In this article, we will cover a range of chart patterns commonly associated with “technical analysis.” Notably, traders and investors can utilize such patterns to enter or exit positions. Nevertheless, it is important to note that these patterns are not always accurate; as a result, they should be used in conjunction with fundamental analysis and other investment approaches to develop a more comprehensive picture of the trade being analyzed.
The diamond pattern is a unique chart formation that is applicable to charts of various markets, including stocks, forex, cryptocurrency, and commodities. It is characterized by a tight consolidation pattern, with price action forming a diamond. This pattern has the potential to be bullish or bearish; however, this is dependent on the particular breakout direction.
The butterfly pattern is another chart formation that is widely recognized as a reversal pattern. The butterfly pattern is formed by four distinct points, and it is identified by a specific Fibonacci ratio between the different swings of the pattern.
Similar to the aforementioned butterfly pattern, a bullish harami is considered to be a reversal pattern. It is formed by two candles, where the first is a long bullish candle, and the second is a small candle completely engulfed by the first. This pattern indicates a potential trend reversal from bearish to bullish.
Unlike a bullish harami, a bearish harami can indicate a reversal in a downtrend. It is formed when a small bullish candle is found within the range of a large bearish candle. This can signal that the bears are losing control and that bulls may be taking over.
An inside bar can indicate indecision or a potential reversal in the market. It is formed when the current day's candle is within the range of the previous day's candle. This can be a sign that traders are uncertain regarding the market direction. It can also signal a potential reversal.
A pin bar can signal a potential market reversal. It is formed when the current day's candle has a small body and long wick on one side. To learn more about these descriptive terms, take a look at a pin bar graphic. You will notice the body of a candle, along with a line (i.e., a “wick”) protruding upwards, downwards, or in both directions. The long wick can indicate a rejection of the current market trend.
W Pattern Trading
As a technical analysis strategy, W pattern trading searches for a specific chart pattern to signal a potential market reversal. This pattern is formed when the market makes two consecutive lows, followed by a higher low, before retracing to the original low. This pattern can indicate that the bears have lost control and that the bulls may soon take over. Traders can use this pattern to enter long positions or exit short positions.