Time ▾ Price ▴ Research: The 8 Most Common Chart Patterns & How to Trade Them

Monday, May 20, 2024

The 8 Most Common Chart Patterns & How to Trade Them | Aksel Kibar

I've simplified classical chart patterns to the most basic/common 8 patterns. I think most new patterns are derived from those basic ones. Our brains' pattern recognition is not that advanced to focus on so many derivatives. In fact better success can be achieved by narrowing down the below to select few.

There are 3 Types of Triangles: The symmetrical triangle, the ascending triangle and the descending triangle. Between those three I favor ascending and descending triangles for couple of reasons. One of them is, both ascending and descending triangles have horizontal boundaries. Breakouts through the horizontal boundaries are the chart pattern signal. The other reason is that, both ascending and descending triangles have directional bias due to their upward and downward sloping lower and upper boundaries. I find symmetrical triangles difficult to trade as price usually finds resistance at the minor highs following the breakout. Pause around minor resistance usually hampers the momentum and can result in more frequent failures. A symmetrical triangle has both boundaries converging towards an apex. It is a neutral chart pattern and doesn’t have a directional bias.

» The Head and Shoulder Continuation (H&S Continuation) is one of my favorite chart pattern. «

There are 4 Types of Breakouts:

Type 1 Breakout = Breakout without any Re-Test/Pullback.
Type 2 Breakout = Breakout with a Re-Test/Pullback.
Type 3 Breakout = Breakout followed by hard Re-Test of Pattern Boundary.
Type 4 Breakout = Failed Breakout - Price fails to continue in the breakout's direction and instead reverses.

Breakout Type 1, Type 2, and Type 3 Summary.

Head & Shoulder Top Failure acting as Bullish Continuation.

Cup & Handle as a Continuation Pattern in an Uptrend.

Rectangle as a Continuation Pattern in an Uptrend.

Symmetrical Triangle as a Continuation Pattern in an Uptrend.

Several Bullish Chart Patterns in an Uptrend.

Rectangle Bullish Reversal.

Rectangle Bullish Continuation.

The latest stats on pattern reliability: Rectangle continues to lead. With good risk management Type 1 & Type 2 breakouts offered edge with pattern signals.