Chart patterns are a visual representation of the buyer's and sellers' behavior around different price levels. Chart patterns show an increase in price when the price makes a higher high and show a decrease in price when making a lower high. When the market is moving sideways, they create a bottom as the support level is defined and the trend is unknown.

Chart patterns are predominantly momentum-based trading where the breakout of a pattern is a signal to enter a trade. Technical traders rely on price breaking a trend line in a pattern to establish entry points. And then they will manage the transaction so that the order has the best RR ratio. Chart patterns can be a sign of a breakout, a reversal, or a continuation of current price action.

Here's how to trade a step-by-step chart pattern:

Step 1: Identify a pattern on the price chart. (See the picture below to identify the common chart patterns that traders often use).

Step 2: In a bullish chart pattern, a buy signal is triggered when the price breaks above the trendline or resistance of the chart pattern. Similarly, in a bearish chart pattern, a sell signal is triggered when the price breaks below the trendline or support level of the chart pattern.

Step 3: After entering chart pattern trading, for buy orders, the profit target of the trade can be set based on the previous resistance level on the long-term chart or when the price enters Overbought on a bullish chart. For sell orders, profit targets can be set at previous support on a long-term chart or oversold signal for a bearish trend.

Step 4: The stop loss can be set at the reversal point through the bullish support or the resistance of a bearish pattern.

Step 5: The trading volume should be moderate and careful so that there is no risk of a big loss in case the chart pattern does not follow the current trend. 10% of the total trading capital is a good general trading volume determinant for most stock-related transactions. You can place less if the price has stronger volatility. For the market or futures, you should bear the risk limited to 1% to 2% of the total trading capital.

The chart patterns are not market prediction tools, but simply show the probabilities in which direction the chart might move. When the momentum rises sharply after a pattern breakout, the profitability can be many times greater than the stop loss.

Trading with chart patterns can provide good RR rates, with small losses and high take profits.

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