Main Groups of Chart Patterns
It’s not enough to just know how the tools work; we’ve got to learn how to use them.
Reversal patterns indicate that an important reversal in the trend is taking place. To trade these chart patterns, simply place an order beyond the neckline and in the direction of the new trend. Then go for a target that’s almost the same as the height of the formation. In the interest of proper risk management, don’t forget to place your stops.
Continuation Chart Patterns
Unlike reversal patterns which indicate a change in the trend, continuation patterns actually show that there is a temporary pause in the trend where prices consolidate after a big move. To trade these patterns, simply place an order above or below the formation then go for a target that’s at least the size of the chart pattern for wedges and rectangles.
Bilateral Chart Patterns
This is a chart pattern that signals that the price can move either way. To play these chart patterns, you should consider both scenarios (upside or downside breakout) and place one order on top of the formation and another at the bottom of the formation.