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Whether you’re a day trader, a swing trader, or are into options trading, one thing you’ll always need to know is the meaning and significance of trading chart patterns. These patterns are an essential part of every trader’s analysis strategies to reduce the risk of losses and increase potential profits.
It’s safe to say that trading chart patterns are significant for traders, regardless of how experienced and well-versed they are in the current financial markets. It’s because these patterns provide you with a clear overview of market trends that you can easily use to predict stock movements and place your trades accordingly. Whether you’re evaluating share prices, foreign currencies, or stocks, trading chart patterns should be able to give you what you’re looking for.
There are various trading chart patterns that give you a clear message when you know how to perceive them. In other words, it’s crucial to be able to identify different chart patterns and what they’re trying to tell you as a trader. If you’re developing your options trading strategy, here are three trading chart patterns you should be able to identify.
One of the most common trading chart patterns is a double top. The best way to identify it is by looking for an M-shaped chart. If you’re able to figure it out, you’ll be able to observe a trend that reverses eventually after being unable to get through the stringent resistance level a couple of times.
According to these trading chart patterns, you should be able to see how the price trend falls back to the initial threshold after failing to begin an upwards trend.
Double bottom is the complete opposite of a double top trading chart pattern. As a result, it often indicates a W-shaped trend. In this trading chart pattern, you’ll notice that the price tries to get through the support level twice but fails to do so twice.
It’s the reversal of the double top where the price eventually adopts an upward trend by being unable to break through support.
Another popular continuation trading chart pattern to know about is the ascending triangle. The converging triangle lines indicate a price breakout in trades. The ascending line indicates a price uptrend, while the horizontal line shows the extent of existence as the trend goes through the support levels.
