Day trading is a strategy in which you buy and sell assets within the same trading day. It focuses on smaller profits that add up, and it’s heavily reliant on time management and well-tested techniques. Day trading chart patterns are a great way for traders to increase their potential profitability with efficiency. They help you think like a pro, navigating through the market with eyes like a hawk’s and intuition you’d never known.
So, in this blog, you’ll learn why these patterns matter and find the best chart patterns for day trading, along with common mistakes that accompany each one and expert tips (both for beginners and pros) to help you profit more. Excited to learn more? Then, keep on reading.
Why Day Trading Chart Patterns?
So, what are chart patterns, and why are they so frequently hyped? Chart patterns are formations that represent the market psychology, showing fear, greed, and sentiment and helping traders move ahead of the market.
These patterns are designed to help traders gain an edge over the market, predict future movements effectively, and time their entry and exit points properly to improve their risk-to-reward ratio.
Despite all these advantages, the biggest limitation of chart patterns is that they could be challenging to memorize. Even then, many retail traders fall into so-called “traps” created by these patterns. So, what’s the best move here?
The fact of the matter is that chart patterns are too good to oversee just because they can be hard to learn. Professional traders who follow ICT (the Inner Circle Trader) and Mark Douglas can vouch for the importance of these patterns by emphasizing how they help traders build a consistent edge in the market.
So, what we’re gonna do is help you learn (yes, actually learn) the best day trading chart patterns by heart, recognize rookie mistakes to avoid, and find tips (the secret sauce) no one else will tell you for free. Let’s get into it!
Best 5 Chart Patterns for Day Trading
The 5 patterns below have the highest success rate when it comes to day trading. However, each of them has its own delicacies, which if you don’t pay attention to, you can very well see drastic results. So get comfortable and make sure you pay attention.
1- Head and Shoulders
The head and shoulders day trading chart pattern is simple yet effective. According to some sources, it has a success rate of over 93%. It has four major parts: the left shoulder, the head, the right shoulder, and the neckline.
The pattern begins forming when the prices meet resistance in a bullish (upward) trend, which creates the left shoulder. Alas, they drop a little, gather their courage, and start heading up again, managing to go further than the left shoulder and meeting resistance once again. Then, the price level drops to nearly the same level as before, which we know as the neckline, before increasing one last time and dropping at the same virtual level as the left shoulder. This creates the “head and shoulders” appearance of the pattern, which, you know by now, is a bearish reversal signal. The inverse head and shoulders pattern also exists, but its success rate in day trading might be lower.
Common Mistakes with the Head and Shoulders Pattern
The most common mistake in this pattern is a result of trader’s impatience and entering trades before the right shoulder forms. Always remember that missing out on a few pips of profit is way better than wiping out your entire account because you got impatient.
Many retail traders also tend to ignore volume confirmation after the pattern. What you need to look for is a consistently decreasing volume with the formation of every peak, only for it to skyrocket when prices breakout below the neckline.
Pro ICT Tips for the Head and Shoulders Pattern
According to the Inner Circle Trader (ICT) price action strategy, one of the best things you can do is look for liquidity grabs above the right shoulder before the drop. Liquidity grabs are areas in which smart money (institutional players with a lot of market influence) deliberately sell above or below key market levels to ‘hunt’ stop-loss orders.
Another thing to do is use insights from Fibonacci retracement levels, especially the 61.8%, for sniper entries. In ICT trading, sniper entry is a term used to refer to entering where smart money enters, not where retail traders chase.
2- Double Top and Double Bottom
Next is the double top/bottom pattern, which is a trend reversal signal. Starting with the double top, these day trading chart patterns typically form at the end of prolonged uptrends. The price meets resistance while it’s going up, retracts a bit, and then starts rising again, only to be stopped once more.
On the other hand, you usually see the double bottom pattern at the end of longer downtrends, where prices get support, bounce up, decrease again, and meet support one last time, signalling the bearish (downward) trend might be over.
