Understanding Chart Patterns in Trading
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ScribdTranslationsChart patterns | Main patterns
of chartism
April 07, 2020 10:49 Europe/Madrid
If you are a beginner trader, you have probably wondered at some point
What is chartism or what are chartist figures? If this is your
case, keep reading! In this article, in addition to telling you what chartism is,
we will show you the chart patterns with Japanese candlestick charts more
common so that your technical analysis can be as complete as possible.
In this article, we will teach you:
What is Chartism?
Trends
Supports and resistances
Chart patterns. Trend continuation
Chart patterns. Trend reversal
Let's get started!
Chart patterns - What is chartism?
The word chartism comes from the English word 'chart' which means graph.
In trading, it refers to the price charts that traders use to make
decisions. It is a basic tool for traders who prefer the
technical analysis to fundamental. If you are not clear about the difference between the two
and another, here we explain it to you:
Technical analysis is one that is based exclusively on the
movement of the prices of financial assets, whether currencies, stocks,
raw materials, etc.
Thefundamental analysisit is based on external factors
that can influence price movements: macroeconomic data,
geopolitical tensions, unpredictable factors like an earthquake or any
natural disaster. An example would be the coronavirus pandemic, which has
caused the collapse in the equity markets.
Given this, we can define chartism as follows:
The discipline that studies the price and volume of a particular asset over time
a period of time
That said, chartism:
Try to determine the volumes of price fluctuations
Helps to choose the right moment to enter and exit the market
How does he/she do it? Based on three premises:
The price discounts everything
Prices move in trends
3. History always repeats itself
Chartist figures - Trends
Thanks to chart patterns, we can determine the direction it will take.
a trend. But before we dive deep into this subject, let's look atWhat is a
trend.
A trading trend is the direction in which a certain moves.
market in a sustained manner over time. Prices vary
continuously in a descending and ascending direction determining the
trend. We can distinguish three types of trends: bullish, bearish, and sideways.
We talk about an upward trend when prices record a movement
ascending over a certain period of time in such a way that they are linked
increasing minimums and maximums. The downward trend is the same but with a
downward movement. A lateral market is one that does not register a
defined trend, with lateral minimums and maximums.
Chart patterns - Supports and resistances
To better understand Chartism, one must first be clear, just like the
trends, what are supports and resistances. When we talk aboutsupports
and resistanceswe refer to the levels where the asset price halts
to continue in a direction contrary to the one I was taking.
Support. It is the lower level where the price stops to start the
promotion.
Resistance. It is the upper level where the price stops rising to begin
the descent.
Depending on the times and the way the price draws when touching a support or
a resistance or by surpassing it we will identify a chartist figure or another. That's for sure,
traders must learn to correctly identify and draw these
levels to be able to determine the figures and trends. If you want
delve into this and other topics related to trading, you can sign up
to any of our free webinars by clicking on the following banner:
Most popular chart patterns
Once the basic concepts are exposed, let's see what the figures are.
most commonly used and popular chart patterns among traders, with an example of each
one of them. We will start with those figures that show us a change
of trend. If you like technical analysis and use it to develop your plan of
trading, keep reading!
Shoulder Head Shoulder
Surely you have read a technical analysis at some point in which it is discussed
of this chartist figure, as it is one of the most common and easiest to
identify. In this case, the price forms three peaks: a maximum in the center
that simulates the head and is superior to the other two (shoulders), located at
each side of the maximum. A price break after forming the right shoulder,
below the neckline indicates that the price is likely to fall with
a width of at least that of the head.
Let's look at an example in a real graph of theEURUSD
Source: Admiral Markets MetaTrader 5 Supreme Edition. Daily chart EURUSD.
Data range: November 27, 2018 to April 2, 2020. Prepared on the 3rd
of April 2020. Keep in mind that past returns do not guarantee
future yields.
As we can see in the EURUSD chart, the price breaks the support.
after forming a Head and Shoulders confirming a trend change to
the decline. It may happen that this chartist figure forms in a way
inverted and would be confirmed by breaking the resistance upwards after the shoulder
inverted from the right.
This is a configuration that provides good trading signals, having
Always keep in mind that currency trading volumes tend to be
greater on the first shoulder and then gradually decrease on the head and
then on the second shoulder.
#2 Double top / Triple top
We continue with trend reversal patterns. The double or triple pattern.
the ceiling is characterized by having two or three consecutive maxima in it
price level, separated by one or two considerable price lows. The
The price objective of this training is the breadth of one of the highs.
We are going to see two examples, one of a double top and another of a triple top.
Source: Admiral Markets MetaTrader 5 Supreme Edition. GBPUSD H1 Chart.
Data range: March 16, 2020 to March 26, 2020. Prepared on the 3rd of
April 2020. Keep in mind that past performance does not guarantee
future returns.
Source: Admiral Markets MetaTrader 5 Supreme Edition. ChartSP500H1.
