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24. stock chart signals and price action patterns
Price action patterns and stock chart signals
Trading price action can generates very good profits for the astute trader, and can yield good profits on many Forex pairs, stocks and commodities. In this article we will describe several of the most accurate price action patterns for most profits.
Price Action Patterns
There are several types of price action patterns and they are as follows.
Price Action Pattern #1: Support and Resistance Pullback
The pullback is one of the best price action patterns for stock charts signals, as it usually has win rate of 80%+ on many commodities and stocks. The idea behind the pullback is that price breaks a certain supportresistance level and re-tests the level after the breakout. This allows traders to join trend at a very tactical point, with small stop loss and very high reward.
The pullback occurs for many stock patterns, such as the Double Top, Channel, Triangle, Head & Shoulders and many more.
Price Action Pattern #2: Moving Average Bounce
The moving average bounce occurs when price bounces off a moving average in the middle of a trend - it is a retracement that usually results in a continuation of the trend and a good place to join it. Make sure that the trend is strong by looking at the angle of the moving average and confirming that it is sloped and not flat (which is a symbol of weak trend).
Price Action Pattern #3: Channel Pattern
The channel is a classical chart price action pattern that appeared on various stocks and commodities for dozens of years and generate big profits from traders.
Channel consists of 2 parallel trend lines that go in the same direction. We enter long trades in an ascending channel and enter short trades in an descending channel, to make sure we do not trade against the trend.
We will also enter pullback trades when the channel is broken to the opposite direction, and can help us profit from the new trend (reversal) at an early point.
Price Action Pattern #4: Double Top
The Double Top is a highly reliable chart price action pattern that reaches 76% win rate in some stocks, and is considered a very good bearish pattern.
Double Top occurs when price stops on the same resistance level twice, creating a price action that shapes the letter M. Trade is confirmed when price breaks the neckline downwards and begins to move downwards, and we will join that trend at the breakout of the neckline or at a pullback to the neckline.
The target for such trades is calculated by subtracting the size of the pattern from the neckline. More aggressive traders can enter right at the 2nd time that price touches the Resistance level, to predict the bearish movement right from the start, however such trade is not recommended for beginner traders.
Price Action Pattern #5: Range Breakout
Range occurs when price action is bound between two horizontal support and resistance levels, and bouncing from one level to the other with no order or trend. We take advantage of that by entering long trades on the support level, and entering short trades when price hits the resistance level, to profit from the inner movements.
This range comes to an end when price breaks the range to either direction, and a new trend starts. We enter the trade at the breakout itself (for aggressive traders), or at the pullback (for conservative traders). This is one of the easiest patterns to trade as it is very easy to identify, however it is not as frequent as the rest of the patterns described, so we have saved it for last.
All of those patterns are accurate, have high win rate, and can be traded on any Forex pair, stock or commodity. You don't need to be a trading professional to profit from these patterns - just follow the general directions and charts and you will see that profiting from trading is not so hard. Make sure to follow the systems described here and not deviate: do not do discretionary trading as it is not effective and in most cases you lack the judgement to successfully take those trades.
Choose a system, follow it and master it - this is the real way for trading success for the long-term. Disregard most indicators and focus on price action, that governs price in any chart, time frame or stock.
This article on stock chart signals and price action patterns was researched and written by Steve Sollheiser. Copyright (c) 2012, Steve Sollheiser, Croatia. Mr. Steve Sollheiser is a guest author and is contributing to topics on price action and stock chart signals
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