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Enter a "long" trade one tick above the previous bar's high at Place a "stop" order below the low of the n-Bar decline at Chevron made a series of higher-high prices to complete n-Bar High pattern. At the beginning of April, , Chevron stopped making new highs and presented a potential short setup. Inside Day ID : Inside Day is defined as a trading day that has range which is completely encompassed by the previous days' range.
The prior day's high is higher than the current days' high and the prior day's low is lower than current days low. Opening Range Breakout ORB : Is a trade executed when prices trade a predetermined amount above or below the opening range. The predetermined range is calculated as the bar average distance between open to high and open to low. Enter a long trade on breakout at the ORB value above the high.
For a short trade, enter a short trade on breakdown at the ORB value below the Low. Stop: For breakout trades, place a stop order at low-ORB. Target: "NR7ID with ORB" is primarily a trade entry technique and the targets are set at prior "swing highs" and prior "swing lows" or at key resistance and support areas.
An ORB is computed for a trade entry on the charts. A stop order is placed in the opposite direction of the trade. An efficient way to trade NR7ID bars is to use the previous bar high, or the previous bar low as the trigger points. Trade stops are placed on the other end of NR7ID against the trade. Usually these trades are very short-term and should be closed within bars days.
A trade setup is to enter a long trade on the next day if the price trades 10 cents above the previous days high or enter a short if the price trades 10 cents below the previous days' low. Trades at B and D are long trades. Trades at C and E are short trades. An outside bar develops when the low of the current bar is lower than the previous bar and the current high is higher than the previous bar. Trades are only entered in the direction of the current trend. Wide Range bars forming at the start of a trend or at key reversal levels could signal strong bullish and bearish trends.
If Wide-Range bars are forming out of a consolidation range, they signal price continuation in the direction of breakouts. And Wide-Range bars forming at the end of the rallies and sell-offs, the bars may be signaling exhaustion and potential trend reversals.
Trade: Wait for WR70D to form in the current up or down trend. In an uptrend, trade only "long" one tick above the high of the WR70D bar. In down trends, trade only "short" one tick below the low of the WR70D bar. Stop: Place a "stop" order one-tick below the low of the WR70D bar for breakouts. Place a "stop" order one-tick above the high of the WR70D bar for breakdowns. Please note the Wide Range bar inset.
Wide Range bars are only traded in the breakout direction of the trends. A 7-day Wide Range bar signals trend shift. Long trades are initiated high above the Wide Range bar. In the example above, bars A, B and C are in down-trend and trades are only taken from downside. Bar D is formed in uptrend and trade is only taken in the upside direction.
Enter a "long" trade one-tick above the high of the WR70D bar. Place a "stop" order one-tick below the low of the WR70D bar. WR70D bars signal the exhaustion and trend reversals. Trading WR70D coupled with any confirmation indicators, or other market patterns, could be profitable. The first WR70D bar was formed around lunch time in an uptrend. A "long" trade can be entered above the high of the WR70D bar at 1.
The second WR70D bar is formed at around pm in downtrend. A downside trade is triggered below the low of the Bar 2. They buy or sell these pivot levels and exit at either the first or second resistance levels. They also have the option to sell the pivot level and cover at the first or second support levels.
Floor pivot trading is an effective way to find support and resistance levels, and is widely used by many traders. Prices around pivot levels signal choppy or trend market modes. In bullish markets, when prices consolidate around the pivot levels, prices tend to pick the prior trend direction and trade higher.
Pivot trading is very crucial and most traders utilize daily Pivots for trading. However, weekly and monthly Pivots are equally important. Some traders compute the mid points between the Pivot and support or resistance levels and plot them on their charts. Often there will be many confluences between daily and weekly pivots on a chart and these levels could be significant for traders.
It is almost rare to see price reaching beyond R3, R4 or S3 and S4 levels on regular daily trading. Also, it may be rare to see prices outside of weekly S2 and R2 levels. Some traders use weekly extreme levels and short weekly "R2" level and cover at the weekly Pivot or buy the weekly "S2" level and sell at weekly Pivot levels.
Pivots are very efficient for both day and swing trading. Pivot trading is quite profitable using these supportfresistance levels in the direction of the trend along with good money management techniques. On February 8th, the market traded in a narrow range around the Pivot level suggesting a contraction in the volatility. On the following day, ER2 opened above the previous close and traded near the previous day's high but could not hold on to this high prices.
After the first hour, prices traded below the Pivot level at 8 ER2 continued to trade below the Pivot point, but above the key support level S 1 until lunch time. At around p. A "short" trade was entered below the S 1 level. The potential targets were the previous day's low at S2 levels.
