Financial literacy is the key to unlocking a world of opportunities. Today, I’m excited to share my favorite technical patterns. In stocks the word technical is just a fancy word for looking at a stock's chart. These chart patterns have made me a LOT of money.
For all the pure math-based traders out there, open your minds and realize that charts, moving averages, and support and resistance levels are powerful tools that can enhance your confidence in math-based trades
Ready to level up your trading game?
Imagine having your TradingView charts look exactly like mine!
I've put together a FREE, step-by-step guide that shows you how.
Don’t miss out—grab your copy now!
As a contrarian trader most of my favorite patterns are reversal related. Meaning if we get a signal a stock is about to reverse we can setup a trade. I think by combining high probability math based trades with these patterns you gain an edge in the trading world.
Here are 7 of my favorite patterns to make money with real examples. You'll now understand some of the reasons I take a trade in discord!
1. Double Bottom
The double bottom is a bullish reversal pattern that signifies a strong level of support. It forms after a downtrend, indicating that the price is likely to rise.
Identification:
Two distinct lows form at roughly the same price level.
There is a moderate peak between the lows, creating a “W” shape.
Volume often increases on the second bottom.
Why I Like It: The double bottom is a reliable indicator that the downward momentum is exhausting, and buyers are taking control. It’s a clear sign to consider buying. Wait for a neckline retest. Trying to catch that second bottom has cost me a lot of money!
2. Double Top
The double top is a bearish reversal pattern, marking a resistance level where the price struggles to break through. It usually signals a potential downward movement.
Identification:
Two distinct highs form at roughly the same price level.
A moderate trough forms between the highs, creating an “M” shape.
Volume often decreases on the second top.
Why I Like It: Just as the double bottom helps identify support, the double top helps spot resistance. It’s an excellent pattern for selling or shorting opportunities. Wait for the actual breakdown before you go short, remember the blog I wrote on support, you want to make sure it doesn't bounce and turn bullish!
3. Morning Star Reversal
The morning star is a bullish reversal pattern that appears at the bottom of a downtrend. It consists of three candles and indicates the start of an upward trend.
Identification:
A long bearish candle followed by a small-bodied candle (indicating indecision).
The third candle is a long bullish candle, closing above the midpoint of the first candle.
Why I Like It: The morning star is a powerful signal of a potential trend reversal, offering a clear entry point for bullish trades. It combines price action with market sentiment, making it a strong indicator. Wait for the third candle to close, you can setup a limit buy for the breakout. I loke to look for morning star reversals on moving averages! See that picture above? that's MONEY!
4. Evening Star Reversal
The evening star is the bearish counterpart to the morning star, appearing at the top of an uptrend. It signals a potential reversal to the downside.
Identification:
A long bullish candle followed by a small-bodied candle.
The third candle is a long bearish candle, closing below the midpoint of the first candle.
Why I Like It: The evening star is a straightforward pattern to identify and a reliable signal for potential bearish moves, helping traders take advantage of upcoming downward trends. Like the morning star you want to see the third candle close. I really like these when the stock is already high!
5. Head and Shoulders & Inverted Head and Shoulders
The head and shoulders pattern resembles three tops or bottoms where the middle resembles a head with two shoulders, indicating a shift from bullish to bearish trends (or vice versa in the inverse pattern).
Identification:
A peak (shoulder) followed by a higher peak (head) and then another lower peak (shoulder).
A neckline drawn across the two troughs.
Why I Like It: I like both the inverted and regular head and shoulders. If you see this setup it's a powerful pattern because you have 3 times where the stock failed. It is useful for identifying major market turning points. As I have said wait for it to setup before you jump in the trade.
6. Pennant Patterns
Pennant patterns are compression during a continuation pattern. Think of these as a compressed spring ready to explode. They are formed during strong trends.
Identification:
A sharp price movement (flagpole) followed by a several candles that keep getting smaller making a small symmetrical triangle (pennant).
The breakout occurs in the direction of the preceding trend.
Why I Like It: Pennants are one of my favorite quick trades. I've made a lot of good money in a short time because as the stock compresses the pressure builds up. These are best when the stock is already in a nice trend and you get a little break. Look for a trade in the direction of the existing trend, I encourage you to be quick on these.
7. Hammer Pattern
The hammer is a one of the most basic strategies for a good reason! A hammer is a single-candle bullish reversal pattern that forms after a downtrend, indicating a potential bottom.
Identification:
A small body with a long lower shadow and little to no upper shadow.
The lower shadow should be at least twice the length of the body.
Pickup hammers off the ground for the best success- meaning a hammer when the stock is low (at support) is better than a hammer at resistance.
Why I Like It: The hammer is a clear and easy-to-spot pattern that can signal the end of a downtrend. It’s particularly useful for identifying potential entry points for long positions.
So there you have it, 7 chart patterns EVERY math based trader should learn. Using technical patterns AND math based options trading significantly enhances my success. These seven patterns are some of my favorites chart patterns. They are simple and easy to trade. Incorporating these patterns into your trading to make more informed decisions and improve your trading performance. at Good Kids Trading, we’re not just about making trades; we’re about making smart, informed decisions that lead to financial freedom.
Happy Trading Good Kids,
Justin
I understand the stock market can feel intimidating and complicated, if you want some extra support and guidance, I help people skip levels, schedule a free discovery call with me. Lets talk stocks and see if I can help you! Click on the image below and setup a time that works for you!
If this was helpful and you want to show your appreciation for my time and knowledge I love coffee!
This is not trading advice, it's for your education. I'm a dude on the internet who’s been trading for 2 decades, and I use the stock market as my primary source of income. None of this is financial advice. Any trades or decisions you choose to make are at your own risk, this is purely educational!
Comments