Best Day Trading Chart Patterns

Don’t you just love the word “most useful ” as it applies to everything in life? Well, wait until we walk through the best chart patterns for day trading and you will see sometimes that the use of this adjective is applicable.

As a trader, you are literally bombarded with hundreds, if not thousands of trade opportunities on a daily basis. You can use a number of methods to dwindle this enormous list down, including volume requirements, volatility, and float.

To that point, I have 3 setups that I have seen consistently in the marketplace that have proven profitable to traders, which I will cover in this article. For each setup, we will cover the strengths and weaknesses. As a trader, it is up to you to identify the best day trading chart patterns that align with your trading style.

Morning Consolidation

Instead of saving the best for last, I am going to lead with the need. The morning consolidation is by far my favorite day trading pattern. Below is the makeup of the pattern:

  1. A minimum of 4 bars moving strongly in one direction
  2. After a high or low is reached from #1, the share will consolidate for 1 to 4 bars
  3. The high or low is then exceeded prior to 10:10 am

Let’s take a look at a few working examples to further illustrate the point.

Bearish Example of a Morning Consolidation

Bearish Morning Consolidation

In the above example, UWTI experienced a nice gap down in the morning. After gaping down, the share had a 3 bar consolidation, before swiftly crashing through the low of the day. This sign of strength to the downside resulted in a swift decline of over 4% in under an hour.

Bullish Example of a Morning Consolidation

Bullish Morning Consolidation

In the above bullish example, after a quick two bar consolidation under $137, the share immediately showed a sign of strength and blew through resistance. Akey point to noteon the breakout and the subsequent move higher is that the share never experienced a deep retracement.

Strengths of the Morning Consolidation Pattern

  1. The pattern is easily identifiable on the chart.
  2. The pattern doesn’t require every single day long to materialize, and that means that you may size up things fast onto your own graph.
  3. The layout will accompany a powerful gap or some succession of pubs proceeding in 1 direction. This implies that you may soon be in a share using volatility, that will be critical to turning into a benefit day-trading.

Weaknesses of this Morning Gap Consolidation Pattern

  1. You Should exercise patience and Never input the trade before the low or high of the afternoon is broken.
  2. Since the entrance point relies on a breakout, then you might end up in a bull or bull snare; ceases are critical in the event that you’d like to acquire longterm success.
  3. Once able, the marketplace will occasionally experience reversals at the 10 am, 10:30 am, or11’m slots. Take a peek in such zones, as your winner could develop into a failure in a rush.

Reversal Chart Pattern

I Haven’t figured out the way to Perfect the exact change chart pattern incomplete disclosure. It is something in my own brain, where I want what to go on in the current trajectory.

Below is your makeup of the routine:

  1. A share encounters a sizable gap down or up.
  2. After making one or 2 pushes at the direction of the main trend, volatility starts to dissipate.
  3. Around 10 am, the share begins to trade and/or reverse harshly.

Bearish Reversal Chart Pattern

Bearish Reversal Pattern

In the above example, MMSI hurried up into the 10 am timeslot. When things couldn’t obtain better, the gas completely ran out of the share. Any longs that jumped on the bandwagon near the end of the move were slaughtered, as the share did not experience any sort of bounce, which would have allowed longs to exit with some dignity.

Bullish Reversal Chart Pattern

Bullish Reversal Pattern

Things were going really well for the bears until that huge green candlestick appeared at 10:15 am. From this point, FET rallied but did provide the bears a little refuge to exit their losing positions a little after 11 am.

Strengths of the ReversalPattern

  1. If you time it just right, the gains will come swiftly as everyone is tripping over himself or herself to exit the position.
  2. 10 am to 11 am provide the perfect opportunities for trend changes as 30-minute and 1-hour traders enter the morning action.
  3. You instantly know if you are defaming if the primary trend continues.
  4. Opening amount and/or gap zone are obvious exit points for winning trades.

Weaknesses of the Reversal Pattern

  1. You have to time it just right!
  2. Going counter to a strong trend is a risky business. It’s like walking in front of a moving train.
  3. You are entering trades later in the day and there’s a risk for volatility to dry up after the before all else hour of trading.

Late Day Consolidation Pattern

My friend, this is by far the hardest of any day trading patterns to master. Few traders can turn a benefit late in the day. The beauty of the late day consolidation pattern is that the share will go on in the direction of the breakout into the marketplace close.

Below is the makeup of the pattern:

  1. Trades should be entered after 1 pm.
  2. There should be a break of a lengthy trend line. This could be a trend line that started from early in the day or preferably a previous trading day.
  3. There should be a minimum of 4 consolidation bars prior to the breakout.

BearishLate Day Consolidation Pattern

Bearish Late Day Breakdown

In the above example of CALA, notice how the share drifted sideways from noon to 1 pm forming a tight range. Then slightly after 1 pm, there was a 4 bar consolidation that ripped through the recent low which started a 10$ drop in a little over an hour.

The most important thing to note on the chart is that CALA broke a major trend line in the morning. Therefore, a trader watching the later breakdown after lunch would have been able to reasonably expect a sizable move due to the significance of the weakness in the morning.

Bullish Late Day Consolidation Pattern

Bullish Late Day Breakdown

Stop Looking for a Quick Fix. Learn to Trade the Right Way

DTWI had a nice 5 bar consolidation during lunch and then broke out right at 1 pm. DTWI then went on a run into the close. Notice how the move up never had a strong pullback to challenge the primary trend. When you catch these setups, you really have to step back and smell the roses.

Strengths of the Late Day Consolidation Pattern

  1. The share has the rest of the afternoon to run.
  2. You actually have time to watch the play develop. Often times in the morning, the marketplace does not afford you the luxury of resting on your laurels.
  3. Technicals work better as the catalyst for the move in the morning has died down.

Weaknesses of the Late Day Consolidation Pattern

  1. The pattern has a high failure rate. For every share that breaks out and continues in the direction of the primary trend until the close, many fail and roll back over into a lifeless state. This lack of volatility and volume is what forced me to the reality that late-day trading is not for me.
  2. If you aren’t careful, you might fall in the snare of carrying a position immediately. Being a day trader, that is unacceptable when you’re open to everyone the marketplace externals such as earnings reports, clinical trials, clinical trials and most the other after-hour shenanigans of the marketplace.
  3. For those people who’ve traded daily long, you’re tired by days ahead. You literally feel as though the human mind was sitting at a rice grinder. The sooner you are able to finish the higher, therefore needing to sit and see the tape daily could turn into somewhat too many with time.

In Summary

There are a lot of graph layouts you are able to trade from the marketplace nonetheless, these really are the 3 chief layouts I have seen through recent years. Like everything else together with trading, the more you’re able to focus your attention on a couple of areas, the more elaborate the likelihood you could possess of succeeding.

The important takeaways are in the event that you overlook ‘t mind the hustle and bustle in the morning, then the morning consolidation pattern is for you.

If you like to go counter to things in life and act as alone wolf, then the reversal pattern is more your speed.

Lastly, if you like to dig deeper into chart patterns and compete with other seasoned traders in the afternoon, then the late day consolidation pattern will suit your needs.

I really hope this article was helpful. To learn more about how Fx-generation can help you become a better trader, please visit our homepage.

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