The volatility expansion was very strong as the market fell through S2 at At around 2pm, the market stabilized at S3 level and attempted a rally back towards S2 level. A trade setup was presented when CSCO traded above the weekly high, but below the second resistance at R2. CSCO prices traded above the previous day's high at Enter a "long" trade 5 cents above resistance at R2. Globex trading hours start after the regular markets close and end before the regular markets open. Globex High, Low and Close levels are used to compute the pivot price level.
The Globex pivot value and the high and low levels are used for measuring market strength and weakness. During most trading days, the Globex pivots may be valid until noon as traders still remember the Globex high and low levels. They are very effective in the first hour of market open. Like regular pivot levels, Globex highs and Globex lows are used for resistance and support levels.
The first hour test of these levels and reversals from Globex highs and Globex lows are significant in intra-day trading. Globex pivot levels act as key resistance and support levels. They are mostly effective during the first few hours until lunch hour of trading. The example above shows the Russell Emini futures ER2 from the 30 minute chart 24 hour chart. Globex high, low, Globex midpoint and Globex pivots are plotted on the chart.
Arrows are placed on the chart to highlight the breakouts and breakdown from Globex high and low levels during the intra-day trading. The chart shows January 22nd and January 23'd Globex pivots. On most trading days, when markets trade through Globex lows, it strongly suggests a weaker market, and when markets trade above the Globex highs it suggests a stronger market. On January 22nd, YM traded below the Globex low during the first hour at and traded all the way to a low of For day-traders, this range could be the first 15 or 30 minutes and for swing or position trades it is the first hour range.
This range usually sets the direction for the day and acts as important levels for intra-day trading. Trading using the Opening Range pivot produces excellent results. In stronger markets, a long trade is initiated when prices pullback to the Opening Range pivot. A target for this trade is set at the first resistance.
In weaker markets, prices crossing below the Opening Range pivot could signal a trend reversal and a short trade may be initiated. Confluence of daily pivot levels and first hour Opening Range Pivots could be significant in trading. Most days, the first hour of highs and lows clearly signal the market's strength. Trading below the pivot and the first hour lows set the market in a bearish mode. Similarly, trading above the first hour high and above the first hour pivot sets the market in a bullish mode.
The advantage of using Opening Range pivots is market stability. In the first minutes the amateur hour of the market open, prices go through a series of gyrations to settle on a market direction for the rest of the day. Most seasoned traders wait for prices to pick a clear market direction with the opening range the first hour data before start trading. On January 19,, ER2 traded in a narrow range in the first hour-Opening Range shaded area from After the first hour of trading, ER2 set to trade above the Opening Range high at 78 1.
Enter a "long" trade above the first hour high at 78 Place targets at R2 and R3 levels. Place a "stop" order few ticks below the pivot at On January 18,, ER2 opened at a high of After the first hour of trading, ER2 attempted to rally to the first hour pivot at The trend and market direction was weak as prices continued to trade below the first hour pivot and the first hour high.
Prices attempted to rally, but around noon, ER2 could not close above the first hour pivot and reversed its direction to signal a potential short trade. Enter a "short" below the first hour pivot at Place a "stop" order above the first hour pivot at Place a target from In his book, he describes the dynamic statistical analysis of "Fibonacci Zones" using Open, High and Close to find high percentage support and resistance zones for the entire trading day.
I use HPFZ zone concept as boundaries for trading key support and resistance areas. For additional analysis, please read J. Adding daily range and its multiples to this pivot point gives various potential resistance and support levels. An extensive study has been done on the relationship between yesterday's close and today's open within these zones to find a potential daily "close" for the current day.
I use FibZones in my personal trading and have found them to be valid and useful. My usage of HPFZ is limited to finding intra day resistance and support areas and not for the zone analysis. Fibzones are plotted at the end of the day for the next trading day. In the afternoon, ER2 rallied back from "support band" A and closed in the "resistance band" B.
The following day, ER2 had a brief sell-off to the pivot point C and rallied to the "resistance" band D. A pullback to the "resistance" band-R50 to R62 is expected after the morning rally to F. The basic Fibonacci ratio or "Fib ratio" is the Golden Ratio 1. Fibonacci Numbers are a sequence of numbers where each number is the sum of the previous two numbers.
A list of the most important Fib ratios in the financial world which are derived by squaring, square-roots and reciprocating the actual Fibonacci Numbers are depicted below: Key Set of Fibonacci Derived Ratios in Trading are: 0. In addition. Fib Numbers are also applied to "time" and to "price" in trading. The swing XA is projected from B to C. A projection is plotted from A in the same direction and length of XA to C.
First, a retracement is shown in the shaded area for XA to AB. Secondly, an extension of XA to AB is shown. Thirdly, the projection of the XA length is made from B to C. In the forgoing projection example, B was retraced to. C was formed at 1. These tools sls. The Fib levels can be also customized for various Fib Numbers. Another Fib drawing tool is an extension tool. This tool lets a user pick three different swing points A, B and C and then draw "swing" extensions from C.
