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Chart patterns can play a crucial role in identifying breakouts and trend reversals. Today, we’ll go over some common patterns to see how they work with day trading.

Before we start, one thing we must understand is that it’s not wise to rely solely on patterns to make a trading decision. Day traders can verify a breakout or trend reversal with the use of technical indicators, RSI, MACD, Bollinger Bands, etc.

Bullish hammer

A hammer has a long lower candlewick and a small body in the upper part of the candle. It forms at the end of a downtrend and indicates that a price reversal might be on its way.

Hammers occur frequently. No matter the time frame you set, it’s likely you’ll see hammer patterns often. However, its success rate is relatively low. So, to help with finding an entry or exit point, we can look at two things to confirm this pattern:

1. If the volume is higher than the previous one.
2. If the next candle closes above the low of the hammer candle.

Bullish engulfing

A bullish engulfing pattern is comprised of a small bearish candle and a bigger bullish candle that encompasses it. It appears at the end of a downtrend and indicates that buyers have taken over. An uptrend might follow.

The bullish engulfing pattern does not occur as frequently as hammer patterns and is usually more reliable.

Double bottom

A double bottom pattern is formed when the stock price makes two consecutive similar lows in a downtrend, forming a “W” on the chart.

The high point between the two lows is called the “confirmation point”. The neckline is drawn as a horizontal line passing the point, serving as the resistance level.

It is a bullish reversal pattern, indicating that an uptrend might follow. Investors can trade this pattern by entering a long position at the breakout.

Head and shoulders top

The head and shoulders top pattern looks like a human head with shoulders on both sides of the head. A neckline is drawn by connecting the two low tips in the pattern, serving as the support line.

It is a bearish reversal pattern, indicating an upcoming downtrend. The pattern is only complete when the neckline is broken (breakout).

Ahead and shoulders top pattern is uncommon to see in day trading. However, it’s one of the patterns that have the lowest failure rate.

Pattern trading tools on Webull

Patterns can help investors identify trading opportunities. However, it might not be easy to find the patterns on your own. Webull offers helpful trading tools to facilitate efficient pattern trading.

Alerts—Technical Signals

Investors can get a heads-up when a pattern is formed by enabling ‘Technical Signals’ in ‘Alert’.

Chart Toolbox-Technical Signals

Investors can enable ‘Technical Signals’ in ‘Chart Toolbox’ > ’Settings’ to see all the patterns. Profit targets are automatically calculated for reference.

Data disclaimer: Technical analysis data and indicators are provided by Trading Central. Trading Central is a separate entity, unaffiliated with Webull Financial. Webull is not responsible for the accuracy or completeness of data provided by Trading Central. All data are provided for informational purposes only, and are not intended, and should not be construed, as investment advice or recommendations.