What is the best chart pattern to trade? There is a lot of confusion when you first start trading because everywhere you find different books and websites that claim different stock patterns or technical indicators are the best. How is a new trader going to know what the best chart pattern to trade really is with so many different opinions on the subject? In my 20+ years of stock trading experience, these are the best chart patterns to trade.
Best Chart Pattern To Trade
Double Top Chart Pattern
The Double Top chart pattern marks a tough area of resistance that Bulls failed to penetrate twice. Be-careful trading this chart pattern because the double top is not very reliable. Bulkowski estimates the double top predicts a trend reversal only 35% of the time. I prefer the Triple Top chart pattern to the Double Top pattern.
Triple Top Chart Pattern
The Triple Top chart pattern is really demoralizing for Bulls. It means that a level of resistance is so tough, that Bulls tried not once, not twice, but three times to break through the resistance level but each time they were defeated by the Bears. Bears gain confidence that Bulls can no longer keep taking the stock higher and so they pile in and the stock usually plunges lower.
Island Top Chart Pattern
The Island Top chart pattern can be 1 day or more. The opposite of the Island Top Chart Pattern is the Island Bottom Chart Pattern. Island chart patterns are sometimes referred to as a Bearish Island or Bearish Island Reversal (Island Top), and a Bullish Island or Bullish Island Reversal (Island Bottom). These are wicked chart patterns that strand either Bulls or Bears on an island and the only way off is to book massive losses.
Long Lower Shadow Chart Pattern
This is my favorite chart pattern to trade for huge profits. Some call this chart pattern a “flush”. It is a capitulation move by bulls who finally are squeezed out of a stock. Their panic selling causes the daily range on the stock to explode. The stock gets too cheap and within minutes, bargain hunters have stepped in to buy the bottom in anticipation for the next swing move up. The volume should drop off before the long lower shadow chart pattern appears.
Doji Chart Pattern
The doji chart pattern represents indecision by either Bulls or Bears that they can continue to take the stock either higher or lower. The doji is a favorite chart pattern to trade for swing traders as it often signals a swing in the opposite direction. It is sometimes called a spinning top chart pattern.
Oversold Chart Pattern
The oversold pattern is the best chart pattern to trade of any pattern. Many times, the Long Lower Shadow or Doji chart patterns lead to explosive gains because they are inside a larger oversold chart pattern. There should be a history of the stock bouncing off the oversold support level on the chart. The oversold chart pattern is swing trader Jason Bond’s favorite pattern to trade.
Continuation Chart Pattern
The continuation chart pattern can lead to monster profits because these patterns continue for an extended period of time. It is one of my favorite day trading chart patterns as well. It can be a series of higher lows, higher highs, and even a consolidation or sideways move before a breakout.
Breakout Chart Pattern
The breakout chart pattern is my least favorite pattern because you are always chasing. Nevertheless, a breakout above resistance can be very profitable even if you are a little late to the Bull party. Breakout chart patterns are more accurate in a trending market (i.e. buy high and sell even higher). In the chart above, notice that often chart patterns will go through three stages: oversold, continuation, and breakout.
Frequently Asked Questions about Chart Patterns
What Is the Best Chart Pattern To Trade
Folks, I’ve been trading for nearly 20 years and I’m going to tell you, hands down, without a doubt, what I think the best chart pattern to trade really is.
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