This is a very valuable tool since it plots fib. Fibonacci Time Extension Tool Fibonacci extensions can also be measured for "time" levels. Most software packages also provide a Time Extension tool. This tool helps find key turning points using "Fib Time. The projected time levels provide the user with potential "swing" turn points. Fibonacci Clusters A confluence of Fib. The confluence of multiple Fibonacci retracements in a fairly tight area are computed using prior swings both retracement and extensions with certain criteria.
Then each Fib retracementlextension level is grouped to generate a confluence within some threshold to find Fibonacci clusters in an area. These "cluster" levels are more significant than a single fib retracement itself. The trades are either initiated or closed at these confluence levels. One of the effective method to trade Fibonacci levels is to trade pullbacks in the direction of its primary trend near the Fibonacci retracement levels.
For the first "swing" at AB, trade reversal occurred at the A "long" trade is entered at C with a "stop" order placed below A. On the second "swingvat CD, a "long" trade is entered at the The swing retraced to E to For the second trade, a "stop" order is placed at C. Targets are set at the top of "swing highs" at A, D, F and H. Markets demonstrate repetitive patterns where prices oscillate between one set of price ratios to another making price projections possible.
Market trends can be defined by geometric relationships as they exhibit harmonic relationships between the price and time swings. Markets also form "cycles" around the price and time levels. Many investorsltraders use "cycles" and "harmonic" relationships to project future swing prices and times. A cluster of similar extensions and similar retracements at key price ranges, or some important levels provide insights into future significant resistance and support levels. In addition to knowing key turning points, the benefits of trading symmetric "priceltime" cluster levels include low-risk trades.
Gann, Fibonacci and Elliott all have studied market symmetry and found valid theories. These patterns exist in all forms in nature and certainly exist in the markets. One of the best ways to confirm "Symmetry" in the markets is to check "price" and "time" using two or more cluster confirmations.
Another key method to compute these patterns is to use "percentage change of price" between market "highs" and market "lows. After 'BC' retracement, enter a "long" trade one-tick above the B. Place a "stop" order one-tick below the low of "C". After BC retracement of This zone is where two or more harmonic levels are grouped at a single level.
The zone also acts as key support and resistance areas for trading. After another retracement of DE at Chaos is the highest form of order and posses a highly deterministic behavior. These chaotic market behaviors are represented by graphical structures usually initiated by a pattern called "Market Fractal. Many times, all these events are rhythmically synchronized with Momentum, Volume, Time and Price. Price is the last one in this series to be effected.
Traders get significant benefits from knowing the beginning of market structures Fractals. It's not easy to identify market "Fractals" but there may be a set of rules and patternslevents which may help traders to identify them. A beginning "Fractal" pattern resembles the overall pattern of the entire market structures. Fibonacci numbers and Elliott wave patterns were first initiated by "Fractals". On the expansion, Elliott waves consist of a series of "Fractal" structures.
In a simplest market form, as an example, a "Fractal" consists of 5 bars. After a prolonged downtrend in the markets, a 5-bar "Fractal" is formed to signal a potential change in the trend. This "Fractal" has three bars with higher highs and two bars with lower lows.
Trades are initiated when another higher-high is formed after this 5-bar "Fractal". A bearish "Fractal" is the reverse of the above. As in any technical indicator, "Fractals" form, fail, re-fail and re-form. Fractal theory is very powerful, but it does need confirmation indicators such as Momentum, Divergence and price-action to be valid. On March 29,, NQ futures were in a downtrend all day and lost over 20 points. At about pm, NQ made a series of higher-highs followed by two lower-low bars to form a "Fractal.
After a 5-bar "Fractal" formation, wait for a bar to close above the previous bar's high and enter a "long" trade above the previous bar's high. Enter a "stop" loss order below the "Fractal" patterns low. Place a "target" at previous "swing high.
NQ futures rallied in the morning session and closed near A series of bars attempted to trade "lower lows" and "higher highs" to form a "Fractal" pattern. A trigger bar is anticipated for a short-sell after a "fractal" formation is complete. Wait for trigger bar, which is a "close" below the low of the previous bar to confirm the "fractal" setup. Short below the low of the trigger bar. Place a "stop" order one tick above the high of the trigger bar.
Target a major "swing low" prior to the "Fractal" formation. Gartley's book, Profits in the Stock Market This pattern is shaped like a lightning bolt and signals a trend, a retracement and the resumption of the trend. This pattern is also called the "ABC Wave" or pattern by technical analysts. The "ABC" patterns forecast key market turning points and profit targets for traders.
These key pivots are found using for various "pivot strength" levels, and for its correction waves. Once A, B, and C pivots are identified, an Auto-levels algorithm is applied to determine the confluence level "D". Some traders use the confluence of these ratio levels as areas for profit taking. Price trading above the previous bar's high signaled a potential "long" trade.
Enter a "long" trade above the previous bar's "high. Place a "stop" order below level "C. Gold made a day swing high of in December. During mid December, Gold reached a swing low of at B. At the beginning of January , Gold retraced A wide-range bar signaled a potential short trade. Place a "stop" order above level C at Gartley described a 5-point "Gartley" trading pattern in his book, Profits in the Stock Market.
Larry Pesavento has improved this pattern with Fibonacci ratios and established rules on how to trade the "Gartley" pattern in his book, Fibonacci Ratios with Pattern Recognition. There are many other authors who have worked on this pattern, but the best work to my knowledge is done by Scott Carney in his books of "Harmonic Trading".
For bullish Gartley, from X, prices rise to form a higher swing-high at "A". From A, a retracement swing low "B" is formed within 0. Another swing high "C" is formed at 0. D is the decision or buy trade point in bullish "Gartley" setup. Point D is also a sell trade point in a bearish "Gartley" setup. This is the area where Gartley pattern formations are anticipated for reversals and for potential trade entries.
Trades are only placed after "D" formation and if the market makes a reversal bar wide-range or higher-high from the PRZ. Target: The first set of targets are the price levels of C and A. The second target is set at extensions of 1. The B level retracement was The PRZ level was formed at After D level, the price action is closely watched for a "long" ' trade entry.
GE made higher-highs from D level suggesting a completion of the "Gartley" formation. C swing was formed at 0. After completion of D, a "long" trade is entered one-tick above previous bars' high. A "stop" order was placed one tick below D level PRZ. C swing point was formed with 0. The D level was formed at 0. Enter a "short" trade one-tick below the previous bar's low at 'D'. Place a "stop" order one tick above the "D" level. Place "targets" at "A" level and at 1.
The Bat pattern is in the same family of Gartley's 5-point corrective patterns, but has distinct harmonic ratios. Bat pattern incorporates a precise harmonic ratio 0. It also demands that the B center retracement should be less than 0. The B retracement differentiates between the Gartley and Bat patterns. The Gartley pattern must have a In bullish or bearish Bat patterns, a reversal from PRZ is anticipated for a potential long and short entry trades. Trade: Once the Bat pattern is completed, wait for a higher-high bar or wide range bar to give a signal to enter a long trade.
Enter a "long" trade one tick above the high of the confirmation higher-high or wide range bar. For bearish patterns, enter a "short" trade one tick below the low of the lower-low or wide-range bar. Target: The target for the Bat patterns is similar to the Gartley patterns. First targets may be set at A level or 1. The secondary targets could be 1.
Stop: The Bat pattern fails if price trades below the X level. Place a stop order one tick below X level. Boeing formed a bullish Bat formation from mid January to March After XA swing, a A "long" trade is triggered above the B level.
Place a "Target" 1. The B retracement level was at A PRZ was computed from to levels for a reversal at D. Once prices traded inside the PRZ, a reversal bar is anticipated to signal a "short" trade. Enter a "short" trade below the low of the reversal bar at D level 1 Place a "stop" order above the D level Place "targets at "A" level and at 1.
It is one of the powerful patterns like the Gartley pattern. The "Butterfly" pattern has a distinct retracement level 0. In bullish and bearish 5-point swings, the pattern must have 0. The pattern's success rate is much higher when the retracement and time ratios are harmonically aligned. Two primary differences between the "Butterfly" and "Crab" patterns are: I.
The AB retracement must be 0. In both patterns the D point extends beyond the X and the C level can be inside or outside of the XA range. The retracement of AB defines level D. In Butterfly patterns, if B is formed at 0. Trade: Once the Butterfly pattern is completed in PRZ level, wait for a confirmation bar, wide range bar or "higher high" close bar to suggest a potential reversal from "D" level. Enter one tick above the high of the confirmation bar.
Stop: Place a "stop" order below bullish the low of the "Butterfly" pattern. For bearish Butterfly patterns, place a "stop" order above the high of the "Butterfly" pattern. In bullish butterfly patterns, beyond the A level, targets need to be protected with trailing stops. From the "swing low" of X to the "swing h i g h of A, the center of Butterfly level B is formed when prices retrace to 0.
A retracement of 0. D is formed with in the Potential Reversal Zone at 1. A "long" trade is triggered from D level as a wide-range bar traded above the previous bar's high. Enter a "long" trade one tick above the previous bar's high. Place a "stop" order below the low of D level. YM formed a bearish "Butterfly" pattern from January 16, to January 17, between the to levels. After completion of D level at , a reversal bar wide range bar or lower-low bar is anticipated to signal a "short" trade.
