Introduction to Bilateral Chart Patterns: Predicting Breakouts
Bilateral chart patterns are an essential tool in technical analysis that can help traders identify breakout opportunities. These patterns indicate that a breakout will likely occur in either direction, or traders can use them to make informed trading decisions. Two common bilateral chart patterns exist: the diamond and triple top and bottom patterns.
Diamond Pattern
The diamond pattern is a chart pattern that resembles a diamond shape. This pattern forms when the price trades in a range and forms a series of higher highs and lower lows. The diamond pattern signals that the price is about to break out of the range in either direction. Traders can use this pattern to identify potential buying or selling opportunities.
Triple Top and Bottom Patterns
The triple top and bottom patterns are chart patterns that occur when the price reaches a certain level three times before reversing. The triple top pattern occurs when the price reaches a certain level three times before reversing lower. In comparison, the triple bottom pattern occurs when the price reaches a certain level three times before reversing higher. These patterns signal that the price will break out in either direction, and traders can use them to identify potential buying or selling opportunities.
Conclusion
Bilateral chart patterns are important because they can help traders identify potential breakout opportunities. By recognizing these patterns and understanding their implications, traders can make informed trading decisions and take advantage of potential opportunities in the market.
Continuation Chart Patterns Real-life situation:
A trader notices a bilateral chart pattern in a stock they are considering buying.
Tip: When trading a bilateral chart pattern, it is vital to consider the overall market trend and wait for the breakout confirmation before making a trade. It is also essential to have a stop loss in place to limit potential losses.
Knowledge Check Quiz
References:
Murphy, J. J. (1999). Technical analysis of the financial markets: a comprehensive guide to trading methods and applications. Penguin.
Bulkowski, T. N. (2005). Encyclopedia of chart patterns. John Wiley & Sons.
Kirkpatrick, C. D., & Dahlquist, J. R. (2010). Technical analysis: the complete resource for financial market technicians. FT Press.
Pring, M. J. (2014). Technical analysis explained. McGraw Hill Professional.
Nison, S. (1991). Japanese candlestick charting techniques: a contemporary guide to the ancient investment technique of the Far East. Prentice Hall.
