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Trading at breaking of Chart Patterns
Patterns play a very important role in Technical Analysis of
stocks along with key support and resistance Levels. Patterns
are of 2 types i.e. Bullish and Bearish. Further classification
of patterns can be done in 2 parts i.e. Reversal Patterns or
Continuation Patterns
Bullish
Patterns
|
Bearish Patterns
|
Reversal Patterns
|
Reversal Patterns |
|
Head & Shoulder
(Inverted) |
Head & Shoulder |
|
Rounding Bottoms
(Saucer) |
Rounding Tops |
|
Descending
Triangle |
Ascending
Triangle |
|
Rectangle |
Rectangle |
|
Double/ Triple
Bottoms |
Double/ Triple
Tops |
|
Falling Wedge/
Channel |
Rising Wedge/
Channel |
|
V- Formations |
V- Formations |
|
Continuation Patterns |
Continuation Patterns |
|
Triangles |
Triangles |
|
Flags & Pennants |
Flags & Pennants |
|
Head & Shoulder
(Continuation) |
Head & Shoulder
(Continuation) |
Many Traders are
taking position for Intra-Day / Short Term or Medium Term
depending upon the periodicity of charts if it is 5 Min/ 30 Min/
60 Min/ Daily/ Weekly or Monthly Charts on confirmation of
Breakout from any important pattern or Support or Resistance but
often traders/ investors are faced with a dilemma of taking a
position in
1. anticipation of a break out,
2. taking a position on breakout itself, or
3. Waiting for the pull back or reaction after the break
out occurs.
Although the arguments can be in favor of each approach or all
combined, If a trader buys in anticipation of an upside break
out, the profits are better if break out takes place.But at the
same time, the chances of loosing increase if the break out
fails to materialize.
If the trader waits for the actual breaks out, the chances of
success increase but at the cost of entry at higher
price.Waiting for a pull back after the break out may be a
sensible approach provided the pull back occurs. Unfortunately,
in many bull markets traders don’t get second chance. The risk
involved in waiting for the pull back is increased chance of
missing the move.
The best strategy
under the circumstances for a trader is to trade multiple
positions.The traders should take a small position in
anticipation of a break out buy some more on the break out and
add a little more on the pull back move after the break out.
Trading at breaking of trend lines
This is one of the most useful early entries of exit
signals. If the trader is looking to enter a new position on a
technical sign of a trend change or a reason to exist an old
position, the break of tight trend line is often an excellent
action signals. Other technical factors must, of course, also be
considered to arrive at a conclusive approach. Trend lines can
also be used as entry and exit points when they are made to act
as support and resistance levels.
Trading at support and resistance
level
Support and
resistance are the most affective chart rules to use for entry
and exit points.The breaking of resistance can be a good signal.
Enter into a buy position and the stop loss can be placed under
the nearest support point. Rallies to resistance in a downtrend
or declines to support in an up trend can be used to initiate
new positions or add to old profitable ones. For purpose of
placing stop losses support and resistance levels are most
valuable.
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In Case of Beakout
>>
Importance
of Value
>>
Futures &
Options
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When to Trade
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