Enter a "short" trade below the low of the reversal bar at Place a "stop" order above the high of the D level at Place "targets" at "A" level and another at 1. The Crab pattern is another form of the 5-point Gartley extension pattern.
The Crab pattern has a distinct extension: 1. Crab patterns also have a 0. These extension patterns form when prices trade outside of XA swing. When the price closes below X, the pattern may be signaling a further correction to 1.
Trade: Once the Crab pattern is completed at the PRZ level, look for price-action to confirm the reversal. For bullish Crab patterns, look for a "wide range bar" or "higher highs" from the PRZ level to confirm the Crab pattern.
Enter a "long" trade above the confirmation bar. For bearish Crab patterns, enter a "short" trade below the low of the confirmation lower low bar. Place a "stop" order below the low of the PRZ level. For bearish Crab patterns, place a "stop" order above the high of the PRZ levels. Target: The bullish Crab patterns result in excellent profits.
Set targets at "B", "C" and "A" levels. Similarly, for the bearish Crab patterns set targets at "B", "C" and "A" levels. Prices traded from a high of to A wide-range bar at level confirmed the price reversals. Enter a "long" trade above the confirmation bars' high at Place a "stop" order below the low of the Crab pattern at Targets are set at "C" level at and at "A" level at The "Symmetric triangles" can be easily detected when prices make alternate "lower highs" and "higher lows" in upside and downside slopes defining a symmetry.
Most triangles result in a clear breakout and breakdown in the direction of the prior trend. Trade: Trades are only initiated at the trend line breakouts of the "Triangle. Protect targets by using trail stops. Stop: "Symmetric triangle" failures occur when price results in false breakouts. Stop below the first major "swing low" below the trend line for a long setup. Place a "stop" order above the first major swing high from the trend line for a short-setup. On May 3 1,, ER2 made lower highs and higher lows to form a "Symmetric triangle.
On the following day, ER2 traded higher from the breakout to reach the target levels. Enter a "long" trade above the high of the breakout bar at Place a "stop" order below the low of the previous swing low at Target the depth of the triangle from the breakout level to The "Ascending triangle" is bound by two trendlines: a horizontal line at the top and an upward slope trend line connecting the lower lows.
The "Triangle" prices must intersect the trend lines at least twice each before the pattern is complete. Usually at the third or fourth attempt to trade outside the top trend line results in a breakout. Breakouts occur near the apex of the triangle. Trade: Trade a clear breakout of the top trend line. Enter a "long" trade one tick above the high of the breakout bar. Confirm the breakout by volume or other indicators. Target: "Ascending triangles" have excellent success in reaching target areas.
The usual target would be the depth of the "Triangle". Measure the distance depth between the top trend line and lowest of the upward slope trend line. Add this depth to the breakout point from the top of the trend line. Stop: Place a "stop" order when the price closes below the low of the lower trend line or a major swing low. On February 01,, at around 2. A trade is triggered above the high of the breakout bar at A "stop" order is placed below the low of the last "swing low" at The depth of the triangle is 4 points.
A "descending" triangle is bound by two trend lines connecting a downward slope trend line and a flat trend line connecting the lows of the pattern. Trades usually occur near the apex as the price closes outside the bottom trend line suggesting a breakdown. The price must intersect trend lines at least twice before the pattern emerges. Like the Ascending triangles, "Descending Triangles" also have a high success rate. Trade: Trade one tick below the low of the breakdown bar outside of the triangle.
Confirm the breakdown with increased volume. Target: "Descending" triangles have similar targets like "Ascending" triangles. Stop: Place a "stop" order outside the downward slope trend line. If price closes above the top trend line, exit the trade. In July , Gold reached and retraced to by the mid of July. Gold made a series of lower highs and a flat bottom near the level to form a "Descending Triangle".
During the first week of September, Gold closed below to trigger a sell-off. The depth of the "Triangle" was 80 to points. A "short" trade was entered at 6 18 with target of A "stop" order was placed above the trend line at the level. These patterns are continuous and follow in the same prior direction Up or Down after the pattern formation.
The volume within the pattern is usually quiet and increases during the breakouthreakdown stages. Trade: A trade setup occurs when a price closes outside the trend line after at least two penetrations on each side of the boundaries. Trades are entered on a follow-up bar at "high above the breakout bar or "low" below the breakdown bar. Target: Targets in "Rectangle" formations are based on the depth of the rectangle pattern.
Stop: Rectangle patterns fail when prices retrace in to the middle of the rectangle channel. Place a "stop" order just belowlabove the middle of the channel. On January 30, ES traded in a tight rectangle channel with highs and lows bound by two parallel trend lines. On the following day, prices traded outside the trend channel suggesting a breakout at The prior direction before the "Rectangle" formation was upside.
