How To Trade Chart Patterns - Part 1

Chart Patterns are one of the oldest forms of Technical Analysis. They are present in price of countless commodities and stocks since the beginning of the 20th century - and their long-lasting abilities emphasize their power in predicting trends and providing strong trading signals.

However, despite the extensive coverage Chart Patterns have received, the knowledge of where and when to enter trades is still unknown to many traders. In this article you will learn the basics of trading, the Chartist Way.

Element 1: Support and Resistance lines
The most crucial element of chart trading is Support and Resistance lines. These are the foundations for almost any chart pattern, and should be studied and identified correctly.

Support and Resistance are levels in which price stops at, unable to break them. Example for Horizontal Support level:

Example for Horizontal Resistance level:

Every trading decision you will make should be based first on Support and Resistance. These levels existed since the beginning of stock markets and are of psychological nature, therefore not subject to changes in volatility or volume. Pay close attention to support and resistance in any security you trade.

Element 2: Candlestick Charting
Candlesticks are a Japanese form of Technical Analysis that works best in shorter timeframes. It incorporates identifying formations in candles to signal reversals or continuation of trends.

When trading Chart Patterns, candlesticks will be used to signal and time entries to trades. Once you spot an chart pattern, a support or resistance level, the candlestick will signal the exact time and place to enter a trade, and the exact place to position your stop loss. In the next articles we'll cover Candlestick Formations, and how to time trades with them.

Examples of Candlestick Formations: