Best Price Action Patterns
Candles, candlestick patterns, support and resistance levels, pivot point analysis, Elliott Wave Theory, and chart patterns are all the factors that are considered when determining how to trade price action. It is sometimes mistaken with Volume and Price Analysis (VPA), in which the volume is read in combination with the price action in order to provide a more accurate picture of the asset.
Cody Hinds analyzed ten years’ worth of data and more than 200,000 different patterns in order to compile the information regarding the price action patterns that we will discuss below. In every one of these instances, the price action patterns were only taken into consideration once it was determined that they had finished developing, which often involves a full break of a support or resistance region or a trendline.
In this article, we will take a look at seven different price action patterns, along with their respective success rates. We shall arrange them in descending order based on their overall success percentage.
Price Action Pattern and their Success Rate Percentage
Inverted Head and Shoulders Pattern (83.44%)
- The inverse head and shoulders pattern is quite similar to the classic head and shoulders pattern; however, it is reversed, with the head and shoulders top being used to anticipate reversals in downtrends.
- This pattern may be recognized when the price action of an asset exhibits the specific traits: the price falls to a dip and then rises; the price falls below the earlier dip and then rises again; and lastly, the price falls again but does not fall as far as the second dip. As soon as the last dip is created, the price begins to move upward, eventually approaching the resistance that was discovered close to the top of the prior dips.
Head and Shoulders Pattern (83.04%)
- A reversal in the trend, in which the market moves from bullish to bearish, is typically indicated by the creation of a head and shoulders pattern on a chart. This pattern is a type of predictive chart formation. This pattern has been recognized for a long time as a trustworthy pattern that can identify reversals in trends.
- After a lengthy amount of time during which the market has been bullish, the first “shoulder” will emerge when the price will increase, and then it will collapse, eventually reaching a trough. The “head” of the pattern is produced when the price rises once again, causing it to create a high peak that is elevated above the level of the initial shoulder formation. The price begins to drop from this point, which results in the formation of the second shoulder, which often has an appearance that is comparable to that of the first shoulder. It is essential to note that the first fall does not continue substantially below the level of the first shoulder before there is, in most cases, either a minor retracement higher or a flattening out of price action.
Bearish Rectangle Pattern (79.51%)
- A bearish rectangle is a continuation pattern that forms when a price pauses during an intense downward trend and then momentarily bounces between two levels that are parallel to one another before the trend resumes its original direction.
Triple Bottom Pattern (79.33%)
- A chart pattern known as a Triple Bottom is created when there are three equal lows followed by a break above the level of resistance. The graphical pattern is known as a bullish reversal pattern, and it fits that category. To successfully create support, each of the three highs should be roughly comparable to one another, well-spaced, and denote distinct turning points. It is not required that the lows all reach the exact same level; rather, they should be “near enough.”
Double Bottom Pattern (78.55%)
- A chart pattern known as a Double Bottom occurs when the price makes two attempts to break below a previous low but is unsuccessful and continues to move higher after each attempt.
- The pattern is distinguished by an obvious price decline, followed by a moderate turnaround (or bounce). Shortly afterward, a second dip takes place to either the same or a comparable level as the first before there is another substantial reversal, which gives the chart the appearance of being in the shape of the letter “W.” The pattern is distinguished by an obvious price decline, followed by a moderate turnaround (or bounce). A short time later, a second drop takes place at the same or a level comparable to the previous drop.
Bullish Rectangle Pattern (78.23%)
- The bullish rectangle is a continuation chart pattern that occurs during an uptrend and indicates that the existing trend will continue. Before continuing on its upward trajectory, the price makes a momentary bounce between two levels that are parallel to one another.
Triple Top Pattern (77.59%)
- The triple top is a sort of chart pattern used in technical analysis to indicate a reversal in an asset’s price movement. This pattern appears three times at the peak of a price trend. A triple top, which consists of three peaks, is a technical indicator indicating the asset in question may have reached its highest point and may no longer be rising in value. This indicates that the asset’s price may soon begin to fall.
- To develop resistance, all three highs should be roughly equal and well-spaced. Each of the highs doesn’t need to reach the exact same level; nonetheless, they should be “near enough.” Having said that, an indication that the trend may be running out of steam and that a more significant downturn is forthcoming is when the most recent high fails to reach the value of the intermediate high.
Double Top Pattern (75.01%)
- After an asset has reached a high price two times in a row with a small decrease in price in between the two highs, a double top has formed, which is a very bearish technical reversal pattern. It is validated when the price of the asset drops below a support level that is equivalent to the low that occurred in between the two preceding highs.
Ascending Channel Pattern (73.03%)
- A chart pattern known as an ascending channel comprises two parallel lines that slope upward. It occurs when a chart has higher swing highs than swing lows and vice versa. The pattern almost always indicates that prices are climbing in an upward trend. In this particular instance, the pattern has the potential to be bullish.
Descending Triangle Pattern (72.93%)
- A bearish chart pattern called a descending triangle is seen when an upper and lower trend lines are present. A triangle shape is formed when the upper trendline moves in a descending direction (connecting consecutive lower highs), and the lower trendline moves in a level direction (connecting consecutive lows).
Descending Channel Pattern (72.88%)
- A chart pattern known as a descending channel is created when two downward trendlines are drawn above and below a price to signify levels of resistance and support. It is a bearish chart pattern that can be identified by a trend line that supports a series of lower lows and a diagonal resistance level that is linking the series of lower highs. Prices are anticipated to move sideways inside the channel, bouncing off of both the channel’s top and bottom borders. The pattern is considered more credible the more times a similar reversal occurs.
Ascending Triangle Pattern (72.77%)
- Bullish signs can be seen in patterns of ascending triangles. The formation of this pattern requires two trendlines to be drawn. After the price successfully breaks above the first trendline, this indicates the restart or commencement of an uptrend, depending on which scenario you like. The first trendline is flat along the top of the triangle and functions as a resistance point. A sequence of higher lows generates a line of ascension, which makes up the second trendline, which is the bottom line of the triangle and indicates price support. The triangle’s bullish characterization stems from the fact that a configuration made by higher lows generates it. This configuration makes the triangle.
Bear Flag Pattern (67.72% Success)
- The Bear Flag Pattern is the complete opposite of the Bull Flag Pattern. A bear flag forms in a market with a negative trend. Bear Flag patterns indicate that the market is likely to decline much further. In a bearish trend, you need to recognize a bear flag when the price of asset declines and creates a horizontal or upward channel that resembles an upside-down flag with the flagpole on top.
Bull Flag Pattern (67.13% Success)
- A Bull Flag Pattern is when a bullish trending market creates a bull flag after a significant bullish movement; it indicates that further increases are expected. Bull flag patterns appear similar to a horizontal parallel channel or downward parallel channel paired with a strong bullish vertical rise. When we draw the pattern, it looks like a flag on a pole, which is why they are called bull flags.
Bearish Pennant Pattern (55.19%)
Bullish Pennant Pattern (54.87%)
- Bullish Pennants are a bullish continuation pattern that forms after a price increase quickly followed by a consolidation period with converging trendlines in strong uptrends. Price breaks above the top trendline of the pennant after it forms, continuing the bullish trend.
Trading methods based on price action may be as straightforward or intricate as the individual trader wishes to make them. While we have gone through 16 patterns that may be found in the market, you should review your past trades to see if you can recognize any patterns that are tradeable. The most important thing for you to focus on is reaching a stage where you can single out one or two distinct strategies.
Statistically speaking, the head and shoulders pattern is the price action pattern that is the most accurate in terms of achieving its predicted goal.