A "long" trade is entered above the breakout bar. Targets are placed at the depth of the rectangle from the trade entry at A "stop" order was placed in the middle of the channel at The trades are only entered in prior trend direction.
They can be easily spotted as they appear right after a sudden and quick burst from a trading range. In dynamic and quick markets, Flags form as prices pause and move in the same direction as the prior trend after a clear breakout. Flags are known to be very reliable patterns. The trend lines connecting these highs and lows are near parallel. Also, tight and well defined "flags" perform better than short and zigzag "flags.
Wait for a clear breakout to the upside. Price closing outside the upper trend line is the first sign of a breakout. Another clear signal of a "Bull flag" breakout occurs when prices trade above the recent "swing high". Target: Measure the prior distance from the "swing low" at point A to the "flag" formation at point B. Stop: Place a "stop" order below the "low" of the "flag. After a rally from "A" on January 15, , the ER2 made a "swing high" at "B" and formed a "Bull flag" with a series of "higher highs" and "lower lows".
A late day rally triggered a breakout from the top trend line as prices "closed" above the previous "swing high" at A long trade is entered with a "stop" order at below level C. They are almost identical to "Bull flags," but in the opposite direction. The trend lines connecting "highs" and "lows" are almost parallel. A clear breakdown confirmation is needed to trade these patterns as the price continues in the same direction prior to the "flag" formation.
Like "Bull flags," "Bear flags" are also very reliable. Trade: After a series of "higher high" tops and "higher low" bottoms, prices will breakout of the lower-trend line. Wait for confirmation of breakdown with a long range bar. One of the best confirmations occur when prices "close" below a previous "swing low" of bear flag. Enter a "short" trade one tick below the "swing low" or previous bars7 low.
Stop: Place a "stop" order above C to protect the "short" trade. A breakdown bar in the prior down trend direction below the trendline at C gave a short trading opportunity. A "stop" order was placed above the " h i g h of the top trend line swing high. Intraday charts produce more opportunities to trade "Flags" as the results will be known quicker than day or longer term charts. In the chart above, "trade" A is taken in the direction of a major trend after a breakdown bar from "bearish flag.
A "stop" order is placed above the high of the "flag. These trend lines converge at the top. The price must intersect each trend line at least twice before the pattern fblly emerges. In addition, they have a high failure rate and are relatively difficult to spot them.
They seem to work well in bullish markets. Trade: "Rising wedges" are defined by the trend lines connecting the highs and lows of the pattern. The price trading outside the lower trend line signals a potential short trade. A "short" trade is entered when the prices close below the breakdown's bars low must be below the trendline.
Target: After trade entry, a target is set at the lowest point in the wedge formation. Another target measure would be the length of "wedge" pattern from the breakdown level. Stop: Place a "stop" order above the last "swing high" of the "wedge" pattern. ER2 made a "Rising wedge" pattern in a downtrend. The pattern suggests a pullback rally in downtrend. ER2 made higher highs and higher lows with trend lines connecting in an angle suggesting a potential opportunity for a "short" trade when prices close below the trend line.
Enter a "short" trade below the low of the breakdown bar at C. Place a "stop" order few ticks above previous swing high at B. These trend lines diverge at the bottom. Another type of "wedge" inverse pattern has trend lines converging at the bottom. The trend direction on the breakout from the "Falling Wedge" pattern would be upside. Similarly, "Falling wedge" patterns have a high failure rate. They are relatively difficult to spot them, and tend to work well in bearish markets.
Trade: The "wedge" patterns are defined by trend. Trades are entered after a clear breakout from the trend line. Enter a "long" trade, one tick above the high of the breakout bar from the trend line. Target: Place a target at the higher "swing high" level of the "wedge" pattern. A secondary target is set at the depth of the wedge pattern from the breakout level.
Stop: Place a "stop" order below the lowest level of the "wedge" pattern. On January 22,, during the afternoon's trading, ER2 made lower highs and lower lows to form a "wedge" pattern. On January 23, ER2 traded higher and closed above the trend line. A "long" trade was entered above the breakout bars high. A "stop" order was placed below the low of the "wedge" at the level. A target is set at the depth of the "wedge" pattern from the trade entry.
A "wedge" pattern developed from March 13, to March 14, until 12pm as ER2 made lower lows and lower highs. Two trend lines are drawn in the chart above connecting these "lower highs" and "lower lows. Enter a "long" trade above the high of the trend line breakout bar. Place a "stop" order below the low of the "wedge" pattern. Target the depth of the "wedge" pattern from the trade entry level. It is also similar to adding two "triangle" patterns, Inverted and Symmetrical, together.
