How To Decode The Day Trading Markets By Charts And Patterns

Following the first part of the notes for profitable day trading, we will deep dive into other crucial elements for loss minimization and technical analysis. It is obvious that you should understand the market and the patterns of its movements. Such insights are the base for the development of viable strategies. Join us in the walkthrough of charts and technical analysis patterns below!

Technical analysis helps us see through the cycles of price actions so we can project the next market moves for adaptable strategies and tactics. Day trading has a fast pace when every selling or buying action should be done before a trading day closes. If you wonder whether a day trader should hold positions overnight or not, check out the details in our previous blog.

Preparation and market understanding plays an important role in strategy development and tactic adjustment. Instead of being panicked by the tumultuous price actions, chart reading could help you point out the possibilities of the next market momentum.

There are some popular chart patterns that you should learn when day trading, such as:

It consists of engulfing candles, dojis, harami, rising three, falling three, etc. For more than a century, candlestick charts have been applied by many traders in many generations to project the short-term direction of the price.

If you are familiar with bar charts by West countries, candlestick charts indicate the market’s open, high, low, and close price for a trading day. The wide part of a candlestick is called the “real body” to display the price range.

When the real body is filled, it is a signal of a lower closing price than the open. Also, the empty body signifies that the close is higher than the open.

Trendline patterns will help you point out the support and resistance areas on price charts. It combines the straight lines on a chart with the descending peaks (highs) and ascending troughs (lows).

Instead of showing the support and resistance levels, triangle patterns show the continuation of a trend. It will help you confirm whether the price will keep rising or change its direction. You can understand a triangle as a pause throughout a prevailing trend. Common patterns showing the continuation include pennants, flags, wedges, etc.

Hopefully, you can learn better techniques and strategies to adapt to your process. Once you can master the way price actions move, risks still happen. Don’t worry! We will come back with the third article in this series about how to minimize losses of day trading. Stay tuned!

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