3 Patterns you should use to make $$$!
Among the numerous trading strategies to use, price patterns represent a very reliable and excellent strategy for obtaining profit.
In this post I will show you three important patterns that professional traders often utilize in their strategies!
I will also reveal my ace in the hole:
A powerful tool that automatically recognizes these patterns allowing you to immediately make profits!
First of all, these patterns give us valuable information on the price of a particular asset or financial instrument.
The first purpose of these tools is to define the power of buyers and sellers.
If you are noticing that buyers are stronger than sellers in a certain market, it is very advisable to follow the trend and buy or wait for a reversal.
1 Very Important Rule!
After risk and money management, another very important concept you should bear in mind is undoubtedly “main trend”.
If you enter the market against the main trend, you will often end up losing your capital.
The indications given by the patterns help us to understand what to expect from the market, that’s why it is really important to identify a phase of minimum, maximum or continuation.
Markets usually move from a trend phase to a consolidation phase.
DISCLAIMER
Trading is a high risk activity, protect your capital through the use of stop loss, making intelligent use of leverage and not investing more than you are willing to lose. The author of the post declines any responsibility for any losses incurred as a result of decisions made after reading this article. The information contained below is for informational purposes only. CFDs are complex instruments, therefore adequate knowledge is required before making any investment. Thank you for your kind attention!
In addition to looking for these patterns in a certain time frame, it’s wise to look for patterns with a higher time frame in search of typical configurations that precede a reversal or a recovery of the price action.
So, let me show you the three most used ones that historically showed more reliability for the most successful traders. Those investors who have built large capitals!
Wedge
The wedge pattern is a signal that may indicate a market reversal or that the price continues in the main direction.
Many traders use this pattern to understand where the market will go and, if this signal is strong enough, you can go against the dominant trend.
To be valid, the price drop must occur in the opposite direction of the main trend.
Two decreasing highs and two increasing lows are enough to trace this figure.
When the wedge starts to shrink it can be an indicator of trend reversal.
Flag
Flags are considered the most profitable technical patterns of the group.
They are easily identified and are quite common!
This pattern consists of a simple rectangle that shows a trend opposite to that of the trend and is constructed using two parallel trend lines: one of the main conditions to authenticate this configuration is that the price must rise or fall considerably before the pattern is formed.
This type of configuration offers a great opportunity for entry and a very low risk. But what does this figure mean?
After the phases of strong price increase, the pattern was formed in the opposite direction to the trend (bullish). These increases indicate that buyers have taken control of the market and are starting to profit from their operations. The consequence is a return of sellers that cause a short-term trend opposite to the principal. The strength of the buyers, however, is stronger and, as soon as they get back into the action, the main bullish trend regains its strength.
Triangles
The types of main triangles are three:
• Symmetrical;
• Descendants.
• Ascending;
Symmetrical :
The symmetrical triangle is a continuation pattern. When broken, the price continues in the direction of the dominant trend.
We expect the price, once the pattern is broken (breakout), to continue in the direction of the main trend.
Descendants:
To get a descending triangle we need a descending line and a horizontal one. The descending line is traced passing from two decreasing highs, while the horizontal line connects two decreasing lows.
After the breakout the price goes down for a while, retesting the resistance and then resuming the descent following the dominant bearish trend.
The logic behind these technical patterns reveals that the sellers are lowering the price and the buyers meet the support line until the pattern breaks, where the sellers win the battle.
Ascending :
The ascending triangle is similar to the symmetrical one. You need to have two lines, one vertical and one horizontal to create it.
It forms during a bullish phase, when the pattern is broken the price goes up.
This figure shows that buyers are stronger than sellers , sellers face the resistance and price rises.
Since over time these figures have really shown a good win / loss ratio, you can use them to decide if and how to enter by always remembering to maintain a solid Money Management system, according to your trading rules, risk appetite and account size.
My Ace in the Hole: Auto-Recognizing Patterns TOOL!
Recognizing these patterns is not always easy, especially for fresh traders.
While seasoned ones make it “easy”, rookies often draw them incorrectly ending up losing money because of bad entries and inaccurate timing.
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Below I have uploaded some photos to show you the validity of this tool!
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