In essence, these chart patterns for day trading show how one party is losing power as the second party is starting to step in, which establishes a trend reversal signal.
Common Mistakes with the Double Top/Bottom Pattern
The first major mistake when it comes to the double top/bottom day trading chart pattern is mistaking price pullbacks with the pattern. Simply put, pullbacks happen when prices momentarily retrace from the current trend before continuing in the original direction. If two peaks or valleys form when the price is in pullback, that’s not a double top/bottom pattern.
Sadly, many traders assume it is and enter trades prematurely.
To avoid losses that come with this sort of decisions, look at the higher time frames to confirm the general direction of the market. It’s also a good idea to wait for some price action movements near key support and resistance levels.
Another common mistake is when traders enter before the neckline is confirmed. So, the valleys between the tops or the peaks between the bottoms are formed at the same virtual level in these patterns, which is known as the neckline. The trend is confirmed when prices move in the direction opposite the dominant trend and go past this level.
Many traders enter trades before this confirmation, which can become a catastrophe pretty quickly. It’s always best to wait for the neckline conformation and use other tools like volume confirmation before making any decisions.
Pro Mark Douglas Tips for the Double Top/Bottom Pattern
For starters, it’s best to wait for a clean break and the retesting of the neckline. Now, you might ask yourself, what the heck does that mean? A clean break is a fancy term for when the price closes above (double bottom) or below (double top) the neckline. If this break is accompanied by momentum and volume indicators, too, you can be even more certain.
The retesting of the neckline happens when prices break out of the neckline and then retrace one more time. This is the time when smart money enters the market, which means that you, too, could take advantage of the moment and make your trades more high-probability.
By waiting for clean breaks and neckline retests, you can avoid fakeouts, which happen when the price appears to break the neckline but quickly reverses back inside the pattern. They’re one of the major traps for early traders, and losing to them often leads to emotions such as frustration, fear, and anger, all of which could trigger revenge trading, aka disaster.
This brings us to our next tip, which is to manage your emotional discipline and stick to your trading plan. According to the Mark Douglas philosophy, professional traders accept the loss, analyze what went wrong, and patiently wait for the next high-probability setup instead of reacting emotionally, and that’s what you need to do, too.
3- Cup and Handle
Unlike our previous couple of day trading chart patterns, the cup and handle signals the continuation of the pre-existing bullish trend. As its name suggests, it consists of two parts, the cup a and the handle.
The pattern starts forming when prices see a setback in an otherwise upward trend. After this setback, smart money starts to enter the market, building up positions as retail traders enter a fear-triggered sell-off. They will gradually increase the prices, which creates the U-shaped cup of the pattern.
After the cup is completed, there is a short period of pullback or consolidation, which forms the handle before the prices can continue to increase. This is where weak hands exit the market, and smart money triggers liquidity grabs.
Common Mistakes with the Cup and Handle Pattern
Many traders start a position too early during the handle formation. The fact of the matter is that the handle has its own ups and downs that are created by smart money trying to manipulate liquidity and retail traders. So, to avoid such grave mistakes, you should wait for the handle to break out of its resistance with increased volume. Only then can you be sure that the price is starting to move up again.
The second mistake ties into the first one, more or less. It’s about ignoring volume conformation, which happens when the volume skyrockets after the breakout. This shows that there is genuine buying interest in the market. On the other hand, if you don’t pay attention to the market volume, you’ll probably get caught in a fakeout or a liquidity grab.
Pro ICT Tips for the Cup and Handle Pattern
A major success tip for cup and handle day trading chart patterns is to look for smart money accumulations before the breakout. What this means is that smart money usually accumulates positions during the rounded bottom of the cup. This creates smaller liquidity grabs or stop hunts (the manipulation of the market until retail traders’ stop losses are triggered). By accumulating positions, smart money tries to shake out weak hands before the breakout.
