Investing > Day Trading Patterns

Day Trading Patterns

Knowing how to use day trading chart patterns is an essential skill that all successful traders have to master.

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Updated January 09, 2022

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If only you could predict what is going to occur next in the fast-paced world of day trading—wouldn’t that be grand? 🗺️

The appeal of day trading is obvious. Entering and exiting positions just at the right time, you can rack up small profits—but those can easily pile up. And if you do want to start trading, you’re not alone—plenty of people have taken to day trading in the last few years. You’ll need a good platform, some money set aside, and an account—but that’s the easy part.

Once you actually fire up a trading platform, it’s very easy to get overwhelmed. Let’s not kid ourselves—a stock chart isn’t exactly the most intuitive thing man has ever come up with. In fact, it can seem pretty arcane and incomprehensible—but there’s a cure for that, and they’re called chart patterns or price patterns. With them, you can actually predict what’s going to occur—but it takes a lot of practice.

In this guide, we’ll tackle the topic of day trading patterns. Patterns fall under the discipline of technical analysis, and they’re very useful for any type of short-term trading—but day trading is the investment strategy that depends on them to the highest degree.

Now, before we begin, let’s just make one thing crystal clear—this isn’t a silver bullet. There are no fast and easy solutions in the world of investing—but if you take the time to carefully study these patterns, you’ll have a huge leg up on the competition. If you really apply yourself and get acquainted with all of them, you’ll always have at least some idea of what an asset’s price is going to do.

Just knowing the patterns isn’t enough though—you have to understand a variety of other concepts such as support and resistance, not to mention how to read Japanese candlesticks. So, we’ve got a lot to cover.

Let’s get to it! 🚀

What you’ll learn
  • What Are Day Trading Patterns?
  • Popular Day Trading Chart Patterns
  • Support and Resistance
  • Ascending Triangle
  • Cup and Handle
  • Bullish Flag
  • Engulfing Candles
  • Head and Shoulders
  • Hanging Man and Hammer
  • Double Tops
  • Double Bottoms
  • Do Day Trading Patterns Really Work?

What Are Day Trading Patterns? 🤔

Before we move on to the actual patterns, let’s talk a little about the concept of day trading patterns. Stock chart patterns, in general, are a tool used in what is called technical analysis—the main avenue of research for short-term trading.

You might have come across the term fundamental analysis before. The way that fundamental analysis works is by looking at a company’s financial statements in an attempt to figure out what the long-term prospects of the business look like. And while that might be useful information, remember—we’re talking about day trading here. Whether or not a stock shows promise that it will rise in price in five years’ time is irrelevant to our concerns here.

So, if you’re intent on making short-term moves, i.e. trading, you’re left with technical analysis. Unlike fundamental analysis, technical analysis looks at statistics—historical price data and trading volume, in an effort to figure out how the stock will perform in the short term. But technical analysis isn’t anything new—in fact, one of the pioneers of this research method was Charles Dow, after whom the Dow Jones index is named.

Once you’re familiar with technical analysis, you’ll see that certain patterns are common. Spotting them requires a basic knowledge of how to read a stock chart, but you’re going to need an in-depth understanding of the patterns themselves to truly make use of them.

We’re going to cover 9 of the most important stock chart patterns for day trading. But before we move on, we have to talk about Japanese candlesticks. If you’re not familiar with them, looking at these charts will prove incomprehensible—and if you are familiar with them, it’s also useful to know why day traders prefer this charting method.

Japanese Candlesticks 🇯🇵

Japanese candlesticks are nothing new—in fact, they were pioneered by a rice merchant named Muneheisa Honma in the 18th century. Muneheisa Honma also holds the distinction of being one of the earliest authors to tackle the topic of market psychology, in his book San-en Kinsen Hiroku.

Japanese Candlestick Parts
Candlesticks are the go-to option for day traders because of the wealth of information they provide through a very simple format.

As you can see, Japanese candlesticks are quite different when compared to your regular old bar chart. They’re simply better at giving you more information even at a glance. A bar chart tells you what the closing price was—a candlestick tells you the same thing, plus the open, high, and low, as well as if the open was higher than the close.

The “wick” that you see above and below the body of a candlestick is called a shadow—and it represents the upper and lower prices of the day’s trading. The color of the candle tells you whether the open was higher than the close—if it was, the candle will be green, if it wasn’t, it will be red. The body of the candle represents the open and the close—if the candle is long, there’s a large disparity between the two.

