The complete beginner's guide to day trading patterns
What Are Day Trading Patterns?
Whether you're trading stocks, commodities, crypto or you prefer CFD trading, your success in beating the market will depend on your ability to identify trends as early as possible and act accordingly. While predicting the future of the stock market is largely alchemy, there are ways that experienced traders successfully flag up price trends before anyone else. This all comes down to having the right data at your disposal, and the correct resources to help you interpret that data.
This is where day trading patterns come in. As a day trader, you will rely on technical analysis to observe breakouts, reversals, and changes in trading volumes that might indicate long-term price movements in certain asset markets. One way to do this is to make use of trading chart patterns, which can be provided to you by your broker. There are many different trading charts you can use to detect patterns, each of which has its own strengths.
To find out how to read a trading chart pattern and which ones might be best for your day trading strategy, read this beginner's guide by Skilling.
How to Read a Trading Chart as a Beginner
Trading charts are designed to take huge inputs of financial market data and spit out a clear, cohesive live graphic that gives you a clearer idea of any price or volume trajectories. If you're a Skilling trader, you can take advantage of a range of trading charts to help you make sense of trends across a wide range of asset classes.
But first, it's important to know exactly how to read the trading chart sitting in front of you. Assuming we are using a standard candlestick chart, follow this step-by-step guide to reading and interpreting it correctly:
- The X-axis should show you the date range for the asset on the chart. Candlestick charts can be hourly, daily, weekly, monthly, or yearly.
- The Y-axis will usually show the price level for the asset in question.
- Each value will be represented with a 'candlestick', showing a thick 'body' and thin 'wicks' coming from both the top and the bottom of the body.
- The line of candlesticks will show the upwards and downwards price trends of an asset over time.
- The 'body' represents the price range for that asset during the relevant time period.
- If the body is coloured green, the price has increased. If it is red, the price has decreased
- If the candlestick is hollow, this tells you that the closing price for the asset is higher than the opening price. This indicates that traders should BUY.
- If the candlestick is filled or coloured, the reverse is true. The close price is lower than the opening price and traders should SELL.
- The 'wicks' extending from the top tell you the highest price reached in the trading period, while the bottom wick tells you the low price.
- If the body is short, there has been very little price movement. If the body is long, there has been a long price movement and the asset in question is experiencing heightened volatility.
There are other types of trading charts, but understanding a standard candlestick chart will tell you most of what you need to know as a day trading.
Top 5 Day Trading Patterns Every Trader Should Know
Whichever chart you are using, there are certain pattern signifiers that can tell you whether an asset is entering a significant price breakthrough or reversal. These are some of the most important ones to keep in mind:
This is a bullish pattern that tells you a price breakout is imminent or highly likely. This can be observed when there is a line of peaks and troughs, but the peaks get slightly higher each time, with a new "high" being formed with every peak.
This is the opposite of an ascending triangle, one that indicates a bearish trend. The resistance line is descending gradually, with each low representing a new low. This tells you that the asset price could be entering a reversal, which is ideal for those looking to hold a short position.
Wedge patterns are essentially much "steeper" versions of triangles. The trendlines do not intersect and the pattern is rising or falling in a very fast, steep pattern. These are powerful trading signals that often tell you that a lower risk, higher reward opportunity is afoot.
When the lines on the chart run parallel until there is a breakout, you have a flag pattern. A flag pattern can be observed as a sloping rectangle, and usually indicates that a prolonged price movement in one direction has halted and is going into reverse.
When the line across the chart resembles a "W", you are dealing with a double bottom. This tells you that the asset has almost had a price breakthrough twice, but has not succeeded. It usually highlights that a trend reversal is underway.
Benefits of Using Trading Patterns
Whether you're day trading CFDs on cryptocurrencies or Tesla stock, trading patterns can provide you with a consistent, data-based strategy. The main benefits of using trading patterns are:
- Allows you to 'cut through the noise' and look at what is actually happening at the price level.
- A wide range of resources is readily available via your broker.
- The same charts can be used across a vast range of assets.
- Allows you to observe even the most incremental price fluctuations, making it ideal for day trading.
- Tells you whether a price movement is an anomaly or indicative of a more sustained trend.
If you're ready to access a range of informative, in-depth trading pattern charts, we have got you covered. By creating your Skilling account today, the data and insights you need to make empowered trading decisions are at your fingertips.
You also can access our daily trading news pages to keep on top of the essential news about the markets that matter to you. Meanwhile, our dedicated day trading information hubs will give you the razor-sharp insights that are necessary to successfully perform intraday trading. We also have a range of tools and resources designed to help beginners get the most out of their trading strategy.
- To access hundreds of financial instruments and trade on some of the busiest markets in the world all via your smartphone, our Skilling Trader platform has everything you need.
- You can use our extensive CFD trading platform to seamlessly trade CFDs on more than 700 popular shares, without having to own the asset outright.
- For expert guidance on how to exploit incremental price movements throughout the day, you can consult our complete guide to day trading to learn how to get started and how to build your strategy.
- If you want to try day trading in the fast-paced cryptocurrency market, make sure to read this guide to day trading crypto to find out how you can get involved.
- At Skilling, we provide the resources for empowered and informed trading.
Not investment advice. Trading cryptocurrency may not be available depending on your country of residence.
The Ichimoku Cloud consists of five lines plotted on a candlestick chart. Being originally a Japanese indicator, many of...
If you want to start investing in the financial markets you need to understand the meaning of the words ‘Bull’ and ‘Bear...