On the other hand, to find the best sniper entry points, use Fair Value Gaps (FVG) and Order Blocks (OB) on lower time frames. Another useful tool would be the On-Balance Volume (OBV) indicator for confirmation, which tracks volume flow. As the OBV increases, it’s a signal for smart money accumulation. So, if the OBV is increasing while prices consolidate, you can expect a breakout fairly soon.
4- Triangles
The triangle day trading chart patterns are simple yet sophisticated. They all consist of some type of converging trendlines, but come in three forms: descending, ascending, and symmetrical triangles.
Starting with the descending triangle, it has a bearish trendline that converges into a flat support level as it makes lower highs. It shows how the selling pressure is starting to pick up in the market.
Then, there’s the ascending triangle, which contains a flat upper resistance that meets an upward trendline halfway. The bullish trendline shows the increasing buying sentiment in the market as it makes higher lows.
Lastly, the symmetrical triangle has 2 converging trendlines sloped against one another. As you can imagine, it shows how the bulls and bears are fighting for dominance in the market, with none of them winning.
No matter which type of triangle you’re dealing with, there are a couple of points you need to know. Like any other pattern, you also need to confirm triangle chart patterns for day trading. To do so, you’ll need an increase in trading volume when prices break out of the triangle. This breakout might go north (ascending triangle), south (descending triangle), or either of these directions in a symmetrical triangle.
What matters here is that the pattern usually suggests the continuation of the trend in the same direction as the breakout. As mentioned before, volume confirmation is also necessary since volume levels tend to decrease during the formation of triangles.
Common Mistakes with Triangle Patterns
Aside from the usual impatience and volume ignoration mistakes, a common error among traders who work with triangles is misidentifying them. Other consolidation patterns like wedges and channels tend to look like triangles, and many traders mistake them together and make bad decisions based on that. To ensure you’re truly dealing with a triangle chart pattern, you should validate the converging trend lines and the narrowing range first.
Another common mistake is missing the bigger picture and ignoring the context of the larger trend. Triangle patterns signal trend continuation, but how do you identify trends? Especially in day trading, where most people focus on shorter time frames, traders can forget to see the bigger picture and where the market is actually headed. So, ensure the breakout aligns with the dominant trend direction and avoid any haste decisions.
Pro Mark Douglas Tips for the Triangle Pattern
The most important thing you should maintain when trading with triangle chart patterns for day trading is your patience. You should wait long enough for at least three candlesticks to form and close before you can confirm the direction of the breakout.
Another point is to check things in different contexts. Use higher time frames to make sure you’ve recognized the breakout direction accurately.
5- Flags
Flags are another important pattern among the best chart patterns for day trading. They are momentarily consolidation periods that signal the continuation of the trend.
A flag first starts forming when prices increase sharply over a fairly short period of time. This phase creates the flagpole. Then, the prices start to consolidate in a slightly down-turned channel or wedge, during which the market retraces and prepares for the continuation of the bullish trend.
In other words, the flagpole represents the initial strong move, while the flag itself is the temporary retracement before continuation.
During the consolidation period, the market has enough opportunities to absorb as much supply as possible. Then, when the price breaks out of the flag, it’s a sign that bullish sentiment has risen and that new highs are approaching.
There’s also the bear flag pattern which works with the same thought process but in a downward market.
Common Mistakes with the Flag Pattern
You should know the drill by now. The first deadly mistake related to the flag day trading chart pattern is jumping to conclusions. During the accumulation phase, prices might diverge from the support or resistance levels a few times without triggering actual breakouts. So, be sure to avoid these fakeouts before opening any positions.
Additionally, traders need to be wary of the liquidity grabs set by institutions. This point ties into the previous ones in that if you enter trades too early, you might have fallen for the stop-loss hunt of the smart money just below the flag’s support. In other words, you could get stopped out before the real action begins.
To make sure you’re avoiding these mistakes and other common ones, make time to check higher time frames and trading volume for confirmation. Like other patterns we’ve talked about, breakouts in flag patterns are also confirmed by an increase in trading volume.
