Thread by @RamsayRippers

🧵Chart Patterns Thread🧵

Although chart patterns don't tell the whole story, identifying and understanding them is a critical tool during my everyday trading.

What are some chart patterns and how can you use them in your trading?

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Flags

Bull Flag: Bullish formation during an uptrend, considered a good continuation pattern.
Bear Flag: Bearish formation during a downtrend, considered a goof continuation pattern.

Flags offer a high conviction entry opportunity rather than rushing into an up/downtrend.

Bull Flag:

With every move to the upside, there will be a pullback. Instead of rushing into large green candles, I like to wait for stocks to pull back to the EMA's or flag. I tend to find bull flags on stocks in an uptrend with higher relative volume.

I never enter bull flags at HOD. Instead, I wait for that pullback/consolidation period and enter on 8EMA bounces or the bottom of the flag.

Bear Flag:

Basically the exact same concept as a bull flag, just inverse. I am looking for a strong sell-off into a slight bounce/consolidation period to enter before the next move to the downside.

Double Bottom:

A pattern that can indicate a change in trend and a reversal from previous price action. This pattern looks like a W where the double touched low is considered support.

I tend to add calls at the second test of the "bottom" looking for a quick bounce to see support confirm. Although this strategy may not always work, the risk to reward is high & we tend to see sharp bounces and rejections off previous lows/highs.

Double Top:

Inverse to the double bottom pattern - A double top indicates a reversal of an uptrend where I like to implement a put strategy. This chart formation looks like an M where the double touched top is considered resistance.

Head & Shoulders:

This chart pattern indicates to me a bullish to bearish trend reversal.

Head and shoulders formation is created when a stock creates three peaks. The outer two peaks are relatively similar in height and the middle peak is the highest.

I like to enter puts on rejections of the right shoulder or retracements to the 8ema shortly after the rejection.

Inverse Head and Shoulders

Similar to the H&S pattern but inverted (hints at the name). Bearish to bullish indicator.
I like to enter calls off the initial bounce off the second shoulder formation or pullbacks to the 8ema. I will also look to add off retests of the neckline.

Bullish Pennant:

Very similar to a bull flag where the only difference is that the consolidation period of a pennant has converging like trendlines rather than parallel trendlines.

Bearish Pennant:

Opposite to a bullish pennant, a bearish pennant indicated the continuation of a downtrend and offers a high conviction entry opportunity.

As stated before, no chart pattern/formation is king. That's why it is important to implement a plethora of tools into your arsenal... Understanding chart patterns, support/resistance, divergences, candlesticks, indicators, etc.

Find what works for you and run with it. Later this week I will post an "Understanding Candlesticks" thread. I hope you all enjoyed this thread and can implement some of these ideas in your trading!