Do you still feel Stuck in Trading Block? Now there’s a shortcut of understanding chart patterns. Chart patterns is crucial for anyone seeking to grow into a professional in the stock market. And this post is especially for you if you’ve run out of trading ideas or are experiencing a traders’ block. Today, we’ll look at the top 10 chart patterns that every trader should be aware of and how to recognize them quickly.
Price movement over time results in the creation of chart patterns, which can be of two types: Continuous patterns, which indicate that price movement will continue in the trend’s direction, and Reversal patterns, which indicate that the trend may be changing.
Breaking Free: Chart Patterns to Overcome Feeling Stuck in a Trading Block
Do you ever find yourself feeling stuck in a trading block, unsure of your next move in the dynamic world of the stock market? It’s a common challenge that traders of all levels face, but there’s good news – a shortcut to understanding chart patterns can help you break free and regain your trading momentum.
In this post, specifically designed for those who have run out of stock trading ideas or are experiencing traders’ block, we’re going to delve into the world of chart patterns.
1. Head and Shoulders Pattern: Understand When Stuck in Trading Block
After an uptrend, the head and shoulders pattern emerges as a trustworthy reversal pattern. The name of the pattern refers to how it resembles a head and two shoulders. The head is taller, and the left and right shoulders are usually at or near the same price level. A bearish reversal is indicated when the price crosses below the neckline.
Watch alert for the following progression:
- Left shoulder: A price increase, a peak, and a subsequent decrease.
- Head: A new price increase that creates a peak that is higher than the prior one.
- Right shoulder: A price fall that is followed by a rise that creates the right peak—which is lower than the head—marks the right shoulder.
For instance, to see how price movement occurred from the months of August 2019 to February 2020, generating three peaks in the sequence we just mentioned, look at the chart pattern for TCS below.
2. Inverse Head and Shoulders
The head and shoulders pattern’s antithesis is known as the reverse head and shoulders pattern. It emerges following a downward trend and denotes a bullish turn. The head is lower, and the left and right shoulders are usually at or near the same price level. It signifies a bullish turn around when the price crosses above the neckline.
As a demonstration, the movement of the stock SRF Limited is shown below. It is evident to figure out that after forming an inverse head and shoulder, the stock turned bullish and increased by 300 points from the lowest high, reaching a price level of 2490.
3. Flag and Pennant
Pennant and flag patterns are continuation patterns that emerge after an extensive price shift. A sharp price move followed by a consolidation phase, often in the shape of a rectangle, is what defines a flag pattern. Usually more triangular in design, the pennant pattern resembles the flag pattern. A continuation of the prior trend becomes apparent when the price exits the flag or pennant.
For example: Take Titan’s price trend from May 2020 to November 2022, as an illustration. After a sharp spike in prices in 2020, we anticipate a price consolidation for the first half of 2021. then another increase from June 2021 to November 2022. This aggregation of rectangles resembles a flag.
4. Overcoming Being Stuck in a Trading Block with Trend Lines
Traders use a trend line, which connects two or more price points in a straight line, to determine the direction of a trend. Joining two or more declining highs forms a downtrend, while joining two or more ascending lows creates an uptrend.
As a demonstration Take a look at HDFC as an illustration, which exhibits both an uptrend and a downturn at various points in time.
1. Uptrend
2. Downtrend
5. Breaking Free from a Trading Block with the Trend Channel
By tracing parallel trend lines above and below the price movement, a trend channel is created. While the lower trend line connects the lows, the higher trend line joins the highs. A channel for a bullish trend slopes upward, while a channel for a negative trend slopes downward.
When estimating the potential profit from a trade, it’s essential to take into account the stock’s volatility. On stocks with humble volatility, the trading channel strategy tends to work better. I hope now you don’t feel stuck in a trading block? There’s lot more to come yet.
For instance, Take a look at HDFC once more. Below it is an upward channel.
6. Ascending Triangle
When the price action consolidates into a triangular shape, triangles are continuation patterns that are formed. A horizontal resistance level and an ascending trend line merge to create an ascending triangle.
A long trade initiates when the price breaks above the pattern’s top, while a short trade commences when the price breaks below the pattern’s lower trend line.
7. Descending Triangle
A vertical resistance level and a falling trend line combine to form a triangle. Two trend lines that are converging and none of which is horizontal lead to a symmetrical triangle.
By starting a short position when a descending triangle pattern appears, traders might profit from a breakdown.
8. Double and Triple Tops and Bottoms
When the price is unable to go past a specific point of support or resistance, double and triple tops and bottoms might develop. Two price peaks at or near the same level, separated by a trough, comprise a double top. Three price peaks at or near the same level, interrupted by two troughs, make a triple top. The top patterns are the opposite of a double bottom and triple bottom.
Here is an illustration of a double top that is developing on HUL and might signal a bearish movement if the price dips below the support level in the coming days.
9. Cup and Handle
The cup and handle pattern forms when price consolidates into a cup shape, followed by a handle, signaling a bullish continuation. The breakout from the handle is expected to continue the preceding rise.
Take a peek at the HDFC chart from 2022, for instance, which had a cup-and-handle formation before the uptrend continued.
10. Rectangle
A rectangle pattern forms when the price fluctuates between two horizontal support and resistance levels. A string of nearly equal-priced highs and lows characterizes the pattern.
Here is an idea of a rectangle that will be on Bharti Airtel in 2021.
The chart patterns we studied are the most well-liked instruments in a trader’s toolbox, and mastering the stock market necessitates an in-depth knowledge of chart patterns. For the best results, always apply chart patterns in conjunction with other technical analysis tools. So now stop feeling stuck in a trading block and try these amazing tools.
Written by: Maitripushp Barotia | Content Writer at Intown Infotech
Disclaimer: Before investing, please read all pertinent documentation as investments in the securities market are subject to market hazards. This information is provided solely for educational purposes and should not be construed as advice or a suggestion.