and chart patterns.

In this course, we will teach you how to spot them, how to trade them, how to wait for confirmation on them, and how to use them in a more advanced analysis, so you can get better interest and higher-probability setups.

Now, let’s ask ourselves when to incorporate chart patterns in our analysis. I personally do it daily. When I’m looking at support and resistance levels, I’m also looking at what price action tells me. Remember what we learned in the past lesson, with candlesticks, or the information that candlesticks give us. Chart patterns gives us a more complete and overall picture of what price is doing, and what levels are holding or not.

Introduction to Chart Patterns

Let’s get into. We incorporate chart patterns into our analysis because it’s a way to confirm our bias. Let’s take an example. Let’s imagine that we are at a heavy resistance area after a pool bet on a down trade, and we want to go short. Here is the price action chart that I’m talking about.

We are in a heavy dip, or a heavy downtrend, let’s say. We are looking to get in. Remember that, in trading, what you need is patience. Of course, we are not going to jump in in the middle of the down move, just to get stopped out, without looking at some levels, or confirmation that the move is in fact continuing. We are going to wait for a pool bet at a previous support zone that is now being tested at resistance.

What happens here? We spot a chart pattern at this area of previous support, and now resistance. Of course, this is not a chart pattern. This is just an example of a pool bet to a previous zone of support. Let’s assume that this is a chart pattern. This pattern signals a reversal in price action. Our short idea to sell the rally is confirmed. Remember that, in downtrends, we are going to sell rallies, and in up moves, we are going to buy dips.

When we go here, and we have a rejection of this previous area of support at resistance, and we get a chart pattern that signals a reversal in price action, we have a confirmation of our short-trade idea. We are in a high-probability setup for a nice trend continuation trade. Everything points out that going short is the right decision to make here.

This is how we’re going to incorporate chart patterns into our trading decisions.

Adam

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Adam is an experienced financial trader who writes about Forex trading, binary options, technical analysis and more.

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