Popular Day Trading Chart Patterns 📊

Now that we’ve covered the most important information about Japanese candlesticks, let’s get to the meat of the matter—the chart patterns themselves.

We’re going to start with support and resistance lines, which give you the framework in which you’ll be looking for the other patterns—and we’re going to be covering nine patterns, chosen either for their simplicity, reliability, or frequency.

Support and Resistance 🛡️

Before we move on, we have to define a few key concepts that you’ll need in order to analyze most stock chart patterns. These concepts are support, resistance, and breakout.

resistance and support lines
The resistance and support lines determine a range in which a price is likely to move, Image by TradingView.

We use support and resistance lines to ascertain whether or not a new trend is going to occur in a stock’s price. The support line is the bottom line—it tells us the price that the stock hasn’t traded under, and the upper, resistance line, tells us the price that the stock hasn’t traded over. As you might have gathered, these lines are above and below the current trading price, respectively.

Once a stock’s price breaches either of these lines, there is a strong likelihood that you’re seeing the beginning of a breakout. However, don’t be fooled—if a stock crosses one of these lines and sees a price correction in a matter of moments, you’re not actually seeing a breakout.

On the other hand, if the stock’s price holds steadily above or below the respective lines, combined with an increase in volume, then that gives a much better signal. However, the biggest utility of support and resistance is that they give us a simple framework in which we can look for chart patterns.

Key Characteristics:

  • ☑️ Essential for understanding stock chart patterns
  • ☑️ Support line represents a low that hasn’t been surpassed
  • ☑️ Resistance line represents a high that hasn’t been surpassed
  • ☑️ Should be used in conjunction with volume and indicators
  • ☑️ Breakouts occur when either line is breached

Ascending Triangle 💰

For our first-day trading patterns, we’re going to be talking about triangles. Specifically, we’ll be covering ascending triangles. There are two more triangle charts, but to keep things simple and easily digestible, let’s begin with just one.

The ascending triangle is a continuation pattern—it gives us a signal that the trend that is playing out right now will continue to hold. It is also a bullish pattern—meaning that it signals that an uptrend will continue.

ascending triangle stock chart pattern
Graphic representation of the ascending triangle stock chart pattern. Image by TradingView.

Right off the bat, you can see that the stock’s price experiences a couple of small highs—these peaks are connected to form a small resistance line. The small lows, on the other hand, form a diagonal trend line that is trending upward. The result is a triangle shape, hence the name.

In general, the narrower this pattern is, the safer it is. If it’s wider, it is a bit riskier—but that can easily be remedied by using more complex order types, such as stop-loss orders. Keep an eye out for volume—it should be in decline during the initial formation of the triangle and should experience a rather rapid uptick when the breakout occurs.

In general, to draw an ascending triangle, you need to spot at least two swing highs and two swing lows. The swing lows should progressively become higher, while the swing highs should be as close as possible in price to one another.

Key Characteristics:

  • ☑️ Signals the continuation of a trend
  • ☑️ Bullish
  • ☑️ Requires monitoring of volume
  • ☑️ Frequent

Cup and Handle 💸

The cup and handle is one of the most easily recognizable and intuitive chart patterns. It’s a continuation pattern—which means it signals that the trend that has held up to that point will continue.

cup and handle presentation
Graphic representation of the cup and handle stock chart pattern. Image by TradingView.

Looking at the beginning of the chart, we can see a uniform increase in price—the important thing here is that it has to be in tandem with an increase in trading volume. If both elements are present, you might be looking at the beginning of a cup and handle pattern.

After that initial rise, both the price and trading volume drop—this forms the so-called bottom of the cup. After that, a gradual rise in both metrics occurs, which is followed by a small drop in both which forms the handle. After the handle, the stock’s price experiences a breakout, and the price is going to reach new highs.

However, keep in mind that not all cups are equally bullish or promising. In general, you’ll want to stay away from ups that have sharp, v-shaped bottoms, as well as cups where the handle goes more than one-third into the cup. On top of that, also keep in mind that volume should decrease up until the bottom of the cup, and experience a steady rise to the end of the pattern.

Key Characteristics:

  • ☑️ Easy to recognize
  • ☑️ Continuation pattern
  • ☑️ Bearish—signals an uptrend
  • ☑️ Dependant on volume

Bullish Flag 🐂

Flag patterns are one of the more commonly seen day trading patterns. They happen when consolidation occurs, but are a continuation pattern—signaling that a stock will continue on its previous trajectory after the short consolidation period.

bullish flag stock chart pattern
Graphic representation of a bullish flag stock chart pattern. Image by TradingView.

