Chart patterns and technical analysis
Though chart patterns are considered a form of technical analysis, they can only be capitalized by a human eye. It would be almost impossible for a computer to see a head and shoulders pattern forming or what looks like a double bottom. Even worse, candlestick patterns and other forms of chart analysis cannot be automated. This is something that will have to be done by the trader; there is simply no short cut.
Adding chart patterns
For the active, professional trader, you can enhance your strategy with the inclusion of chart patterns. Use chart patterns to confirm what you already think is true about the market, while limiting yourself when the chart patterns go against your other indicators.
As always, adding another indicator makes trading less risky, but it also requires more work. Staying on top of several charts with varying timeframes may mean that you’ll only be able to trade a handful of stocks per day. It is impractical, if not impossible, to watch tens of charts simultaneously seeking short-term patterns.
Trading plan in 5-easy steps
Building a customized plan around chart patterns usually involves the use of chart patterns solely for trade confirmation. Making quality trades with a confirmation signal of any type will increase your profitability, and chart patterns are a simple, accurate way to become more profitable with your entries and exits.
How to add in chart patterns
It would be wise to include a number of charting examples to guide you through trading. Pick a few chart patterns, such as the head and shoulders or double bottoms, which can be used as examples to show what you want in a solid trade. Remember, chart patterns are never exact, and therefore, it may take a little imagination to find obscure but profitable patterns like the cup and handle. Established chart patterns are easier to find on long term charts where the movements look more solid