How to Identify and Trade Quality Chart Patterns

Trading based on technical chart patterns can be incredibly effective — if you know how to spot high-probability setups. Not all chart patterns are worth trading. As a trader, you need to learn how to evaluate and select only the best patterns to boost your edge.

In this post, we will teach you a strategic process for analyzing chart patterns and filtering only those quality setups with optimal risk/reward. Let’s explore how to identify strong chart patterns, trade them effectively, and improve your technical trading skills.

Evaluating Chart Pattern Quality

The first key step is knowing how to discern high quality chart patterns worth trading from the bad. Check for these characteristics in a valid setup:

• Well-defined structure — Clean patterns, not sloppy.
• Volume confirmation — Increased volume on breakout.
• Successful support/resistance test — Respects key S/R levels.
• Measured move completion — Hits pattern height target.
• Sharp breakout — Decisive, not weak and gradual.

Apply these criteria to weed out low-quality patterns. Spend time studying examples of ideal chart patterns in real charts.

For more on evaluating patterns, see our complete guide to chart pattern analysis.

High Probability Chart Patterns

Now let’s discuss some of the best chart patterns to focus on with the highest probability of success:

Bull Flags — Continuation patterns in a strong uptrend. Watch for consolidation then upside breakout with momentum.

Double Bottoms — Reversal patterns signaling a bottom with two swing lows. Look for break above resistance.

Cup and Handles — Rounding bottom followed by consolidation. Reliable bullish breakout pattern.

Always combine chart patterns with other technical indicators for added confirmation. Volume, moving averages, and momentum oscillators can boost conviction.

For chart examples and trading strategies for top patterns, see our beginner’s guide to profitable chart patterns.

Trading Chart Patterns with an Edge

Simply recognizing chart pattern structures is not enough — you must also trade them strategically. Follow these chart pattern trading rules to boost your edge:

• Find patterns only on daily/weekly timeframes — ignore intraday noise.
• Wait patiently for decisive support/resistance breaks before entering.
• Use tight stops below recent swing lows to limit risk.
• Book partial profits at measured move targets, let remainder run.

Learn more tips and strategies for effective chart pattern trading in our free trading course. Sign up to access the lessons now.

A Strategic Selection Process

Follow this process to scan, filter and select only the best chart pattern setups:

Step 1: Scan for instruments in strong trends up or down.

Step 2: Identify quality patterns forming in direction of larger trend.

Step 3: Analyze patterns using the evaluation criteria.

Step 4: Wait for high probability breakout entry triggers.

Step 5: Manage trades using stops and profit targets.

This structured approach will help you isolate the highest quality chart pattern opportunities worth trading.

Conclusion

Evaluating and selecting chart patterns effectively is a valuable skill for traders. Apply the chart pattern analysis process in this post to boost your technical trading accuracy and overall performance. Consistently seek out and trade only those patterns with optimal risk/reward alignment.

To learn more trading education for beginners, be sure to check out the ExNews Trading Channel which offers courses, tutorials, tips and more!