Chart patterns form an important part of day trading. Candlesticks and other charts often produce signals that cut through the noise of price action. The best patterns are those that can form the backbone of a profitable day trading strategy, be it trading stocks, cryptocurrency of forex pairs.
You have to choose between hundreds of trading opportunities every day. This is the result of a wide variety of factors affecting the market. Day trading patterns allow you to decipher the multitude of options and motivations – from the hope of profit and fear of loss, to short covering, stop-loss triggers, hedging, tax consequences and much more.
Candlestick patterns help by painting a clear picture and marking trading signals and signs of future price movements. Although it is said that you need to use technical analysis to succeed in day trading with candlestick and other patterns, it is important to note that using it to your advantage is more of an art form than a rigid science.
You learn the power of card patterns and the theory that governs them. This page shows you how to profit from the most popular day trading patterns, including statements and reversals. Your ultimate task is to identify the best patterns to complement your trading style and strategies.
Use in day trading
Using correct trading patterns can add a powerful tool to your arsenal. This is because history has a habit of repeating itself and the financial markets are no exception. This repetition can help you identify opportunities and anticipate potential pitfalls.
RSI, volume, plus support and resistance levels all help in trading your technical analysis. But stock pattern patterns play a crucial role in identifying breakouts and trend reversals. Mastering the art of reading these patterns will help you make smarter trades and amplify your profits, as highlighted in the very popular ‘Stock Patterns for Day Trading’ by Barry Rudd.
Breakouts & Reversals
In the patterns and tables below you will see two recurring themes, expositions and reversals.
- Breakout – A Breakout is simply when the price clears a specific critical level on your chart. This level can be any number of things, from a Fibonacci level, support, resistance or trend lines.
- Reversal – A reversal is simply a change in the direction of a price trend. The change can be positive or negative against the prevailing trend. You may also hear it called a ‘rally’, ‘correction’ or ‘trend reversal’.
On this page, you’ll see how both play a role in numerous cards and patterns. You can also specific reversal and tempo strategies.
Candlestick Charts
Candlestick charts are a technical tool at your disposal. It consolidates data within given time frames into single bars. Not only are the patterns relatively simple to interpret, but trading candle patterns can help you gain that competitive edge over the rest of the market.
They are originally from the 18th century, where they were used by Japanese rice traders. Since Steve Nison introduced them to the West with his 1991 book ‘Japanese Candlestick Charting Techniques’, their popularity has grown.
Below is a breakdown of three of the most popular candlestick patterns used for day trading in India, the UK and the rest of the world.
Shooting Star Candlestick
This is one of the first things you see when you open a candlestick patterns pdf for trading. This live reversal candlestick indicates a peak. It is the exact opposite of a hammer marker. It will only form until at least three subsequent green candles have materialized. This will indicate an increase in price and demand. Buyers usually lose their cool and complain about raising the price before they realize they paid too much.
The upper shadow is usually twice the size of the body. This tells you that the last buyers traded buyers, just as those who took a profit disposed of their positions. Short sellers then usually force the price to the end of the candle, either near or below the open. It notices the late arrivals which pushed the price high. Panic often sets in at this point, as the latecomers quickly abandon their positions.
Doji Candlestick
One of the most popular candlestick patterns for trading forex is the doji candlestick (doji indicates indecision). This reversal pattern is either bearish or bearish depending on the previous candles. It will have almost or the same open and close price with long shadows. It may look like a cross, but it may have a very small body. You will often get an indication of which way the reversal of the previous candles is going.
If you see that previous candles are bearish, you can expect the next one near the bottom of the body to trigger a short/sell signal when the low of the Doji breaks. After that, you see trails stop above the doji highs.
Alternatively, if the previous candles are bearish, the doji is likely to form a bullish reversal. Above the candlestick high, long triggers usually form with a route directly below the doji low.
These candlestick patterns can be used to day trade forex, stocks, cryptocurrencies and any number of other assets. But using candlestick patterns to trade interpretations requires experience, so practice on a demo account before putting real money on the line.
Candlestick for hammer
This is a bearish candlestick for reversal. You can use this candlestick to determine capitulation bottles. This is then usually followed by a price bump, allowing you to enter a long position.
The hammer candlestick forms at the end of a downtrend and indicates a price bottom at the right time. The lower shadow is made by a new low in the downtrend pattern which then closes again near the open. The tail (lower shadow) should be at least twice the size of the actual body.
The tails are those that stopped when shorts started to cover their positions and those looking for a bargain decided to go celebrate. Volume can also help make the candle at home. To be sure it is a hammer candle, look where the next candle closes. It should close above the hammer markers.
Trading Japanese candlestick patterns has become increasingly popular in recent decades, due to the easy information they provide and can be easily obtained. This makes them ideal for cards for beginners to get familiar with.
More popular day trading patterns
Morning consolidation pattern
Many successful traders have cited this pattern as a major contributor to their success. Watch out for: At least four bars moving in one compelling direction. After reaching a high or low of number one, the stock consolidates for one to four measures. The high or low is then exceeded by 10:10.
