Technical Analysis: key patterns for successful trading

Technical Analysis is not only indicators but also price patterns that help to forecast market movements. Let's consider three essential patterns that every trader should know:

Double Top and Double Bottom

These patterns signal a possible trend reversal:

• Double Top: indicates a weakening of the upward movement and a potential price drop.
• Double Bottom: indicates the formation of a support level and a possible reversal to the upside

To confirm the pattern, it is important to analyze trading volumes at each peak or trough.

Head and Shoulders

Classic trend reversal pattern. If the pattern forms after an uptrend, it signals a potential decrease in price.

Key elements:

• Left shoulder
• Head (higher peak)
• Right shoulder
• The neckline ( connects the troughs between the shoulders )

The confirmation of the pattern occurs when the neckline is broken.

Flag and Pennant

Continuation pattern, showing a temporary consolidation before continuing the movement in the direction of the main trend.

• Flag: has the shape of a parallelogram, opposite to the main trend
• Pennant: has the shape of a symmetrical triangle

These figures often form after a sharp price movement and are accompanied by a decrease in trading volumes.

When trading based on patterns, it is critically important to consider additional factors:

• Trading volumes
• Support and Resistance Levels
• Technical indicators (RSI, MACD, etc.)
• The overall trend on higher timeframes

Using patterns in conjunction with other technical analysis tools allows for improved accuracy in trading decisions and effective risk management.