Not so long ago, I realized three fundamental patterns that occur daily in almost any stock market. It took me many years to understand them and figure out why they appear. However, once I had spotted them, making consistent money became very easy.
Despite having a high probability of a predictable stock movement, it is not guaranteed that they will work all the time and make you money.
Additionally, these patterns are well known and not my discovery. However, one of the three patterns is considered to be the most predictable stock chart pattern in the world.
In this article, I’ll go over these three patterns and help you understand how to spot them. You’ll know how to trade them and make more consistent money.
Simple rules of these trading patterns
Now don’t get me wrong, these patterns work and are proven to help make money. But there are some rules you’ll need to follow and practice if you really want to become familiar with these patterns.
- I usually sell the stock if I’m up by 10%. In some cases, I may hold till 20%, but usually, I sell half of my position at 10%.
- Always set a stop loss! I always sell the stock if it starts to decline. If the losses reach 5%, I sell it immediately.
- If the stock price is going against me, I never buy more.
Again, these are rules that worked best for me. You’re allowed to have your own set of rules that work for you.
- The Fish Hook Oversold Chart Pattern:
As the name suggests, this pattern follows the shape of a fish hook. At first, the price of the stock starts to drop drastically. However, don’t panic and start selling your shares. The prices will eventually rise as buyers neutralize the effect. After some time, the price will rise, and you can enjoy greater profits. A significant aspect to keep your eye on is the RSI. The RSI should start to increase, indicating a bounce in prices is imminent. See the top image.
- The Bull Flag Continuation Pattern:
This is one of the most predictable and popular stock patterns. Suppose that the price of a stock increases significantly. This increase will continue until the trend settles into somewhat a straight line. After staying there for a bit, the price again will start to rise. The trend in which prices are increasing is called the ‘flag pole’. The portion in which there is a sideways or slightly downwards movement is called the ‘flag’ portion of the pattern. So, what do we learn? When the stock reaches the flag portion, purchase the stock. If the pattern upholds, the price will increase, and you will earn a more significant profit. Nonetheless, despite being promising, the timing of purchasing a bull flag continuation stock is the most crucial and most challenging part.
- The Breakout Pattern:
A breakout is generally defined as a period in which both the price and volume of the stock soar to new heights altogether. A breakout is usually initiated by some good news or excellent press releases. Purchase the stock when you think a breakout is about to happen, and I promise you, you’re investment will not be wasted. However, be prepared to sell the stock and incur a loss if the pattern does unfortunately fail. These stocks are very rewarding but also carry a high level of risk.
These are my three most favorite stock patterns that help make trading a lucrative and fun part of the business. Keep practicing and gaining experience. Eventually, you will figure out even more patterns in stock charts and that extra income will certainly help.