Common Trading Chart Patterns can use chart patterns to identify areas where significant price movement is likely. There are a variety of different types of patterns, including reversal and continuation. Depending on trader preference and trading strategy, some patterns are stronger than others.
Reversal patterns signal that a trend may be about to reverse. They can also indicate that a market is entering a consolidation phase, with a change in momentum or direction expected. Examples of reversal patterns include the head and shoulders pattern, double tops and the pipe top structure.
Common Trading Chart Patterns Every UK Trader Should Recognize
Continuation patterns, on the other hand, signify that a trend is about to continue. They often appear at the end of a downward trend, as buyers become more aggressive and start to push prices back up to a level of resistance. Examples of continuation patterns are cup with handles and flags.
A symmetrical triangle is another type of pattern that can be either a reversal or a continuation. It’s formed by two trend lines that converge and indicates a period of indecision between buyers and sellers. Traders often look for falling volume during the formation of this pattern and a spike as it breaks out, which will determine whether it’s a buy or sell signal. If the breakout is above the upper trend line resistance, it’s a bullish signal. A break out below the lower trend line support, on the other hand, is a bearish signal. Alternatively, a trader can take advantage of a pipe top pattern, which features three peaks. The middle peak is larger than the two on either side, creating a shape that looks like an upside-down “Y” (the ‘pipe’).