Data range from February 27, 2020 to March 10, 2020. Prepared on
April 3, 2020. Please note that past performance does not guarantee
future returns.
#3 Double bottom / Triple bottom
The double or triple bottom tells us, unlike the ceiling, when it is good.
close a sale. Thanks to this figure, we can predict a change in
downward market trend, the double bottom represents the same minimum
that is hit twice.
During the formation of the first soil, the volumes increase and then
they decrease abruptly once the central peak has been created. From
the moment the second channel ends, the volumes increase with
strength.
Source: Admiral Markets MetaTrader 5 Supreme Edition. Daily chart SP500.
Data range: May 16 to January 21, 2020. Prepared on April 3,
2020. Keep in mind that past performance does not guarantee returns.
futures.
As we can see in the example above, the SP500, after forming a triple bottom
bounces upwards and then registers a lateral period after which it marks a
double bottom and, there it bounces strongly and maintains an upward movement that does not
it is interrupted until mid the first quarter of 2020.
Morning Star
This curious name of the chartist figure indicates a possible trend change.
in a bear market. It is formed by a bearish candle followed by a
small candle of indecision and a bullish candle that does not surpass the first one in
height. This type of pattern can be applied to any periodicity, although
the longer the time, the greater the reliability.
To interpret this figure, we can look for some clues that confirm the
trend change, such as being near a support zone
of relevance. Let's take a look at it:
Source: Admiral Markets MetaTrader 5 Supreme Edition. H1 chart EURUSD.
Data range: from December 10, 2019 to December 24, 2019.
Prepared on April 3, 2020. Please note that past performance does not
guarantees future returns.
#5 Hammer
The chartist figure of the hammer is formed by a small long lower tail.
and a candle in the shape of a square, thus forming a hammer. This drawing
show a session start in which sales have predominated but in the
last minutes purchases are prevailing. Indicates a change of trend towards
a bull market, something that will be confirmed if in the next session the opening
It's taller. Let's see.
Source: Admiral Markets MetaTrader 5 Supreme Edition. H1 chart EURUSD.
Data range: March 31, 2020 to April 3, 2020. Prepared on April 4
April 2020. Keep in mind that past performance does not guarantee
future returns.
Once we have seen the examples of chartist figures that indicate a change
of trend, let's now look at some examples of confirmation figures of
trend
#6 Triangle
In the same way as the HCH figure, the figure of the triangles is a figure.
very popular chartist among currency traders. The triangles are composed
of a support or resistance, as well as a trend line to establish a
target price.
Reflects insecurity and uncertainty in the market. For the formation of
a triangle requires at least two maxima and two minima, that is,
four contact points. It forms between 1 and three months and can be
ascending or descending. In the example we see below, the
the triangle is descending.
Source: GPBUSD, Chart D1, MT5 Admiral Markets. Data range: from the 20th of
September 2018 to January 31, 2020. Done on April 4, 2020. Ten
Keep in mind that past performance is not a reliable indicator of results.
futures.
Triangles are high-performance tools that allow for anticipation
price direction in the market or a value in a very precise way. For
confirm the trend, triangular exits occur with large
volumes in the case that transactions are small.
#7 Flag
Flags are figures similar to channels but with a duration and
smaller amplitude. We can find two types of flags, the bullish and
the bassist (like the one in the example below).
Source: Admiral Markets MetaTrader 5 Supreme Edition, ChartGoldRank
from January 30, 2020 to February 5, 2020. Conducted on April 4
of 2020. Keep in mind that past performance is not a reliable indicator of
future results.
Both flags and pennants imply that the movements
Current ones are sustainable. This figure is nothing more than a transition balance.
between the forces that push to buy and the forces that push for the
sale.
Very similar to symmetrical triangles, flags and pennants are
they are considered continuation figures in currency charts. They have a
short lifespan and are generally formed as a result of a large
abrupt movement, as we see in the graph above.
#8 Rectangle
The rectangle is the most recognizable of all charting figures. For
supposedly, the consolidation of the figure can lead to continuity of the
initial movement or, on the contrary, a reversal of the trend.
Source: Admiral Markets MetaTrader 5 Supreme Edition. GBPUSD, H1 Chart.
Date range: from February 26, 2020 to March 6, 2020. Made on the 4th
from April 2020. Please note that past performance is not an indicator
reliable future results.
In a rectangle, currency prices fluctuate within a horizontal channel.
that indicates the equality between the forces of supply and demand. Since the
moment when the price exceeds the resistance or support, the figure ends.
If you want to start analyzing graphs and looking for chart patterns, you can
download MetaTrader 5 for free on the Admiral Markets website
clicking on the following banner:
Other articles that may interest you:
Forex Technical Analysis Manual | Chartism
The best stocks to invest in 2020
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transaction in financial instruments. Please note that such analysis
commercial is not a reliable indicator for any current or future performance,
since circumstances can change over time. Before making
Any investment decision should seek the advice of advisors.
independent financial advisors to ensure that you understand therisks.