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Price Action Patterns You Need to Know

by | Nov 7, 2022 | Chart Reading, Day Trading, Trading E-Minis

As a day trader, it’s important to have a firm grasp on the various price action patterns that can occur in the markets. After all, these patterns can provide valuable insights into future market direction and can help you make more informed trading decisions. In this blog post, we’ll take a look at three common price action patterns that often occur in the S&P Emini Futures market.

Head and Shoulders Pattern

The head and shoulders pattern is one of the most popular and reliable price action patterns out there. This pattern typically forms after an extended uptrend and signals a potential reversal in the market. The head and shoulders pattern is created by two smaller “shoulders” followed by a larger “head.” The right shoulder is typically lower than the left shoulder, and the head is typically lower than both shoulders. A key technical indicator to watch for with this pattern is a break of the “neckline.” The neckline is created by connecting the lows of the two shoulders. A break below the neckline signals a potential downside move in the market.

Inverted Head and Shoulders Pattern

The inverted head and shoulders pattern is similar to the head and shoulders pattern but forms during a downtrend instead of an uptrend. This pattern signals a potential reversal in the market from bearish to bullish. The inverted head and shoulders pattern is created by two smaller “shoulders” followed by a larger “head.” The right shoulder is typically higher than the left shoulder, and the head is typically higher than both shoulders. A key technical indicator to watch for with this pattern is a break of the “neckline.” The neckline is created by connecting the highs of the two shoulders. A break above the neckline signals a potential upside move in the market.

Double Top/Bottom Pattern

The double top/bottom pattern is another popular price action pattern that can signal either a bullish or bearish reversal in the market, depending on where it forms within an overall trend. As its name implies, this pattern consists of two tops (or bottoms) that are roughly equal in height/depth. A key technical indicator to watch for with this pattern is a break of the “neckline.” The neckline is created by connecting the lows (in a double bottom) or highs (in a double top) of each respective peak. A break below (in a double bottom) or above (in a double top)the neckline signals a potential move in market direction from bearish to bullish (or vice versa).

Conclusion:

As you can see, there are several different price action patterns that commonly occur in financial markets like the S&P Emini Futures market. These patterns can provide valuable insights into future market direction and can help you make more informed trading decisions. So, be sure to keep an eye out for them next time you’re trading!

Learn Day Trading

1. Day Trading Course

Complete day trading course focuses on trading emini and micro-emini futures. Learn the 6 price action patterns and setups you need to know that take the guesswork out of your trading decisions.

2. Trade Types

Repeating price action patterns can often be recognized by experienced traders. Fortunately, some of these are easy to spot. By knowing what to look for, a trader is given a hint of the direction the market will take. 

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