The act of trading is such as seeing pictures on a graph. Such images are referred to as Trading Chart Patterns. They indicate the market movements. They assist in making people aware of the time when the price will either rise or fall. Others are highly prevalent such as head and shoulders or double top. Special and unique patterns are there also. When you know them you can be a better trader.
We are going to learn seven special Trading Chart Patterns in this blog. We shall know what they are, why they work and why they can be used.
The Rounding Bottom
What Is It?
The rounding bottom looks like a small “U” shape. It is also called a saucer bottom. It shows that the market is slowly moving from down to up.
Why It Works
This pattern shows sellers are getting weak. Buyers are slowly getting strong.
How to Trade It
- Buy when the price goes above the top of the “U”.
- Put a stop-loss a little below the line.
- The target price is the depth of the “U” added on top.
Example
A stock goes down to $40. It slowly makes a “U” shape. It breaks up at $50. The depth is $10. The target is $60.
The Rectangle Pattern
What Is It?
The rectangle pattern is like a box. The price moves between two lines: one at the top (resistance) and one at the bottom (support).
Why It Works
The rectangle shows that buyers and sellers are fighting. The price moves in the box until it breaks out.
How to Trade It
- If the price breaks the top, it will go higher.
- If the price breaks the bottom, it will go lower.
- Target is the height of the box.
Example
Price moves between $100 and $120. If it breaks $120, it can go to $140.
The Bump-and-Run Reversal
What Is It?
The bump-and-run happens after a very fast price rise. First, there is a slow move (lead-in). Then, there is a sharp move up (bump). After that, the price falls back down (run).
Why It Works
The price cannot go up too fast for too long. When it goes too high, it must come down.
How to Trade It
- Wait for the price to fall below the bump line.
- Sell when the price cannot go back up.
- Put a stop-loss above the highest point.
Example
A coin goes from $10 to $50 very fast. Then it falls under $40. It cannot go back up. It may fall to $20.
The Dead Cat Bounce
What Is It?
The dead cat bounce is when the price falls hard, goes up a little, and then falls again. It tricks people to think the price is rising, but it is not.
Why It Works
The sellers are still strong. The small rise is fake.
How to Trade It
- Wait for the small bounce.
- Sell when it cannot go higher.
- Put a stop-loss above the bounce point.
Example
A stock falls from $100 to $50. It bounces to $70. Then it falls to $30. Selling at $70 gives a good trade.
The Three Line Strike
What Is It?
This is a candlestick pattern. It has three candles going one way, and then one big candle going the other way.
Why It Works
The big candle looks like a change. But it uses all the power of sellers or buyers. So, the main trend continues.
How to Trade It
- Trade with the main trend.
- If the trend is up, buy after the big candle.
- If the trend is down, sell after the big candle.
Example
In an uptrend, three small green candles come. Then one big red candle covers them. But the price still goes up after that.
The Broadening Wedge
What Is It?
This pattern looks like two lines spreading out. The price makes higher highs and lower lows. It looks like a big open mouth.
Why It Works
The broadening wedge shows the market is moving with more power. Traders are not sure. Then, a big breakout comes.
How to Trade It
- Wait for the breakout.
- Buy if it breaks up. Sell if it breaks down.
- Target is the widest point of the wedge.
Example
The wedge goes from $50 to $70. If it breaks $70, the target is $90.
The Ascending Channel
What Is It?
The ascending channel is when the price moves up between two lines. Both lines go higher step by step.
Why It Works
It shows buyers are strong. The price is rising in a steady way.
How to Trade It
- Buy near the bottom line.
- Sell near the top line.
- If it breaks the top line, buy for more.
Example
A stock moves between $100 and $120. Buying at $105 and selling at $115 gives profit. If it breaks $120, it can go higher.
Tips for Trading Chart Patterns
- Look at Volume
If the breakout has high volume, it is stronger. - Use Indicators
Use RSI, MACD, or moving averages with Trading Chart Patterns. - Be Patient
Wait for the full pattern before trading. - Set Stop-Loss
Always put a stop-loss to protect your money. - Backtest
Check old charts. See how patterns worked before.
Conclusion
Trading Chart Patterns are like pictures. They tell you what the market is doing. Some are simple, and some are special. We learned about seven special patterns:
- Rounding Bottom
- Rectangle
- Bump-and-Run Reversal
- Dead Cat Bounce
- Three Line Strike
- Broadening Wedge
- Ascending Channel
Each pattern shows how buyers and sellers fight. They tell when the price may go up or down.
If you learn these Trading Chart Patterns and practice them, you can become better at trading. Remember to use volume, indicators, stop-loss, and patience. Trading is not about guessing. It is about reading patterns and making smart choices.
Keep learning and keep practicing. That is how you will grow in trading.