We’re going to use the example of a bullish flag—one of the strongest and most sought-after chart patterns which indicate a good opportunity to buy.

The flag forms during an uptrend—the initial sharp rise in the stock’s price forms the so-called flagpole. After that, we can clearly see the consolidation period—prices vary, rising and falling, but not by much. After that, a breakout occurs, and the stock continues to rise in price, reaching new highs.

Keep in mind that these are quite short-term chart patterns—they’re perfect for day trading, but in order to profit, you’re going to have to enter a position at just the right time. 

One of the ways to ascertain the validity of this pattern is through trading volume—the initial rise seen in the flagpole should be followed with a simultaneous rise in trading volume. The consolidation period should show an even amount of volume—but keep in mind that this doesn’t necessarily mean that there won’t be a large drop in volume compared to the flagpole. When the breakout occurs, the trading volume should rapidly pick up the pace again.

Key Characteristics:

  • ☑️ Continuation pattern
  • ☑️ Bullish
  • ☑️ Has a pronounced consolidation period
  • ☑️ Occurs after a rapid rise in price

Engulfing Candles 💵

The engulfing candle chart pattern signals a reversal in the prevailing trend. It’s quite simple to spot and is likely to catch your eye when looking at a chart even if you’re not aware of it. Unlike most of the chart patterns in this list, this one encompasses only two candles.

Bullish Engulfing
Graphic representations of the bullish engulfing candle pattern.

Before we move on, it’s important to mention that engulfing candles can either be bearish or bullish—both signal the trend that is about to take hold. For our example, as seen in the picture above, we’re going to talk about the bullish candle.

The first thing that pops out is the notable size disparity between the two candles—and this is the key to the concept of this pattern. The bullish engulfing candle happens during a clear downtrend—after a single red or hollow candle, the next is much larger, and opens at the same price or an even lower one than the previous close.

However, what happens next turns things around—the length of the engulfing candle is larger than the entire previous candle. Usually, engulfing candles have very small or negligible shadows or wicks.

Highly sought after and ever-reliable, the bullish engulfing candle is one of the strongest indicators of buying pressure and investor confidence. It’s a clear-cut sign that a new bullish pattern is beginning—and it’s advisable to buy as soon as the trend is confirmed. The bearish engulfing candle appears in opposite circumstances and is a strong sell signal.

Key Characteristics:

  • ☑️ Reversal pattern
  • ☑️ Strong bullish signal
  • ☑️ Consists of only two candles
  • ☑️ The engulfing candle has a large body, and a small wick

Head and Shoulders 🏦

A widely beloved stock chart pattern, the head and shoulders are considered one of the more reliable telltale signs of a trend reversal. As an added bonus, like a few of the patterns that we’re going to cover down below, this one has quite a distinctive shape that is easy to spot.

Head and Shoulders Pattern
Graphic representations of the head and shoulders chart pattern. Image by TradingView.

The classic head and shoulders is a reversal pattern that occurs during an uptrend. As such, it tells us that the price rally seen up to now is coming to a close, and that a bearish trend is about to begin.

The head and shoulders pattern occurs when a stock, in an uptrend, reaches a new high—only to then fall a bit, and reach a new, even greater price—which is followed by a drop, and another rise that mimics the first one. After the second rise, the stock breaches the support line, and a downtrend emerges.

So, how do we confirm that this pattern is occurring? During the formation of the first peak or left shoulder, the trading volume of the stock should increase. During the subsequent drop, volume decreases, only to even out during the formation of the head—and it should remain strong during the formation of the second shoulder and the subsequent drop in price.

We’ve covered one version of this chart pattern—but keep in mind that there is also an inverse head and shoulders pattern, which signals the end of a bearish trend and the beginning of a bull run.

Key Characteristics:

  • ☑️ Reversal trend
  • ☑️ Bearish
  • ☑️ The distinctive shape makes it easy to spot
  • ☑️ Variable volume throughout the pattern

Hanging Man and Hammer 🪙

Hammer chart patterns are slightly different than most of the others on this list—to recognize them, you just need to look at a single candlestick. Of course, you need to pay attention to the price movements that precede that candle—and there are a couple of other conditions that have to be met.

Hanging Man
The hanging man is one of the easiest reversal patterns to spot due to it being indicated by a single candlestick.

As you can see in the image above, the hanging man pattern has a hammer-like candle at the top. This is a bearish short-term pattern but you’ll also come across an inverted, bullish version called “the hammer.”

