Analyzing Stock Chart Patterns

Learning to day trade successfully also involves learning to analyze stock chart patterns. This is part of the technical analysis crucial to choosing securities to buy, sell or short. Charts, which are part of technical analysis, are arguably much easier – and certainly much quicker – to read than the information necessary for fundamental analysis, such as earnings reports. They do not require nearly as much skill to master, and technical analysis is more useful for short-term traders than information acquired via fundamental analysis.

Chart Pattern Analysis – Critical for Day Traders

The ability to analyze chart patterns is critical to day trading profitability. While a chart can’t predict future prices in any exact manner, it can point the way toward creating successful trades by identifying target prices and stop loss amounts. Chart pattern analysis is a tool for helping day traders make those needed fast trading decisions. They provide not only price and volume analysis, but show current market conditions. The patterns offer opportunities as they form and as they complete.

How Charts Aids Trading

Charts can dramatically reduce the amount of time it takes a day trader to draw conclusions on buying and selling, compared with trying to analyze a stock without such a visual reference. Charting depends on a basic market fact: At any time, it’s trading either upward or downward. Charts warn day traders when the current trend is about to turn, so they can take advantage of that movement. Charting rules are relatively simple to comprehend, once the trader starts on her technical analysis education journey. Historical price action usually affects a stock’s future price movement. That’s where pattern recognition comes in, although no methodology is 100 percent guaranteed. Think of this pattern recognition, although swathed in technical jargon, as the kind of information you use on a daily basis. You probably plan outings based on daily traffic volumes. No one wants to get on the road for a non-essential task if they know they’ll get stuck in a traffic jam. Historically, you know when your local roads move smoothly and freely. Most of the time, you make the right choices, although exceptions like auto accidents or other emergencies can disrupt your pattern. Stock chart analysis aids trading in a similar way. It won’t always prove right, but being proved wrong is the exception rather than the rule.Every day trader needs a strategy for choosing their trades. There are various strategies available, and the best one for each individual trader is a personal choice. However, all day trading strategies rely on analyzing stock charts and recognizing certain patterns.

Head and Shoulders Pattern

The head and shoulders pattern does resemble a person’s right and left shoulders on either side of a higher “head” on the chart. This much used and trusted pattern predicts a trend reversal, whether bullish or bearish. When the head and shoulders pattern appears, it signals an upward trend will soon end. The three components of this pattern appear with the price rising, only to fall and form a trough. That’s the left shoulder. The price rises again more substantially, then declines. That forms the head. The third component occurs when the price rises once again, but only as high as the initial price. That forms the right shoulder. Once this occurs, odds are the bullish trend is over for the time being and a bearish trend will take place.
A downward trend that may soon reverse follows the opposite tack, with the head and shoulders pattern looking upside down. The pattern appears after the stock experiences three lows punctuated by rallies. This signals the bearish trend is waning and the bulls should soon dominate.

Flags and Pennants

These two patterns resemble each other, so some traders use the terms interchangeably. However, a flag appears as rectangular pattern in the chart, while a pennant sports a triangular look. These patterns appear when a price moves sharply, but then drifts sideways. Movement must prove sharp, or the pattern will not emerge. The latter sideways movement is the pattern. A flag or pennant completes itself when the price breaks out in the same direction as that first, sharp movement. The pattern marks a halfway point between the first price movement and the later price move. The market usually pauses before continuing that initial movement trend. Flags and pennants tend to form faster in downtrends than uptrends. As patterns, they seldom last more than three weeks, although there are always exceptions in which they form for a longer time period. A trader decides to buy or sell when the price heads past the resistance or support level and the trend moves in the previous direction.

The SureTrader Advantage

The ability to analyze stock chart patterns gives day traders a significant advantage over traders unable to do so. SureTrader’s stock simulator allows novice day traders to test their theories and avoid an expensive learning curve. We provide clients with top charting and technical analysis, so they can learn to trade successfully when they move on to active trading. Along with a state-of-the-art platform, lightning-fast trade executions, low fees and 6:1 intraday leverage, that’s just part of the SureTrader advantage.

stock_charts

Analyzing Stock Chart Patterns

Analyzing Stock Chart Patterns

Learning to day trade successfully also involves learning to analyze stock chart patterns. This is part of the technical analysis crucial to choosing securities to buy, sell or short. Charts, which are part of technical analysis, are arguably much easier – and certainly much quicker – to read than the information necessary for fundamental analysis, such as earnings reports. They do not require nearly as much skill to master, and technical analysis is more useful for short-term traders than information acquired via fundamental analysis.

