Gold trading charts

Understanding the Main Types of Chart Patterns

Today we are going to summarize the main types of chart patterns and how you can use them to your advantage while trading gold. It’s very simple; you just need to follow what the charts tell you. When you read the chart and use technical analysis to understand where gold prices have been and where they’re going, you can reap big profits with online gold trading.

 

Continuation Chart Patterns

 

Continuation chart patterns are formations that are an indication that the current trend will continue. Sometimes these are known as consolidation patterns. They show how traders take a quick break before moving onward in the same direction as the most recent trend.

 

There are three main types of continuation chart patterns: wedges, pennants, and rectangles. In order to trade these patterns, you need to place your order just below or above the formation, depending on the ongoing trend. Stops are also placed above or below the actual chart formation.

 

Reversal Chart Patterns

 

Reversal chart patterns are formations that signal that the current trend is about to deviate from its course. If one of these patterns forms during an uptrend, this hints that the trend will change and that the price is going to drop. Alternatively, if a reversal chart pattern is seen during a downtrend, the price is going to move up soon enough.

 

There are six types of chart patterns that give reversal signals. They are double top, double bottom, rising wedge, falling wedge, head and shoulders, and inverse head and shoulders.

 

In order to trade using these chart patterns, you need to place an order beyond the neckline, in the direction of the new trend. You should go for a target that is close to the same height as the formation.

 

Bilateral Chart Patterns

 

These chart patterns signal that the price can move either way. This makes them a bit more difficult to follow than the other types of patterns. You need to make use of triangle formations in order to use these patterns. You need to consider both the upside and downside breakout scenarios and place one order at the bottom and another at the top of the formation. If one order gets triggered you need to cancel the opposite one.

 

The one main issue with this pattern is that you could fall prey to a false break if you’ve set your orders too close to the bottom or top of the formation.

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