In both of these patterns, the body of the candle is rather small—while the shadow on the bottom is quite long. The real bodies of the candles are quite close to the day’s highs, and the shadows should be at least twice as long as the body. The longer the shadow, the more likely the chart pattern is to play out—and sizable trading volume is another good sign.

A hammer occurs in a downtrend, and signals that it is about to end. Similarly to this, the hanging man is the exact opposite—it occurs in an uptrend, signaling that it is about to reverse. Both of these are reversal patterns—one bullish, and the other bearish—and although they appear simple, you need quite a bit of experience to gauge whether you’re actually looking at this pattern. As both are reversal patterns, they offer strong signals for either buying or selling the stock in question.

Key Characteristics:

  • ☑️ Reversal pattern
  • ☑️ Can be either bullish or bearish
  • ☑️ Single candlestick
  • ☑️ Small body, long shadow or wick
  • ☑️ Wick should be at least twice as long as the body

Double Tops 💶

A double top is a reversal pattern that signals the beginning of a bearish trend—in other words, a downtrend. It’s easy to spot, and usually signals the beginning of a trend that will last for some time.

Double Top
 A double top indicates that an upward breakout was unsuccessful, hence the reversal that usually occurs afterwards. Image by TradingView.

Appearing in the shape of the letter M, the double top is another chart pattern that is quite easy to spot. For a true double top, the price needs to reach the same high twice—with a small drop in between them.

For most true double tops, the drop in price that is seen in the middle varies from 10% to 20%. There are a couple of other telltale signs that you should look out for—the rise in price after the drop should be accompanied by low volume, and the two highs shouldn’t differ more than 3% or 4%.

For a final confirmation that this chart pattern is holding true, look at the stock’s trading volume after the price drops following the second high—if the volume continues to rise while the price continues to drop, then the pattern is indeed legitimate.

Key Characteristics:

  • ☑️ Reversal pattern
  • ☑️ Bearish
  • ☑️ Easy to spot
  • ☑️ Keep an eye on the volume
  • ☑️ Mind the price difference between peaks for confirmation

Double Bottoms 💳

A double bottom is a reversal pattern—it tells us that the trend that we’ve been seeing is about to end. A double bottom is one of the easiest patterns to spot—it looks like the letter W—or the opposite of a double top. In the case of the double bottom, it tells us that the stock is about to experience an uptrend or an increase in price.

Double Bottoms
A graphic representation of the double bottom stock pattern. Image by TradingView.

A double bottom occurs when a stock’s price reaches the same low twice in a short span of time. A good rule of thumb is that the first drop should be a drop of 10% to 20%, while the second drop should be roughly the same—it shouldn’t vary more than 3 or 4% from the first low.

After the second low, the stock experiences a breakthrough—keep in mind, however, that you’ll need to see a good increase in trading volume to be sure that the bullish trajectory will continue to hold.

However, one of the flaws of the double bottom is that it’s quite difficult to tell when it’s legitimate when looking at intraday data. If you want to be absolutely sure that this is a true pattern, you’ll need to figure in fundamentals—if you don’t, this is one of the patterns that is more suited to swing trading, as it is much easier to confirm its validity over a period of weeks or months.

Key Characteristics:

  • ☑️ Easy to spot
  • ☑️ Reversal pattern
  • ☑️ Signals the beginning of an uptrend
  • ☑️ Depends on fundamentals for day trading
  • ☑️ Better suited to swing traders

Do Day Trading Patterns Really Work? 💭

On top of that, you shouldn’t approach analysis as a question with only one answer. Sure, patterns will give you some clarity regarding what’s happening—but to maximize your odds of success, you should also be aware of volume, earnings releases, major economic news, and media coverage of the stock in question.

In particular, you should combine the benefits that analyzing stock chart patterns provides you with other tools of technical analysis—primarily technical indicators, which will be the topic of the next section.

Another important thing that you should keep in mind is that these patterns don’t just occur out of the blue or at random. Nothing happens in a vacuum—and when other traders notice a pattern forming, they’re likely going to react to it.

In essence, this leads to chart patterns becoming a sort of self-fulfilling prophecy—a pattern gives us a signal that people will buy, and, wanting to profit from the increase in price, we buy, and so do other traders. The end result—people have bought, just as the pattern indicated.

However, even if charts are nothing more than self-fulfilling prophecies, having the necessary know-how needed to identify them, as well as knowledge of what is the optimal entry and exit time, can lead you to sizable returns.