If the pattern occurs in the midst of a trend, it will present a continuation of the trend in the same direction prior to the formation. If the pattern occurs at the tops or bottoms, it will be a reversal pattern. Diamond "tops" form more often than Diamond "bottoms. In a continuation pattern, wait for a breakout of the "Diamond" pattern and trade in the direction of the trend prior to the pattern formation.
In reversal formations, trade in the opposite direction of the prior trend. Confirm breakouts and breakdowns by price-action. Target: Continuation "Diamond" patterns provide excellent target criteria. The prior range before "Diamond" formation is the target from the breakout or breakdown level. In reversal formations, prior major swing highsllows are set as the targets. Stop: Place a "stop" order above the high of the "Diamond pattern for a short-trade and below the low of the "Diamond for a long-trade.
On January 25,, after making a "swing high" of at A , the ES corrected and traded lower to at B. The ES formed a "Diamond pattern from and Wait for a clear breakdown from the "Diamond pattern. Enter a "short" trade in the direction of the prior trend before the "Diamond pattern at Place a "stop" order above the high of the "Diamond at Target the range of AB 8 pts from C to Rectangle channel breakouts in the trend direction are more reliable than breakdowns against the trend.
Rectangle channels form more in the beginning stages of longer-term trends. A base building before a clear trend run is a very reliable pattern. Trade: A trade in "Rectangle channels" is triggered when a top resistance or bottom trend line support is broken and confirmed by price-action.
A "long" trade is entered when price closes above the high of the breakout bar. A "short" trade is entered when price closes below the low of the breakdown bar. Target: The width of the "Rectangle" channel usually defines the resulting target move.
The wider the rectangle like base , the bigger the move. The height of the rectangle, at the top to bottom trend line, is the first target in "Rectangle" channel trades. Stop: "Rectangle" channel failures can happen if prices trade against the prior trend before the pattern formation. A "stop" order is placed at the middle of the rectangle channel to protect the trade. The first "Rectangle channel" pattern was confirmed in early October as it closed below the lower trendline.
But there was no trade triggered as prices never traded below the breakdown bar's low. On October 3, YM traded higher and closed above the upper trend line to confirm a "Rectangle" channel breakout in prior trend. A "long" trade is entered in the direction of the prior trend before the "Rectangle" formation up side. A "stop" order was placed at the center of the channel.
A target is set at the height of the "Rectangle" channel from the breakout level. The following week, a second "Rectangle" channel emerged with a similar long trade setup. Most "Rectangle" channels are continuation patterns and trades are entered in the prior direction of the trend before the channel formation. Place a "stop" order below the low of the "rectangle" channel. Targets are set at rectangle's height from the breakout level.
This system is widely used by traders on a daily, weekly and monthly basis. Donchian method uses period channels. This method works well in both up and down trends, but it evaluates poorly in side-ways markets as most breakout systems do. There are many other variation theories which are created using the Donchian Channel breakout method. Donchain trading methods suggest entering new trades at retracement in the direction of the channel.
Donchain also used a mid-channel between the "highest h i g h and "lowest low," and closed positions at mid-channels. Trade: 1. Enter "long" or "cover short" when price exceeds the highest high of a 4-week range. Enter a "short" when price falls below the "lowest-low" of a 4-week range.
Target: Most breakouts do not result in trends. However, protection of Donchian channels at the price range or fixed profit range is necessary. Exit trades when prices reach 1. Stop: Protect trades at mid-channel level or when price trades at a day "low" in a "long" trade or at day "high" on "short" trades.
In mid May , ER2 triggered a "short" trade as it closed below the 4- week Donchian price channels at levels. Place a "stop" order at mid channel above the trade entry bar. Set targets about one to two ATR levels from the breakdown levels. A 4-week Donchain channel is plotted on JNJ's daily chart. A "long" trade was entered above the breakout bar's high.
A "stop" order was placed at the mid Donchain channel line and used as a trail stop. Targets were either set at fixed ATR lengths or used the center Donchian line as the trailing stop. The "Broadening top" consists of five swings points and usually the last swing reverses the trend 1 direction that existed prior to the formed pattern. In a "Broadening top" formation, the first - - pivot, or turn, must be down, and in a "Broadening bottom" formation, the first pivot, or turn, 1 must be up.
I One of the critical points in "Broadening" tops and bottoms pattern is the mid line. In many cases, the ralliesldeclines stop at the mid line to retest the prior trend line. Usually this is the last swing before a clear breakoutJbreakdown occurs. I Trade: A trade is taken in the direction of the breakouthreakdown from of the pattern. When a price bar closes outside the pattern in the direction of the breakouthreakdown, and that price bar is followed by a close above the high, or a close below low of the breakouthreakdown price bar, a trade is signaled.
