A chart pattern is a shape within a price chart that indicates what prices may do in the future based on their past behavior.
The formation of a chart pattern is accomplished by studying past price data. Chart patterns are the basis of technical analysis; consequently, a trader must be aware of what they are looking for and observing to identify chart patterns correctly.
Fantastically, we traders have a natural desire to learn, which helps us lay the foundation for trading. At some point, though, it becomes necessary to focus on something more specific.
However, we often make the unconscious error of wanting to learn as much as possible without considering whether or not we need it at the moment.
Cup and Handle: A cup and handle is a bullish reversal chart pattern that resembles a cup and handle with a "U"-shaped cup and a handle with a modest downward slope.
The cup resembles a chart design with a curving bottom, and the handle resembles a wedge pattern.
Rounding Bottom: This pattern is also referred to as the "saucer bottom" and is a long-term reversal chart pattern.
Rounding Bottom indicates a reversal from a negative trend to an upward trend in the stock price.
Wedges: Wedges are bullish and bearish reversal and continuation patterns generated by connecting two convergent trend lines. It can be either a rising or sinking wedge.
A rising wedge happens when the stock price increases over time, and falling wedge occurs when the stock price decreases over time.
The knowledge is readily accessible and ready for review by anyone. In reality, there is too much information, and it is challenging to quit learning.
Sometimes we simply feel the need to learn a new pattern, method, or strategy. And it may appear that more information leads to greater quality.
This is correct when you initially begin trading. Later in your career, it is still a good idea to ask yourself, "Do I really need one more strategy that I know on an average level, or should I perhaps focus on one strategy - or one pattern of any given approach - and really master and perfect it?"
This topic might be discussed for a considerable amount of time; however, based on what has previously been stated, it is physically uncomfortable for traders to break the habit of attempting to trade several patterns and learning new patterns.
I don't know why this is the case; there must be a psychological explanation, but any new trading pattern might be considered as an opportunity to benefit in the market. Therefore, when we cease learning new patterns, we may experience a sense of loss.
And it may appear that the more we trade, the more patterns we may utilize - and, consequently, the more profit we can generate - since we can enter the market based on different patterns. While this may be true for certain exceptionally skilled traders, it is not true for the majority of us.
More importantly, we do not need to. It is sufficient to master one or two patterns of a system in which we have faith and which we have tested.
Consider "severing" 90% of your trading knowledge and concentrating on executing no more than 1-2 patterns. Think about this. If you're anything like me, you should be pretty nervous, if not terrified, about doing this action.
It could even seem silly. Because it indicates that you must cease researching and maybe trading using past strategies.
Time and effort are not wasted; they cannot be lost; they are now a part of you, a part of your experience, something that drives you to choose something with which you will eventually work closely.
But holding to what you have learnt in the past might cause confusion and distract you, making it far more difficult to become a specialized, professional trader.
When the time comes when you've tried several strategies, it's time to stop researching other systems and instead study everything there is to know about a single system. Stop trading, for instance, double tops and bottoms, break and retest, and diamond patterns if you are trading head and shoulders.
Wondering just why?
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Due to the fact that the head and shoulders pattern consists of more than five lines on a chart, its manifestation in the market varies among markets, sessions, and settings. And you must comprehend, monitor, evaluate, and develop it.
Master the head and shoulders pattern or any other distinctive pattern and trading technique, and you will be profitable. And if the pattern is profitable, you can proceed to the next one, but it will not be necessary.
Keeping a "hindsight diary" and a backtesting record that focuses entirely on the trading pattern you've selected is a smart idea. And there may be numerous reasons for choosing a particular design.
However, this pattern typically begins from your mentor or anyone you observed achieving long-term success with it, and you rely on their advice. However, this would not sufficient. You cannot convince your mind - have faith. You must demonstrate it convincingly to your brain and to yourself.
Therefore, you must backtest this pattern for a minimum of 150 transactions. This will help you establish genuine faith in the system.
I spent close to three years searching for anything to which I could devote long-term. I do not know if there are any useful tips for locating the ideal solution for you. It depends on your personality, way of life, and other variables.
Based on my experience, I would recommend that you continue to learn and listen to yourself. You will undoubtedly encounter a trader or mentor whose trading strategy you admire. Try to replicate it using his methodology.
With time, writing, and live testing, it will all coalesce into your unique system. Yes, your system will resemble that of your mentor, but it will be yours.
Again, a trading system may have multiple forms of entry confirmations, but it makes more sense to focus on and comprehend one or two confirmations.
Thank you for continuing to read:) and here's a BONUS trade technique for you. When you notice anything awry during your trading day, whether you're annoyed or simply feel your discipline slipping away, or if you find yourself considering entering without an entry pattern or risking more than usual, understand that it's your "monkey brain" kicking in. It is difficult to manage yet easy to deceive. The recommended action is as follows.
"All right, I'll do whatever I want, including dealing with the risk of losing half the account, but only after twenty minutes." Then, start a timer (Google "20-minute timer") and do whatever you want. Typically, you remain composed and avoid doing foolish things. It is a basic but effective strategy.