Behind The Spread

Warrior Trading & Tim Sykes Trade Strategies

Trading Patterns Can Help You Better Understand Charts When Investing

When you’re buying and holding like Buffet, chart patterns are evaluated for the long term. It’s more about the business cycle than anything. When swing trading or day trading, you have to know more information in relation to a technical analysis of the charts. You are going to need to be versed in trading patterns for sure so that you have an edge and are familiar with what to look for.

One popular chart pattern for you to learn about is the cup and handle. It’s easier if you get a good look at what this pattern looks like. Essentially, you see a stock rise and then dip into a low valley for a period of time before it makes another subsequent rise. That is the cup. The handle is another smaller dip and after a short period of consolidation, the stock pops.

The cup and handle chart pattern is popular with traders. You have to understand, however, that just because you recognize a chart pattern doesn’t mean that you’re going to see big gains. You have to evaluate more than just the chart, even when day trading. That’s why it’s so important as a trader or an investor to get to know the securities as much as you can.

Let’s imagine that you see a stock with a downward trend that has lasted quite awhile. You look at the 1-year chart, and you see it hitting a bottom, subsequently rising and going back to its bottom. There is a chart trend called the triple bottom pattern. This pattern might signal that a stock is going to reverse the downward trend that it has been in for quite some time.

Have you heard of the ascending triangle and the descending triangle? The first is a bullish pattern, and the second is a bearish pattern. Some chart patterns are a little more difficult to discern than others. For example, take a look at what’s called the bullish symmetric triangle pattern. Some say it’s easy to spot, but you have to think about a few different metrics when you’re pointing it out.

Plus the symmetric triangle pattern has to be, well, symmetric. There is also a chart pattern called the rounding bottom. What’s interesting about this pattern is that it is the cup and handle pattern without the handle. Therefore, if you buy a security based on this pattern, yet you have to wait on the handle, you will be taking a dip before the rise.

Then there is always the chance that the rise doesn’t happen. Remember to understand bearish chat patterns, too, whether you are going to buy puts or not. Understanding bearish chart patterns can help keep you from being bullish about a stock that is going to lose you money. Keep that in mind as you make your stock picks and learn more about chart trends for trading. Those trading patterns are important for day traders, and they can definitely add another layer to your daily investing strategies.

Click here to learn all the trading patterns known to this game.

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