Chart models are one of the most precise and reliable techniques of analysis and negotiation known to men, and they have been used for decades to generate precise buy / sell signals. on stocks, currency pairs and commodities. In this article, you will learn the right way to trade stock chart models for profits.
The first step is to familiarize yourself with the patterns. There are many sites that show you chart patterns, and we recommend that you start by only marketing the chart patterns and only the most reliable: Double Top, Triple Top, Double Bottom, Asymmetric Triangle and Channel. These models are relatively common and very precise: if traded correctly, you can easily achieve 70-75% success rate with them. Find out how to identify these patterns and where the entry points are, and how to calculate the stop loss and profit size.
The 2nd step is to signal the precise entry point, and for that we will use candlestick formations. Learn more about several candlestick formations like the Sunken Sun, the Morning Star, the Evening Star and the Doji. These candlestick trainings will help you signal the exact entry point to your trades so that you enter just at the start of the reversal and not before. We usually want to see the price create at least one candlestick in the reverse direction before entering, and it should bypass the previous candlestick to signal entry.
Once you know how to report entries, it's time to calculate your stop loss and take profit. The stop loss should generally be placed 1 point above the highest of the last 3 bars (for short transactions) and 1 point below the lowest of the last 3 bars (for long transactions). Calculate the profit taking location using the measurement ruler of each model, then: calculate the risk / reward ratio. This means, the relationship between risk and reward. Divide your potential profit with the potential risk and you will get the risk / reward ratio. If this ratio is less than 1, it is recommended not to enter the trade because you risk large amounts to gain a smaller one, which is not recommended for long term survival and profitability on the steps.
Note that at the beginning, identifying the exact patterns and entry points will not be so easy, as it takes experience to do it well, so don't be discouraged and keep learning on a demo account, and after a few months you will become a very good chart trader, and trading chart patterns will become very easy for you. After 1 year, most traders develop a kind of sixth sense that they can use to find out if a certain trade will be profitable or not, without even being able to explain it. The main idea is to be consistent and not give up, and you will see these profits accumulating in your trading account.