Using Day Trading Patterns with Indicators 🏛️

Stock chart trading patterns are one of the most essential elements of technical analysis that you’re going to be utilizing as a day trader—but they aren’t the only thing in your toolbox. In fact, if you want to make proper use of day trading patterns, you’re going to have to supplement that information with other tools of analysis—primarily, technical indicators.

Technical indicators are mathematical calculations that factor in trading volume, historic price data, and open interest in order to generate buy and sell signals. While neither trading patterns nor technical indicators can give you the full picture on their own, when used in unison, they provide a much more solid base of empiric data to base your decisions off.

Of course, if both a chart pattern and technical indicators agree that a stock’s price is going to experience a rally, you’re good to go. But the more interesting thing happens when one of these two methods gives us a signal that goes counter to what the other one is saying.

We’d err on the side of caution—if you notice a stock chart pattern, but indicators show that the stock has lost all momentum—like the stock market does after bullish intervals—you’d best avoid trading it and incurring a loss.

Indicators, much like stock chart patterns, are quite varied—they fall into one of two main categories: overlays and oscillators. Overlays are plotted over the stock chart, while oscillators are plotted either above or below the chart.

The most important technical indicators include Bollinger bands, relative strength index, moving average convergence or divergence, and stochastic oscillators. Taking into account how many technical indicators a platform supports is an important consideration when trying to find the best stock brokerages.

🏆 Not sure which broker to use? Learn about the top stock trading platforms.

How to Practice Using Day Trading Patterns

Depending on how much free time you have, we’d suggest picking a couple of chart patterns and starting there. Work on recognition, confirmation via other metrics, and finally execution to ensure you enter and exit positions in a timely fashion. If you haven’t used Japanese candlesticks before, you better get used to them—you’ll be seeing a lot of them.

Remember—these patterns aren’t foolproof. If day trading was as easy as recognizing relatively simple patterns on a screen, everyone would be a millionaire. Recognizing the shapes themselves is relatively easy—pay attention to volume, be honest with yourself about your risk tolerance, and always set reasonable price targets. 

Without that sort of rational, shatterproof discipline, you can just as easily lose all your gains with a few bad trades. Remember, the ultimate goal of day trading is to rack up small, yet consistent profits—rookies often lose money by getting greedy and aiming too high.

Bar none, the best way to practice using day trading chart patterns is to make use of a demo account—a practice account that allows you to make trades using fake, virtual money. Thankfully, a vast majority of the premium brokers for day trading offer them. Demo accounts are useful in more ways than one—sure, they allow you to trade and get a feel for the market without risking your money, but they also give you an opportunity to get familiar with a certain platform.

With time, you’ll master a couple, and can move on to others—and, eventually, you’ll see that you’ve developed a passive ability to recognize patterns. In time, you might develop a system of your own—with your own conclusions regarding volume, other relevant factors, and confirmation criteria. Once that happens, it’s safe to say that you’ve mastered the art of day trading with stock chart patterns.

Conclusion 🏁

Thanks for taking the time out to go over this stuff with us. Chart patterns are incredibly important for day trading—it would be completely fair to call them your bread and butter. Although it might seem like a lot to take in now, with practice, recognizing patterns and making decisions based on them will become second nature in time.

Thankfully, unlike a lot of topics related to investing, this one is a bit more visual and intuitive—no overly complex formulas, no number crunching—but plenty of candles and interesting shapes. Study hard, get a demo account, and you’ll be well on your way to success.

Day Trading Patterns: FAQs

  • Is There a Way Around Pattern Day Trading?

    Yes—simply execute fewer trades than what would qualify you as a pattern day trader. The pattern day trading rule is why many traders decide to swing trade and make profits off of wider price fluctuations.

  • How Much Money Do You Need for Day Trading?

    The most important thing to keep in mind when discussing this question is the pattern day trading rule. If you’re flagged as a pattern day trader, you’ll need at least $25,000 in your account.

    You can avoid being flagged by making less than four day trades in a rolling five-day period. Keep in mind, however, that this is due to U.S. regulations—foreign brokerages might not have this requirement, but if you’re a foreign client using a U.S. brokerage, it’s likely that the brokerage itself will still force you to comply with this rule.

  • How Many Hours Do Day Traders Work?

    There’s no one-size-fits-all answer here—most traders will spend an hour or two trading, but nothing is stopping you from trading for hours on end. However, seeing as how it is stressful and requires your full attention, this isn’t recommended—at least not in the beginning.

  • What Is the Best Time to Day Trade?

    Although this depends greatly on your goals, in general, the period between 9:30 AM to 1:30 AM eastern time has consecutively shown the biggest price moves and best liquidity. 

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