Chart Patterns for Day Trading - Ultimate Guide
By Stelian Olar, Updated on: Feb 07 2024.
Do you stare at candlestick charts and day trading patterns all day making your eyes cross?
Do those chart patterns for day trading look more like a foreign language than a path to profits?
Believe me, I've been there.
When I first started day trading, and learning how to read charts for day trading I thought technical analysis was some kind of astrology for stocks. But once I learned how to read stock charts for day trading, it was a complete game-changer.
In this article, I'm going to walk you through the best candlestick patterns for day trading to recognize on charts. Whether you're looking at 1-minute, 5-minute, or 15-minute timeframes, there are key day trading chart patterns that can help you identify opportunities to buy and sell.
- What these day trading charts are,
- Why they matter,
- What charts to use for day trading,
- And how to put them into action in your own trading charts.
By the end of this guide, you'll stop seeing charts as a jumble of meaningless lines instead, you'll see each pattern as a potential trading signal. You'll be able to spot the shooting star, ascending triangle, head and shoulders patterns, and more. Understanding these patterns is like having a roadmap to follow each day for your trades.
If reading intraday trading chart patterns still makes your head spin, don't worry - I'm going to break it down step-by-step with this patterns cheat sheet.
So buckle up and get ready to grab your chart patterns for day trading PDF.
In no time, you'll be scanning those candlesticks like a pro looking for your next profitable trade. The patterns are there waiting for you - you just need to know what to look for.
Let's get started!
What Is Day Trading - the Basics
Day trading involves buying and selling securities within the same trading day, closing out all positions before the market closes. Day traders are active market participants, constantly watching stock prices and looking for opportunities to make quick profits from short-term price movements.
The goal is to get in and out of trades within minutes or hours, capitalizing on small intraday price changes. While leverage and short-selling can boost profits, day traders need strong risk management to avoid getting burned by volatility.
Technical analysis is crucial for finding trades and planning entries and exits, which is why day traders rely on:
- Stock chart patterns,
- Technical indicators,
- And other tools to identify support and resistance, momentum, and potential breakouts.
Candlestick charts for day trading are especially useful for spotting reversals and areas where bulls or bears may gain control.
Mastering daily stock charts and intraday patterns takes practice, but it provides a systematic approach for trading.
How Do You Find Patterns in Day Trading
When day trading, you'll constantly be analyzing the candlestick chart to identify repeating intraday chart patterns that can signal trading opportunities. Here are some tips for finding patterns in the charts:
- Use candlestick charts for the most visual representation of price action. Candlestick patterns like dojis, hammers, and bullish and bearish engulfing patterns pop out quickly.
- Look at 1-minute, 5-minute, and 15-minute timeframes to spot intraday setups. Zoom in and out to see both the minor and major price moves.
- Scan for candlestick patterns for day trading like flags, triangles, head and shoulders, double tops/bottoms, wedge patterns, channels, and more which tend to repeat themselves.
- Look for areas of support and resistance because they act like price floors and ceilings where reversals often occur.
- Notice momentum patterns like higher highs and higher lows (uptrend) or lower highs and lower lows (downtrend).
- Keep an eye out for volume surges, which can indicate big institutions entering or exiting positions.
- Use chart pattern cheat sheets for quick reference. Keep scanning charts and these patterns will start to pop out at you.
- Trust signals that align with multiple indicators or patterns for higher probability trades.
To help you get started, I'm offering a free downloadable cheat sheet day trading patterns that summarize the most common day trading candlestick and chart patterns to look for.
Keeping this candlestick chart patterns for day trading PDF handy can help you quickly recognize major day trade patterns.
Now that we've covered the fundamentals, let's examine specific rules to watch for if you want to learn how to read day trading charts….
How to Read Chart Patterns Like a Pro
Follow these steps to read stock charts like a professional:
Identify the Trend Using Trend Lines
Look at the overall day trading chart to spot the dominant trend and draw trend lines connecting swing highs and swing lows:
- Upward sloping trend lines show an uptrend.
- Downward sloping lines indicate a downtrend.
Spot Consolidation Patterns
Notice areas where price consolidates into a tight range before continuing the trend. Common consolidation patterns include flags, triangles, rectangles, wedges. These form chart patterns on the day trading chart that offer easy breakout trades.
Watch for Reversal Patterns
Keep an eye out for reversal patterns signaling a potential trend reversal. Double tops, head and shoulders, and triple tops show upside resistance.
Analyze Candlestick Signals
Use candlestick charts for reversal signals:
- A long upper wick reflects selling pressure
- While a small body shows indecision.
A hammer candle reversal has a small body with long lower tail.
Trade the Momentum
After a downtrend, the first green candle closing above resistance indicates an upside entry. Capitalize on the momentum upwards after seeing this signal on the stock charts.
Volume should also validate the price move:
- Heavy volume on breakouts confirms a robust move,
- While light volume shows lack of commitment.
