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Important Chart Patterns
Alex

LEVEL 10 : SENIOR

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#2266

Alex

September 29, 2015 at 4:27 pm

Alright, guys so now that we have covered the Basic Candlestick Patterns in the previous article, we can move on to Chart Patterns. Chart Patterns play a huge role in technical analysis. The patterns are great to identify possible breakout points in the market. The patterns that we are going to discuss can indicate whether the price will continue in the same direction or if the market will reverse. Remember, that it doesn’t necessarily mean that this or that will happen for sure when a certain pattern forms. We make use of these patterns to identify possible opportunities and high probability trades.

Chart Patterns

DOUBLE TOP AND DOUBLE BOTTOM

A double top will indicate a potential reversal point at the end of an extended move up. The market will hit a solid resistance level that it could not break through. Prices will come down and then the buyers will give it another go to break the level. When you see that prices are being rejected again, you now have a Double Top in the making. This is a classic sign of bullish exhaustion. After you have identified this pattern, you can start looking for selling opportunities. The easiest way to spot Double Tops is to look for an “M” shape on the charts.

chart-pattern

Double Top Pattern

The Double Bottom is exactly the same as the Double Top. It is also a trend reversal formation, but the difference is that it will appear in a downtrend and not an uptrend. A Double Bottom will form when the bears are exhausted. The first and second bottom will both form a valley or a “V” shape. If you are looking to spot Double Bottoms you should look for a “W” shape to form. You need to start looking for buying opportunities when you recognize this pattern.

chart-pattern

Double Bottom Pattern

HEAD AND SHOULDERS AND INVERSE HEAD AND SHOULDERS

This is yet another bullish exhaustion pattern. As the name suggests, the chart pattern consists of a shoulder (peak), followed by a head (higher peak), and then another shoulder (lower peak). The neckline is drawn by connecting the two points on the other side of the Head and Shoulders. The angle of this neckline can be up or down. The signal will be stronger when the angle of this neckline is down. After a Head and Shoulders pattern has appeared you should be looking to sell.

Chart-pattern

Head and Shoulders Pattern

The name speaks for itself. This pattern is exactly the same as the above Head and Shoulders pattern, except this time it is just upside down. The head will now just be lower than the two shoulders. You will have a stronger signal if the slope of the neckline you have drawn is pointing up. When you identified an Inverse Head and Shoulders, you should start looking for buying opportunities.

Chart-pattern

Inverted Head and Shoulders Pattern

ASCENDING AND DESCENDING TRIANGLE

The Ascending Triangle pattern appears when prices have hit a resistance level that the buyers are struggling to break through. The buyers are still managing to make higher lows. Due to this compression of price, a breakout is bound to happen if they keep on putting pressure on this level. The question is which direction will it break out? Will the buyers be able to break the resistance level or will sellers decide to take over and bring prices down? In most cases, the buyers will win this battle and prices will break through the resistance level. However, there is always a chance that prices can reverse. The point I am trying to make is that you should be ready for movement in either direction.

chart-pattern

Ascending Triangle Pattern

A Descending Triangle appears when price is making lower highs, but sellers are struggling to get through a support level. Most of the time the price will break out to the downside, but there is always a chance of it going in the other direction. Big hedge funds like to play games at critical points like these so be wide awake when you are trading these breakouts.

chart-pattern

Descending Triangle Pattern

BEARISH AND BULLISH RECTANGLE

A Rectangle pattern is formed when price is stuck between a support and resistance level. Neither buyers nor sellers have enough power to break through one of these levels. This happens when there is a period of consolidation or indecision in the market. The price can touch these levels numerous times before finally breaking out. Price will generally start trending in the direction of the breakout. You can either trade the support and resistance levels formed by the rectangle, or you can wait until the market has broken out of the box.

A Bearish Rectangle is created in a downtrend. The consolidation in price will usually happen because sellers are taking profits. During this time, sellers will have a chance to catch their breath and place new sell orders.

