Hello guys. It is another week in the 5th season of the Crypto Academy and here I am, following up as keenly as possible. I hope I was able to provide satisfactory answers to the questions you asked dear Professor @sachin08.
Recognising Simple Patterns in Trading
In our modern-day world, the world of trading has become one of the most popular "touristic sites", be it forex or crypto trading. Thus, several strategies and techniques had to be developed to properly analyze the market and use it to make profits.
Through these, it was realized that market charts exhibited certain patterns that when analysed correctly, could help one predict the price movements of assets. One of these types of patterns in trading are Triangles.
Triangles in trading simply refers to certain patterns formed on a chart using trendlines over a range where the price is converging. Triangles usually signify that the existing trend is about to change. It is due to the converging price that the trendlines can join together horizontally to then form a triangle. There are three types of triangles that can be formed on charts namely; the ascending, symmetrical and descending triangle.
a. Ascending Triangle
This type of triangle is formed when with certain price range, the bottom trendline is slanted upwards till it meets the upward trendline which is horizontal, offering resistance. Around the apex, one can expect a breakout above the resistance line as the market turns bullish, thus also called the bullish version.
b. Descending Triangle
This other type if triangle is formed when within particular price range, the top trendline slants downwards until it meets the bottom horizontal trendline offering resistance. It is also called the bearish version because the breakout is usually below that resistance trendline, with the market becoming bearish.
c. Symmetrical Triangle
Now this one is formed when within a price range, the price of an asset oscillates about a particular price with it's amplitude reducing over time such that it converges to form a triangle. It is called the neutral version because, depending on where the breakout, we can either experience a bullish or bearish market after that.
We know for a fact that in trading, despite reading patterns effectively from charts, what we except doesn't happen all the time. In order to minimise loses, it is best to observe such patterns and still use a compatible technical analysis tool to confirm the signal you're getting.
Technical Indicators are one of such technical analysis tools that can be used hand in hand with trading patterns , so as to carry out effective trading. This is done by confirming signals before going ahead to trade.
One of such indicators are the Relative strength Indicator and the EMA indicator. . I shall illustrate it using a chart as you can see below.
As you have seen, the Relative Strength Indicator confirmed the uptrend experienced in the chart which was indicated by the ascending triangle. The EMA indicator also indicates that it will be okay to make an entry. Both indicators are in agreement, which makes the signal more solid
We have seen the triangle trading patterns. But like I said there are so many other patterns formed on charts. Another group of patterns formed are the flag patterns.
Flags are patterns formed on price charts within a certain range, usually after a strong trend in the market, be it upwards or downwards. There exists two types of flags called the bullish and the bearish flag.
a. Bullish flag
This flag pattern is formed usually after a strong uptrend in the market. The trendline drawn parallel to it forms the flagpole. From the last candle on the trendline, two trend lines are drawn in a way that they converge together. These trendlines form a bullish flag.
This flag mostly indicates that there are some small profits to be made after a breakout occurs. So in this case, our breakout will occur upwards as the price will become bullish for a while.
b. Bearish flag
Now this flag pattern is the opposite of the bullish flag. It is formed but after a strong downtrend. A trendline is drawn parallel to it forming the flagpole.
From the last candle on the trendline, two trend lines are drawn such that they converge. A breakout will occur when the next candle goes below the support line as the trader can make small profits.
Trade Set up using the Ascending Triangle
We can see clearly that an ascending triangle is formed in the above chart. We have a break out when the price goes above the resistance line. This is where we make out entry. We then take our stop loss a bit below the support line then mark our Take profit level as well.
Trade Set up using the Symmetrical Triangle
The triangle that is formed here is a symmetrical triangle. And we know that it is a neutral triangle. In this case, the break out occurs below the support line rather, indicating a bearish trend. We now take our stop loss a bit above the resistant line and indicate our take profit level.
Trade Set up using the Bear Flag
The bear flag here was formed after a powerful downtrend. We draw our flag showing the resistant and support lines. Where the price breaks out, we will make our entry. The stop loss is taken a little way above the support line and the take profit level indicated.
We have seen how to recognise some patterns in trading charts called triangles and flags. By understanding them, we can be able to make more accurate entry points and trade successfully in the market.
We also know how to perform trading set ups with any available triangle or flag we see on the chart. So we are better traders today, than we were yesterday due to this knowledge.
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