Classical Chart Patterns: Every Trader should know

Nilesh Dwivedi
Coinmonks
Published in
5 min readJan 24, 2023

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In this article we will talk about classic chart patterns that you can use in trading with examples

The price change of an asset happens due to supply and demand. And as a result, the price starts moving in a specific pattern on a chart.

The chart patterns are tools that traders use to enter and exit a trading position. It’s important to understand how these chart patterns work. In this article we’re going to discuss:
Different types of chart patterns and how to trade them?

Classic chart patterns are divided into two categories. -
Trend reversal chart patterns -Trend continuation chart patterns

Further, these patterns can be identified as bullish and bearish. A potential buy indication is provided by bullish chart patterns, and a potential sell signal is provided by bearish chart patterns. It depends on the breakout of the pattern.

Ascending triangles act as a bullish pattern. They can play both as a reversal and a continuation.

Descending triangles act as a bearish pattern. They can play both as a reversal and a continuation.

Symmetrical triangles forms during a price consolidation. The direction of the target is decided after the breakout. This pattern is neutral, neither bullish nor bearish. -It can play both as a reversal and a continuation.

The diamond pattern acts as a trend reversal pattern. For both the bullish trend & the bearish trend.

Double Bottom & Double Top -Double Top forms after an uptrend. And double bottom forms after a downtrend. -Both are trend reversal patterns.

Falling wedge & Rising wedge -Falling wedge acts as a bearish reversal & rising wedge acts as a bullish reversal. -They can be both trend reversal or trend continuation.

Flags and pennants -These are continuation patterns. Bullish for an uptrend and Bearish for a downtrend.

Head and Shoulders & Inverse Head and Shoulders These are reversal patterns, which form at the end of a trend.

Broadening wedges -These are continuation patterns. Bullish for an uptrend and Bearish for a downtrend.

Rounding bottom & top

How to trade chart patterns?
Pattern confirmation
Evaluating the risk/reward ratio
Opening the position based on price action

For example:
1. Understand the trend and draw the pattern correctly.
2. Confirm the pattern with volume.
3. Evaluate the RR.
4. Enter the position after the breakout with proper stop-loss and target.

Let’s take an example using each pattern. # Ascending triangle

# Descending triangle

# Symmetrical triangle

Double Bottom/Double Top Double top in play!

Falling wedge/Rising wedge Falling wedge in play!

Flags/Pennants Bull Flag in play!

Head and Shoulders

Next step for you is to practice all these patterns as much as you can. You can save this article for your future reference

Note: Chart patterns are not completely trustworthy even though they offer tempting trade signals. Thus it is vital to practise risk management when trading them.

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Published in Coinmonks

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Nilesh Dwivedi
Nilesh Dwivedi

Written by Nilesh Dwivedi

Technical Analyst | Swing trader | Crypto | Options | Forex | Not Financial Advisor, Articles are for education purpose

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