It is easy to see why this pattern is popular with the active day trader. First, the pattern can be easily identified on the map. Second, the pattern comes to life in a relatively short amount of time, so you can set things up quickly.
The pattern follows a strong gap, or a number of bars move in only one direction. This means you are definitely in a stock with volatility, an essential component to making an intraday profit.
Late Consolidation Pattern
It is often challenging to turn a profit as the day progresses, and it is probably no surprise to learn that perfecting this trading pattern is not easy. In the late consolidation pattern, the stock will continue to rise towards the end of the market.
Watch out for: Traders entering after 1pm followed by a significant break in an already long trendline. Look at the trend line that started earlier the same day or the previous day. Ultimately, you should look out for at least four consolidation bars going before the endurance run.
There are some clear advantages to using this trading pattern. The stock has all afternoon to run. So instead of the hectic morning where you can’t miss a beat, you have the time to kick back and watch the play unfold. Moreover, technical techniques will work better as the catalyst for the morning movement has dampened.
Stock Patterns
Few markets are as fiercely competitive as the stock market. This is all the more reason if you want to succeed in trading to use chart stock patterns. If you look at a series of share price actions over a period of time (intraday), you will be in a better position to predict how they will behave in the future.
Use price action
Many strategies that use simple price action patterns are mistakenly thought to be too basic to produce significant profits. Still, price action strategies are often simple to use and effective, making them ideal for beginners and experienced traders alike.
Simply put, price action is how price is likely to react to certain levels of resistance or support. Using price action patterns from pdfs and charts will help you identify both swings and trends.
Whether you trade stocks or forex with price patterns, these easy strategies you can follow can be applied anywhere.
Zone strategy
So how do you get started trading short-term price patterns? If you are downloading a pdf, you will probably use a ‘zone strategy’. An obvious bonus to this system is that it creates simple charts, free of complicated indicators and distractions.
Dead Zone
This empty zone tells you that the price action is not going anywhere. There is no clear upward or downward trend; the market is on the right track. If you want big profits, you need to avoid the dead zone completely. No indicator will help you make thousands of pips here.
The Red Zone
This is where things get a little interesting. Once you’re in the red zone, the end goal is in sight, and that hundred pip winner is within reach. For example, if the price hits the red zone and goes beyond, it means you want to buy. This can give you higher highs and be an indication that this will become an uptrend.
This will likely be when the sellers take possession. If the price hits the red zone and goes to the downside, a price sell could be on the cards. You have new lows and a suggestion that this will become a decline.
The End Zone
This is where the magic happens. With this strategy, you want to consistently get from the red zone to the end zone. Draw rectangles on your maps as in the example. Then just trade the zones. If you draw the red zones anywhere 10-20 pips wide, you will have the price do its usual retracement before driving to the downside or upside.
Outside bar against resistance or support
You will see a running outside bar if yesterday’s low has been exceeded, but the stock price is still rising and closes above yesterday’s high. If the complete opposite price action took place, you would have yourself the perfect example.
Unfortunately, it’s not as simple as identifying a candlestick from the outside and then just trading it. It is wise to find an outside day after a major break of the trend.
Spring in support
Spring is when the stock tests the low of a range, but then quickly comes back into the trading zone and makes a new trend. One common mistake traders make is waiting until the last swing hour is reached. As you’ve probably realized, trading setups usually don’t meet your exact requirements, so don’t think about it.
Little to no price fixing
Simply put, minor retracement is evidence that the primary trend is strong and likely to continue. Forget about coughing at the various Fibonacci retracement levels. The most important thing to remember is that you want the retracement to be less than 38.2%. This means that even if today’s asset tests the previous swing, the breakout is more likely to hold or continue in the direction of the primary trend.
If you are trading with price patterns, you can try any of these strategies. Find the one that suits your individual trading style. Remember that the best trading patterns are often not overly complicated, but paint a clear picture with minimal indicators, reducing the likelihood of mistakes and distraction.
Consider time frames
When you start trading your short term price patterns pdf it is essential that you also consider timeframes in your calculations. In your market, you will find a number of time frames that exist simultaneously. This means that you may find conflicting trends within the particular asset you are trading. Your stock may be in a primary downtrend while also in a short-term uptrend.
Many traders make the mistake of focusing on a specific time frame and ignoring the underlying influential primary trend. The longer the time frame, the more reliable the signals. If you reduce your time frames, you will be distracted by false movements and noise.
Many traders download examples of short-term price patterns but do not look at the underlying primary trend, do not make this mistake. You should trade 15-minute charts, but use 60-minute charts to define the primary trend and 5-minute charts to define the short-term trend.
Finishing
Our understanding of chart patterns has arrived since the first work in 1932 of Richard Schabacker in ‘Technical Analysis and Stock Market Profits’. Schabacker then argued: “A general stock chart is a combination of innumerable different patterns and its accurate analysis depends on constant study, long experience and knowledge of all the fine points, both technical and fundamental…” there you have to careful analysis remember and sustained practice is necessary to fully utilize their benefits.