Chart analysis topics, part 4

Chart analysis topics, part 4

We have reached the final part of our journey on essential chart analysis topics. In the previous article, We discussed the basics of how chart patterns function. This time, however, we will be looking at how to use the patterns effectively, to your advantage.

Using chart patterns

When deciding on a trading plan, traders should keep a close eye on any chart patterns that are apparent. Each one has a different (although sometimes similar) prediction for the future. New traders should have a close look at them and balance them out. They should balance out all the factors these charts predict and decide where the future lies. Then, they can act accordingly. Have a setup, or a reason for your trade, according to which you will act.

Decide upon where you believe a trade will likely trigger. Do not enter too early in a trade, as this could be premature. If a chart pattern is incomplete, it could never complete at all. Thus, your predictions would also likely not come to fruition. You have to determine exactly where the pattern is complete and strike when you believe that time is right. The value confirmation is the indication, according to multiple factors, that a chart will move in a certain direction. These patterns tend to indicate a time for short or long entry, which you should decide on.

Also worth keeping in mind is the support and resistance level at any time. These give an extra dimension to where the price could move.

It’s also always good to have stop-loss orders in place. These can ensure that prices do not get past a certain point, and you do not lose too much cash. If your prediction is wrong, these can remedy that. Your prediction could be right, but trends only tend to last so long. In this case as well, these orders can minimise losses.

 

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