Working 4 Chart Patterns As Economy Disses Fed

The economy thumbed its nose at the Federal Reserve (Fed) and the stock market is feeling the brunt of this inflation fight.

The disrespect to the Fed came in the form of the U.S. nonfarm payroll employment numbers released Friday morning.

Total nonfarm payroll employment increased by 263,000 in November, and the unemployment rate was unchanged at 3.7 percent, the U.S. Bureau of Labor Statistics reported. The jobs increase was well above market expectations and unemployment was on par. Strong jobs numbers were bolstered by a spike in hourly earnings monthly and annually.

As shared in Simpler Insights previously, strong jobs numbers are not what the Fed wants in its efforts to curb inflation with higher benchmark interest rates.

With the ongoing friction between the Fed’s efforts to curb inflation and the economy bullishly moving forward, traders need insight into strategies for playing this wild market.

Traders work 4 chart patterns during inflation fight

The Director of Day Trading Strategies at Simpler Trading, put together a deep-dive into stock market conditions and the technical analysis chart patterns he follows.

Many day traders see the value in using four main chart patterns to navigate this up-and-down market.

• Double bottom pattern – This is commonly called a “W” pattern that indicates a strong change in trend from a previous downside move. Each bottom point on the “W” is considered a level of support. Traders can recognize a bull flag when price action goes straight up, pulls in a little bit, and then continues higher. Another rebound adds to the bullish pattern where price is moving with potential to the upside.
• Double top pattern – This is commonly called an “M” pattern and is a strong, bearish reversal when price hits a higher level at distinct, consecutive points – the tops of the “M.” This pattern can be difficult to spot because traders look to confirm the pattern when price falls below price support.
• Bull flag pattern – This is a momentum pattern on charts within a strong uptrend. The pattern resembles a flag pole with price movement that follows a flag outline. Higher volume pushes price higher to form the pole and then lighter volume consolidates price  near the top of the pole for the appearance of a flag on charts.
• Bear flag pattern – Like an upside down flag pole, this bearish momentum pattern shows an extension of a current downtrend. Price declines, followed by a short retracement and consolidation of price, and then falls further.

Recognizing these four chart patterns can help traders understand market conditions and find potential trades. According to an experienced trader, it is important to understand price action and recognize patterns that stocks form repeatedly, which is why he constantly watches for these four patterns. Many traders believe that these four patterns are the most sound and powerful signals for day traders looking for the next big move.

4 chart patterns help find potential trades

Using these patterns across different time frames can provide a bigger picture view of price action, and experienced traders can learn to anticipate trading scenarios as patterns start to unfold. Even in a volatile market, incorporating these chart patterns can help traders manage expectations and achieve good risk vs. reward.

Traders can follow the Simpler Trading team in the Options Trading online chatroom to learn more about using these patterns for day trading.