Chart Pattern Analysis – Critical for Day Traders

The ability to analyze chart patterns is critical to day trading profitability. While a chart can’t predict future prices in any exact manner, it can point the way toward creating successful trades by identifying target prices and stop loss amounts. Chart pattern analysis is a tool for helping day traders make those needed fast trading decisions. They provide not only price and volume analysis, but show current market conditions. The patterns offer opportunities as they form and as they complete.

How Charts Aids Trading

Charts can dramatically reduce the amount of time it takes a day trader to draw conclusions on buying and selling, compared with trying to analyze a stock without such a visual reference. Charting depends on a basic market fact: At any time, it’s trading either upward or downward. Charts warn day traders when the current trend is about to turn, so they can take advantage of that movement. Charting rules are relatively simple to comprehend, once the trader starts on her technical analysis education journey. Historical price action usually affects a stock’s future price movement. That’s where pattern recognition comes in, although no methodology is 100 percent guaranteed. Think of this pattern recognition, although swathed in technical jargon, as the kind of information you use on a daily basis. You probably plan outings based on daily traffic volumes. No one wants to get on the road for a non-essential task if they know they’ll get stuck in a traffic jam. Historically, you know when your local roads move smoothly and freely. Most of the time, you make the right choices, although exceptions like auto accidents or other emergencies can disrupt your pattern. Stock chart analysis aids trading in a similar way. It won’t always prove right, but being proved wrong is the exception rather than the rule.Every day trader needs a strategy for choosing their trades. There are various strategies available, and the best one for each individual trader is a personal choice. However, all day trading strategies rely on analyzing stock charts and recognizing certain patterns.

Head and Shoulders Pattern

The head and shoulders pattern does resemble a person’s right and left shoulders on either side of a higher “head” on the chart. This much used and trusted pattern predicts a trend reversal, whether bullish or bearish. When the head and shoulders pattern appears, it signals an upward trend will soon end. The three components of this pattern appear with the price rising, only to fall and form a trough. That’s the left shoulder. The price rises again more substantially, then declines. That forms the head. The third component occurs when the price rises once again, but only as high as the initial price. That forms the right shoulder. Once this occurs, odds are the bullish trend is over for the time being and a bearish trend will take place.
A downward trend that may soon reverse follows the opposite tack, with the head and shoulders pattern looking upside down. The pattern appears after the stock experiences three lows punctuated by rallies. This signals the bearish trend is waning and the bulls should soon dominate.

Flags and Pennants

These two patterns resemble each other, so some traders use the terms interchangeably. However, a flag appears as rectangular pattern in the chart, while a pennant sports a triangular look. These patterns appear when a price moves sharply, but then drifts sideways. Movement must prove sharp, or the pattern will not emerge. The latter sideways movement is the pattern. A flag or pennant completes itself when the price breaks out in the same direction as that first, sharp movement. The pattern marks a halfway point between the first price movement and the later price move. The market usually pauses before continuing that initial movement trend. Flags and pennants tend to form faster in downtrends than uptrends. As patterns, they seldom last more than three weeks, although there are always exceptions in which they form for a longer time period. A trader decides to buy or sell when the price heads past the resistance or support level and the trend moves in the previous direction.

The SureTrader Advantage

The ability to analyze stock chart patterns gives day traders a significant advantage over traders unable to do so. SureTrader’s stock simulator allows novice day traders to test their theories and avoid an expensive learning curve. We provide clients with top charting and technical analysis, so they can learn to trade successfully when they move on to active trading. Along with a state-of-the-art platform, lightning-fast trade executions, low fees and 6:1 intraday leverage, that’s just part of the SureTrader advantage.