Tens of thousands of CFD and stock market traders love using chart patterns to determine the best entry points into the market. Whilst some chart patterns perform brilliantly (especially on short term Contracts for Difference markets), others leave you frustrated and angry.

Today we'll take a closer look at 6 different chart patterns and the best way to position yourself when they occur. Always remember the best course of action is to be educated on each pattern so you can instinctively know the best way to react.

Rounding tops and V formations can signal the end of an up trend. An ascending wedge is likely to break down and a descending triangle can also break towards the downside. We will have a look at two new patterns to watch out for as well the double top and the head and shoulders pattern. Being able to identify these patterns can better enable you to define when to exit from a trade.

Rounding Top

The rounding top is the reverse of the rounding bottom. It shows a gradual shift in sentiment from the buyers to the sellers and can lead to rapid drops in the share price. The rounding top is an uncommon pattern however is reliable when found. Look for a slowing down in the rise of the share price and then the share falling more quickly to the downside.

Ascending Wedge

Wedges normally give no clear direction as to which way the share will break and as a guide the wedge would normally breakout in the direction of the major trend. There is one special exception to this rule known as a rising wedge, which will normally break to the downside.

The share price moves higher and higher but is unable to break out of the squeeze pattern. The sellers are drawing the few remaining buyers to part with their shares at slightly higher prices and volume normally drops away. There comes a point when the buyers are no longer willing to buy and the sellers drop the price to sell their shares. The breakout is usually accompanied by an increase in volume.

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