Pro ICT Tip for the Flag Pattern
Make sure your timing is right by trading during either of the New York (8 AM – 11 AM EST) or London (2 AM – 5 AM EST) killzones. These can be the best forex trading hours, when liquidity levels are high and institutional investors are active.
As mentioned above, a common trader trap regarding the flag pattern has to do with liquidity grabs by smart money. So, what you need to do is look for wicks that dip below the flag’s lower boundary and enter the trades after the liquidity grab, when price shows a strong reversal.
Another pro tip would be to take advantage of Fibonacci retracement levels for confirmation. The 38.2% and 50% levels of the flagpole, especially, act as support levels before the breakout. Entries near these levels increase probability while reducing risk.
Other factors, like volume spikes or certain candlestick patterns (bullish engulfing candle or strong momentum candle) breaking out of the flag, can also further confirm the breakout.
Bonus Points from the Pros
Now that we’ve got the basics out of the way, it’s time to give you some real tips to help you succeed in the ever-evolving world of trading. Here are our top 5 bonus points:
- ICT Killzones Only: It’s best to trade during major ICT killzones while day trading. Starting with the London killzone (2 AM – 5 AM EST), it’s when European traders begin reacting to the happenings of last night and smart money positions for the upcoming day. Then, there’s the New York open (8 AM – 11 AM EST), AKA the most volatile session with high institutional involvement and breakouts and reversals from London session setups. Lastly, the New York close (2 PM – 4 PM EST) is great for retracement entries and liquidity sweeps before the next day’s cycle.
- Identify Liquidity Sweeps: Liquidity sweeps happen when smart money triggers and clears stop losses before a major move in the predetermined direction. It usually occurs around key levels (previous highs/lows, session open levels). What you need to do about these price manipulations is look for long wicks and fast rejections near support/resistance zones. They provide the perfect opportunity for sniper entries after liquidity grabs confirm market intent.
- Smart Money Footprints: AKA order blocks (OB) and fair value gaps (FVG) can help you a lot with precision in your trading. Starting with order blocks, they are large institutional orders clustered at key price levels to which the price usually returns. On the other hand, FVGs are areas where price moves rapidly, leaving an imbalance. They represent inefficiencies in price action that the market often fills.
- Fibonacci Retracements: You’ve seen the term Fibonacci levels scattered across this article, and for good reason. The 61.8% level (golden ratio), for example, is the most common retracement level for trend continuation that aligns with OBs and liquidity zones for confluence. On the other hand, the 78.6% level (deep retest zone) is often used by smart money to trap retail traders before reversal, making it ideal for sniper entries.
- Trading Psychology: last but not least, you need to get a grip on your emotions. Detach from individual trade outcomes and focus on probabilities. Don’t let emotions dictate actions, and come to peace with the fact that randomness does, in fact, play a role. So, avoid revenge trading and trust the process to see consistent growth and profit over time.
Wrap Up
Day trading chart patterns are visual representations that help you understand how the cogs in the trading machine work. They visualize the psychology and sentiment behind price action movements, providing clues on what the next best move might be. The best chart patterns for day trading are head and shoulders, double tops/bottoms, cup and handle, triangles, and flags.
Each of these patterns needs to be confirmed before any positions are opened. You can use continuation and reversal candlestick patterns, changes in trading volume, and Fibonacci retracement levels to confirm their breakout. It’s also crucial to think like smart money and not the typical retail trader, as well as keep your emotions at bay.
To know more about different trading strategies and chart patterns in crypto or forex, visit our website and start learning.
Head and shoulders and double tops are considered highly accurate for reversals.
Use volume confirmation and wait for liquidity grabs before entering.
RSI, MACD, OBV, and ICT's Fair Value Gap (FVG) indicator.
Submit Your Comments
(Replying)
Please keep in mind to avoid offensive keywords and also fake information.
Be the first one to comment.