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Intraday trading has always been a popular choice among traders for its fast-paced nature and the potential to generate instant rewards. To engage in intraday trading, one must purchase and sell equities within a single trading day.
But becoming a successful intraday trader requires a sharp eye for patterns and indicators that might help predict price changes in a single trading day. This brings us to the market’s secret weapon: intraday trading chart patterns.
Let’s look at what they are and how you can use them for successful intraday trading.
What are intraday chart patterns?
A chart pattern is an outline seen on a price chart that serves as a guide for future price movements based on historical data. A chart pattern for intraday trading usually shows how prices change over time within a single trading day.
Traders may use these patterns to pinpoint price reversal, breakout, and trend levels. These charts help analyse different time frames, and using them may improve better decision-making. Intraday charts provide a clear picture of a certain security’s activity.
Whether it’s the triangle or the candlestick patterns used in intraday trading, each pattern serves as a signal for the next potential move.
Top intraday trading chart patterns
The cup’s and handle’s form indicates that, despite the sellers’ reduction in price, buyers took every advantage of the sale and drove the price back to its original drop.
After a brief pause, the price resumes its upward trajectory, creating a pattern similar to the cup handle.
- Intraday candlestick patterns
Visually, candlesticks show the magnitude of price changes. Some common candlestick patterns are:
Doji: In a Doji, the top and bottom wicks are long, and the opening and closing values are nearly identical, creating a little or nonexistent body.
For example, below, we can see the index has formed a “Doji” candlestick pattern.
Hammer and hanging man: Both the hammer and the hanging man patterns include a small body paired with an extended bottom wick and an almost nonexistent top wick. At the base of a downtrend, a hammer may suggest a bullish reversal, and at the top of an uptrend, a bearish one.
Morning and evening stars: The three-candle morning star pattern begins with a huge bearish candle, then a small-bodied candle, and finally a large bullish candle. It points to a bullish reversal. In contrast, bearish reversals are indicated by evening star patterns.
- Continuation patterns
If the current price trend is expected to continue, a continuation pattern will appear on the chart. Some common continuation patterns are ascending triangles, descending triangles, and symmetrical triangles.
- Wedge pattern
A minor trend is the usual way to describe the wedge pattern. There are two specific types of wedge patterns: rising and falling.
- Reversal patterns
The appearance of a reversal pattern on a chart marks the beginning of a new trend and follows a major trend. Some well-known patterns are head and shoulders, triple top and triple bottom, and rounded top and rounded bottom.
How to use chart patterns in intraday trading?
The following are some essential guidelines for recognising and trading intraday chart patterns:
Technical analysis tools
- Trend lines: You can see where the market is heading and when it could reverse by drawing trend lines.
- Moving averages: By minimising price volatility, such indicators reveal patterns and levels of support and resistance.
- Volume analysis: You can tell how strong a trend is or whether it’s about to reverse by looking at trade volume along with price fluctuations.
Entry and exit techniques
- Suitable time frame: Pick a 5-minute, 15-minute, 30-minute, or 60-minute chart that suits your needs. The time interval should capture intraday price movements, patterns, and indications.
- Confirmation signals: Before making a trade, make sure to check for confirmation from other indications or patterns.
- Stop-loss placement: You may minimise your potential losses if the trade goes wrong by using stop-loss orders.
- Profit target setting: Set your profit objectives according to the levels of support and resistance or additional technical indicators.
Your success rate in intraday trading may dramatically increase if you can identify and interpret intraday chart patterns. By analysing these patterns and incorporating them into your trading strategy, you may precisely determine when to enter and exit a position for a profitable trade.
However, in intraday trading, it is hard to overstate the importance of risk management and thorough knowledge of the patterns.
There is no definitive answer to this question, as different traders may prefer different time frames depending on their trading strategy and goals. However, some of the most commonly used time frames for intraday trading are the 5-minute, 15-minute, 30-minute, and 60-minute charts.
Yes, a 1 min chart can be good for intraday trading if the trader is looking for quick and frequent trades, also known as scalping. A 1 min chart is a type of chart that shows the price action of a stock or an asset for every minute.
The best chart for intraday option trading depends on the option strategy, the time to expiration, and the volatility of the underlying asset. However, some of the most popular charts for intraday option trading are candlestick charts, bar charts, and line charts.
The best chart pattern for intraday trading relies on the trader’s objective, risk appetite, and market conditions. However, some of the most common and reliable chart patterns for intraday are head and shoulder, cup and handle, wedge, flag, double top, double bottom, and triangle.
Yes, a beginner can do intraday trading, but it is challenging and risky. It requires careful risk management, market knowledge, and swift decisions. A beginner should start small, follow a simple strategy, learn from mistakes, and use a reliable trading platform.