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Bearish Rectangle Pattern

Bullish Rectangles are seen in an uptrend. Price will consolidate before it breaks out and carries on with the original trend. Remember that the market could also reverse so make sure you find a way to trade these setups that work for you. If I traded this particular pattern, I would wait for price to break out of the rectangle and then I will take a buy on the pullback.

chart-pattern

Bullish Rectangle Pattern

BULLISH AND BEARISH FLAGS

Flags are great to trade with the momentum of the trend. A Bullish Flag will develop in an uptrend when the price makes a small countertrend channel. This pullback within the uptrend will create, what is known as the “flag”. The pattern will be complete when the price breaks out of this channel. When this happens, you will have a perfect opportunity to buy.

chart-pattern

Bullish Flag Pattern

Bearish Flags are exactly the same as the Bullish Flags. They will occur in downtrends. After the bears have taken some time to rest during the consolidation, they will continue down with the trend. Look for selling opportunities after the channel has broken.

chart-pattern

Bearish Flag Pattern

Conclusion

Wow, we have just gone through a whole lot of different chart patterns. It will take a good amount of time to be able to spot these patterns during live market conditions. If I were you, I would go back on my charts to see if I can spot a few of each. Look at what happened after the patterns formed and how you would have traded them. It’s tough to tell whether the market will break out or reverse. If you want to increase your odds of success, wait until the pattern has completed. Trade the pullback after the breakout or reversal with the use of Candlestick Patterns and price action. Never take a trade blindly, always look for some kind of confluence or confirmation.

Dennis BIG D

LEVEL 7 : QUALIFIED

REVIEWS 38 | REPLIES 23

#2293

dennis

September 30, 2015 at 6:21 pm

Hi Members – BIG D here!

A great follow up article to the candle patterns article that was so popular by demand. This can not only be used for Binary Options, but for Spot Forex as well. This is like your bread and butter right here guys! Don’t forget to get active and post your comments, replies and any questions you may have.

We always value feedback 🙂

Regards,
BIG D

Conception Lo

LEVEL 1 : NEWBIE

REVIEWS 7 | REPLIES 2

#2394

lolobinary

October 1, 2015 at 12:18 pm

Very informative article… Thanx Alex!

Sheba Woullard

LEVEL 1 : NEWBIE

REVIEWS 7 | REPLIES 2

#2395

101sheba101

October 1, 2015 at 2:26 pm

Flags work really well for binary options. They normally don’t take very long to develop so it is easy to trade them.

Head and shoulders pattern, on the other hand, takes a little longer to develop. That is why I choose to trade them with my spot forex trading account by making use of limit orders. The other great thing about them is that they will usually create quite a large move up or down after it has formed.

Happy Trading

 

Tiffani Machado

LEVEL 1 : NEWBIE

REVIEWS 6 | REPLIES 2

#2401

tiffs

October 1, 2015 at 10:03 pm

Hey Sheba. I also prefer Flags and I love trading the breakout of the Rectangular boxes. It gives some very good trades once it has broken out of the range. It can take a while but it sure is worth the wait.

Zenaida Gertner

LEVEL 1 : NEWBIE

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#2414

zenzen

October 2, 2015 at 2:34 am

It’s funny how everyone likes trading flag patterns. I think that this could be the reason why it works so well. Everybody puts in their buy or sell orders when they see a flag and this is what pushes the market in the right direction.

Devon Hippert

LEVEL 2 : NOVICE

REVIEWS 8 | REPLIES 5

#2421

cashin

October 2, 2015 at 1:43 pm

I have never really thought of trading chart patterns with binary options. I think it is time to step up my game and incorporate them into my trading plan. Looks like I should start off with flag pattern based on your guys’ comments.

Ifa-fx.com

LEVEL 1 : NEWBIE

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#3271

Ifa-fx.com

April 14, 2016 at 5:19 pm

Very informative post thank you for your tips and advice Alex!

one_jon

LEVEL 1 : NEWBIE

REVIEWS 1 | REPLIES 3

#3499

one_jon

August 1, 2017 at 12:30 pm

Cool post, thanks a lot!

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