Classic Chart Patterns That You Need To KnowHello everyone, as we all know the market action discounts everything :)
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In today’s video, we are going to learn the Classic reversal and continuation chart patterns, How to identify them and when to enter a trade, and how to use stop loss and take profit with these patterns.
These patterns can be found in candlestick, bar and line charts.
Anyone who is interested in analyzing any market and trading in general should know these so if u don’t know them have no worries after you watch this video you will.
NOTE: you should always wait for confirmation when trading with these patterns. Confirmation in all of them is breaking the pattern and the market closing above or below it.
Chart Patterns are divided into 2 categories :
Reversal Patterns : They indicate a high probability that the existing trend has come to an end and that there is good chance of the trend reversing direction.
Continuation Patterns : They indicate a high probability that the existing trend is still active and that there is a good chance of the trend continuing in the same direction.
There are 2 types of these patterns :
Bearish : it means that the market is going down.
Bullish : It means that the market is going up
Let's Start with the Bearish Reversal Patterns :
1) Double Top (75.01%) :
The double top is one of the most common reversal price patterns. The double top is defined by two nearly equal highs with some space between the touches, The pattern is complete when price breaks below the swing low point created after the first high.
The pattern is considered a success when price covers the same distance following the breakout as the distance from the double high to the recent swing low point
2) Triple Top (79.33%) :
The triple top is defined by three nearly equal highs with some space between the touches, The pattern is complete when price breaks below the swing low points created between the highs.
The pattern is considered a success when price covers the same distance after the breakout as the distance from the triple high to the furthest swing low point
3) Head and Shoulder (83.04%) :
The head and shoulders patterns are statistically the most accurate of the price action patterns. The regular head and shoulders pattern is defined by two swing highs (the shoulders) with a higher high (the head) between them.
The two outer swing highs/lows don't have to be at the same price, but the closer they are to the same area the stronger the pattern generally becomes.
The pattern is complete when price breaks through the "neckline" created by the two swing low points.
4) Rising Wedge (73.03%) :
A wedge pattern represents a tightening price movement between the support and resistance lines.
the price is hypothesized to break through the support. This means the wedge is a reversal pattern as the breakout is opposite to the general trend.
Rising Wedge serves as a reversal if appeared during an uptrend .
Now let's Talk about the Bullish Reversal Chart patterns :
1) Double Bottom (78.55%) :
The double bottom is one of the most common reversal price patterns. The double bottom is created from two nearly equal lows, The pattern is complete when price breaks above the swing high point created by the first low.
The pattern is considered a success when price covers the same distance following the breakout as the distance from the double low to the recent swing high.
2) Triple Bottom (79.33%) :
he triple bottom is another variation of reversal price patterns. the triple bottom is created from three nearly equal lows, The pattern is complete when price breaks above the swing high points created between the lows.
The pattern is considered a success when price covers the same distance after the breakout as the distance from the triple low to furthest swing high.
3) Inverted Head and Shoulder (83.44%) :
The head and shoulders patterns are statistically the most accurate of the price action patterns, The inverted head and shoulders pattern has two swing lows with a lower low between them. The two outer swing lows don't have to be at the same price, but the closer they are to the same area the stronger the pattern generally becomes.
The pattern is complete when price breaks through the "neckline" created by the two swing high points .
4) Falling Wedge (72.88%) :
A wedge pattern represents a tightening price movement between the support and resistance lines.
the price is hypothesized to break through the support. This means the wedge is a reversal pattern as the breakout is opposite to the general trend.
Failing Wedge serves as a reversal if appeared during a downtrend
Let's move on now and start talking about Bearish Continuation patterns :
1) Rising Wedge (73.03%) :
The Rising Wedge in the downtrend indicates a continuation of the previous trend.
It is formed when the prices are making Higher Highs and Higher Lows compared to the previous price movements.
2) Bearish Flag (67.72%) :
The flag is a continuation pattern that can occur after a strong trending move. It consists of a strong bearish trending move followed by a rapid series of higher lows and higher highs, These patterns are small hesitations in strong trends.
The flag pattern appears as a small rectangle that is usually tilted against the prevailing trend in price. The best flag patterns have two features: 1) a very strong run in price (near vertical) prior to the setting up of the flag and 2) a tight flag that occurs right on the upper (or lower) edge of that run.
This pattern is considered successful when it breaks the lower trendline and then proceeds to cover the same distance as the prior trending move starting from the outer edge of the pattern.
3) Bearish Pennant (55.19%) :
The pennant often occurs in high momentum markets after a strong trending move, but the tight price formation that occurs can lead to breakouts against the preceding trend almost as often as we get continuation.
The slight difference in the price pattern formation between flags and pennants is an important distinction that can make a big difference in your trading results so it's well worth being aware of while watching the market develop during your trading day.
4) Descending Triangle (72.93%) :
The triangle pattern usually occurs in trends and acts as a continuation pattern. It's defined by a bearish trending move followed by two or more equal lows with a series of lower highs.
The pattern is complete when price breaks below the horizontal support area and the pattern is considered successful if price extends beyond the breakout point for at least the same distance as the pattern width
And finally we have the Bullish Continuation patterns :
1) Falling Wedge (72.88%) :
The Falling Wedge in the downtrend indicates a continuation of the previous trend.
It is formed when the prices are making lower Highs and lower Lows compared to the previous price movements.
2) Bullish Flag (67.13%) :
The flag is a continuation pattern that can occur after a strong trending move. It consists of a strong bullish trending move followed by a rapid series of lower highs and lower lows, These patterns are small hesitations in strong trends.
The flag pattern appears as a small rectangle that is usually tilted against the prevailing trend in price. The best flag patterns have two features: 1) a very strong run in price (near vertical) prior to the setting up of the flag and 2) a tight flag that occurs right on the upper (or lower) edge of that run.
This pattern is considered successful when it breaks the upper trendline and then proceeds to cover the same distance as the prior trending move starting from the outer edge of the pattern.
3) Bullish Pennant (54.87%) :
The pennant often occurs in high momentum markets after a strong trending move, but the tight price formation that occurs can lead to breakouts against the preceding trend almost as often as we get continuation.
The slight difference in the price pattern formation between flags and pennants is an important distinction that can make a big difference in your trading results so it's well worth being aware of while watching the market develop during your trading day.
4) Ascending Triangle (72.77%) :
The triangle pattern usually occurs in trends and acts as a continuation pattern. It's defined by a bullish trending move followed by two or more equal highs and a series of higher lows
The pattern is complete when price breaks above the horizontal support area and the pattern is considered successful if price extends beyond the breakout point for at least the same distance as the pattern width
5 Rules To Always Follow
I hope that I was able to help you understand Classic Continuation and Reversal Patterns better and if you have any more questions don't hesitate to ask.
This is not Financial Advice its a pure Educational video.
Hit that like if you found this helpful and check out my other video about the Moving Average, Stochastic oscillator, The Dow Jones Theory, How To Trade Breakouts, The RSI , The MACD , The Bollinger Bands , The Different Types Of Trading Strategies, Candlestick Charts Part 1 & 2 and 3 links will be bellow