Use Multiple Time Frames
Zoom in and out on the day trading chart to identify the overall trend and potential entry points. 5-minute, 15-minute charts are great for entries.
Top Common Day Trading Patterns
These are some of the best chart patterns for day trading, get to know them:
Bearish and Bullish Engulfing
The engulfing pattern appears when a large real body candle fully engulfs the previous candle's body:
- The bearish engulfing forms when a red down candle consumes the prior green candle.
- The bullish version happens when an up green candle engulfs a preceding down red candle.
Both show a strong reversal signal.
Head and Shoulders
The head and shoulders reversal pattern has a central peak (head) flanked by two smaller peaks (shoulders) with a neckline connecting the bottoms of the troughs. A breakdown below the neckline signals the trend may reverse at the right shoulder.
This pattern marks a potential trend exhaustion turning point.
Double Tops and Double Bottoms
Double tops and double bottoms are reversal patterns that signal a downtrend (uptrend) may be starting. Price tests support or resistance two times, showing buying demand or supply around those levels. After the final bounce off support (resistance), the turnaround upward breakout triggers entry.
Shooting Star and Morning Star
The shooting star is a 3-candle pattern signaling a potential trend reversal. It starts with a strong upward candle, followed by a small real body candle with a long upper wick indicating rejection of higher prices. The third candle closes lower, confirming the reversal.
The hammer candle has a small real body near the top of its range with a long lower shadow demonstrating rejection of lower prices. Hammers are important chart patterns for day trading that indicate the downtrend may be ending soon and an upside reversal could follow.
Mastering these key candlestick patterns will improve your trading but you need to combine them with other indicators like moving averages for higher probability setups.
Which Chart Pattern Is Best For Day Trading
The truth is, no one chart pattern for day trading is universally superior. Successful day traders remain flexible and adaptable, learning how to spot high-probability setups across many day trading candlestick patterns.
That said, some trade chart patterns do tend to work well under certain common intraday conditions:
- Flags, pennants, wedges - Ideal continuation patterns when trading in direction of momentum
- Double bottoms, inverse heads and shoulders - Reliable reversal patterns at support levels
- Breakouts - Clear entries when price pushes past resistance after consolidation
- Gaps - Openings above or below prior close indicate urgency in price action
Now, let’s see what time frames and day trading graphs provide the optimal balance of intraday context?
What Is the Best Chart Interval for Day Trading
Experienced day traders most commonly utilize:
- 15-minute charts - The 15-minute time frame is ideal for tracking overall intraday swings, support/resistance and momentum. The 15-minute chart for day trading provides a broad context.
- 5-minute - For nearer-term price action and entry timing, the 5-minute is ideal. Traders will zoom in to 5-minute day trading graphs to pinpoint trade location relative to key levels.
- 1-minute - Very short-term scalpers may go down to the 1-minute for extremely tight entries and exits. However, false signals are more common on the 1-minute interval.
In general, actively trading the 5-minute chart while referencing the 15-minute time frame for broader context offers an optimal balance but make sure to always confirm signals across multiple time frames.
The Best Pattern-Based Strategies for Intraday Trading
For active traders looking to capitalize on short-term opportunities, pattern-based strategies can provide structure.
When stock traded intraday, which patterns provide reliable opportunities?
Here are some of the best pattern-based approaches for intraday trading:
- Momentum continuation - Trade pullbacks within existing trends by buying dips in uptrends or selling rallies in downtrends. Continuation patterns like flags/pennants work well.
- Range trading - Clear levels of support and resistance form trading ranges on intraday charts. Buy near support and sell near resistance.
- Reversal trading - Trade against momentum when high-probability reversal patterns like double bottoms emerge at support or resistance.
- Breakouts - Trade breakouts when stock traded breaks above resistance or below support after a period of consolidation.
- Gap trading - Fade the gaps when price gaps significantly above or below the prior day's close.
The best trading patterns to utilize will depend on the current market conditions so make sure to remain flexible, focusing on high probability setups with defined risk/reward ratios.
Useful Tips for Beginner to Use Patterns in Day Trading
When it comes to trading chart and stock patterns for day trading, most beginners get the standard advice - stick to the basics, be disciplined, practice on paper, etc.
But if you want to really master trading price patterns, consider some unconventional tips:
- Study dramatic historical chart patterns like the 1929 crash to see formations on steroids.
- Try manually drawing charts and patterns instead of relying on computers because the muscle memory will stick with you.
- Imagine patterns as living creatures with their own behaviors. Assign personalities and human attributes.
- Discuss patterns with other experienced traders to understand their unique perspectives.
Trading is an art and the candlestick chart patterns for day trading are the artist’s tools. Master the creative mindset, and the profits will come.
When you're ready to put your skills to work in the live markets, take advantage of Pepperstone's ultra-low spreads and fast execution on Forex, commodities, indices and more. Pepperstone's (eToro for US residents) demo account is a great way for beginners to hone their skills risk-free.