Adding Chart Patterns to Your Trading Plan

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Charts patterns are not an exact science, and you may need to reform a trading plan to fit chart patterns into a current strategy. Unlike other indicators, chart patterns occur frequently, but are often hard to see. Or there may be a variety of chart patterns on the same chart, but on different time frames. Staying profitable means that you’ll have to be able to think in two different places at once and make the most out of every trade by watching every chart pattern and timeframe.

Chart patterns and technical analysis

Though chart patterns are considered a form of technical analysis, they can only be capitalized by a human eye. It would be almost impossible for a computer to see a head and shoulders pattern forming or what looks like a double bottom. Even worse, candlestick patterns and other forms of chart analysis cannot be automated. This is something that will have to be done by the trader; there is simply no short cut.

Adding chart patterns

For the active, professional trader, you can enhance your strategy with the inclusion of chart patterns. Use chart patterns to confirm what you already think is true about the market, while limiting yourself when the chart patterns go against your other indicators.

As always, adding another indicator makes trading less risky, but it also requires more work. Staying on top of several charts with varying timeframes may mean that you’ll only be able to trade a handful of stocks per day. It is impractical, if not impossible, to watch tens of charts simultaneously seeking short-term patterns.

Trading plan in 5-easy steps

Building a customized plan around chart patterns usually involves the use of chart patterns solely for trade confirmation. Making quality trades with a confirmation signal of any type will increase your profitability, and chart patterns are a simple, accurate way to become more profitable with your entries and exits.

How to add in chart patterns

It would be wise to include a number of charting examples to guide you through trading. Pick a few chart patterns, such as the head and shoulders or double bottoms, which can be used as examples to show what you want in a solid trade. Remember, chart patterns are never exact, and therefore, it may take a little imagination to find obscure but profitable patterns like the cup and handle. Established chart patterns are easier to find on long term charts where the movements look more solid.

Learn how to master day trading by downloading two of Trading EveryDay’s FREE products: Tools of the Trade eBook and a Trading Plan Planner. Dedicated to helping people become profitable traders , Leroy Rushing, a professional day trader, trading coach, and author, is the CEO of Trading EveryDay, a distinguished provider of educational trading products and services.

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Topics: Personal Finance | Comments Off

Tags: active professional trader, charting examples, customized plan, day trading strategies, established chart patterns, Personal Finance, quality trades, technical analysis

Article Citation
MLA Style Citation:
Rushing, Leroy "Adding Chart Patterns to Your Trading Plan." Adding Chart Patterns to Your Trading Plan. 30 Oct. 2008. . 10 Feb 2012 </finance/personal-finance/adding-chart-patterns-to-your-trading-plan/>.

APA Style Citation:
Rushing, L (2008, October 30). Adding Chart Patterns to Your Trading Plan. Retrieved February 10, 2012, from /finance/personal-finance/adding-chart-patterns-to-your-trading-plan/

Chicago Style Citation:
Rushing, Leroy "Adding Chart Patterns to Your Trading Plan" . /finance/personal-finance/adding-chart-patterns-to-your-trading-plan/

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