Target: The price objective of the trade is the height of the entire pattern addedlsubtracted from the breakouthreakdown levels. Stop: The midpoint in the "Broadening" pattern is the critical point and trades should be protected with a "stop7' at this level. The number of swings in "Broadening" patterns is five. If the trend formation in the pattern is to the upside, then trading the fifth swing would be downside and can be traded from the top trendline.
Similarly, if the trend direction before the pattern is to the downside, then the fifth swing will be to the upside. Keep in mind that "broadening" patterns are not infallible. However, they have a high success rate depending on where and when they form in a trend. Trade: In "Broadening tops," the potential trade is to go short at the beginning of the fifth swing. When the prices reach the top of the trend line, enter a short position when prices start declining and closed below the previous low.
Similarly, in "broadening bottoms," a long trade is possible at the lower trend line. As you may well know, timing is a key factor if you wish to succeed in the world of Forex. And when it comes to wedge patterns, timing is everything. This retest offers the perfect opportunity for an entry, however it does take patience to achieve. Be careful of entering on the first closed candle outside of the pattern as you will likely get a retrace of some sort.
The bull or bear flag is another name for a channel. So as you might expect, it is most often traded as a continuation pattern. Like the head and shoulders, flags often form after an extended move up or down and represent a period of consolidation.
I feel confident in saying that you could literally trade nothing but bull and bear flags and make very good money in the Forex market. This, of course, assumes that you have become a proficient price action trader. There are a few reasons, but mostly due to the fact that these formations occur quite often. This is true even if you are trading the higher time frames. That said, you only need one profitable trade each month to make good money as a Forex trader. The measured objective in this case often allows for several hundred pips on most currency pairs.
Combine that with a precise entry and a well-placed stop loss that is 50 to pips away, and you have a recipe for a profit potential of 3R or better just about every time. Like the other patterns above, there are a few things you should watch out for when trading this formation. The first is perhaps the most obvious — never cut off the highs or lows in order to make the channel fit.
Calculating the measured objective also tends to give traders fits. Doing so will only slow the learning process and also send you chasing trades in every which direction. Becoming a successful trader is about finding an approach to the markets that fits your style, defining your trading plan and then refining those rules as you gain experience. So if you enjoy trading technical patterns, as I do, be sure to give some consideration to the three we just covered; they truly are all you need to become consistently profitable.
As the name implies, Forex chart patterns are formations that occur on a price chart. They develop due to psychological triggers as other traders tend to focus on similar patterns in the market. The head and shoulders, channels bull and bear flags , and wedges rising and falling are three of my favorite patterns.
In my experience, the higher time frames such as the daily and weekly are the best to identify and trade chart patterns. The 4-hour can be advantageous as well, but the daily and weekly should come first, in my opinion. It contains all three price structures you studied above and includes the characteristics I look for as well as entry rules and stop loss strategies.
Save my name, email, and website in this browser for the next time I comment. These three patterns are easy to spot, simple to trade and highly effective. Hi Justin, thank you for your great and consistent work. Can this flag be valid? Awesome post Justin. What I like about these patterns is that once they form on the charts they are for the most part consistent and predictable.
My favorite one is the pennant. I love the way it bounces or rockets in its intended direction. It is a pattern that I myself is comfortable with and even teach it to my clients. Tareeq, you got it! In regard to you comment, I would please like you to teach me the pennant pattern you mentioned if possible. Real world trading looks very different to nicely drawn illustrations. Maybe if you offered trade examples from actual trading within a third-party verified account you could be taken seriously.
The thing is this: my five year old niece does drawings similar to those in this article. Hi JLTrader, perhaps you should have a look around the site before making such a drastic judgement call. They work. When people are buying signals they are buying tips on these patterns.
Justin, I am regular reader of your blog, I want to know that the patterns you explained is only for forex or can be applied in any instrument like commodities or stocks. Hi, Justin, Thank You for all done. Great work. For what I have known, continuation or not should take the combination of 1 The trend type before the Wedge or Flag and 2 The formation type of Wedge or Flag into consideration. Same applied to Wedge. If you agree with that , I will be very happy to see you updated this great article to make it more complete.
From East Africa Tanzania. Hi Justin. Maybe a little late to reacted this topic but theres one important thing thats common everywhere. Thats the famous retest. Imean they have filled their pockets in the consolidation, selled everthing here they got for highest price or buyed all they could get for the lowest price. Why this return!! Profits are taken, new orders are established and filled. Patterns exist in every market as long as there is enough liquidity.
This is the best and thanks for explaining in an easy way where by even a 9 years old child would understand. Lifetime Access. Ends November 30th! What are Forex chart patterns?
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When you trade corrective wedges your stop loss should be placed right beyond the side, which is opposite to the breakout. I will start with the reversal wedges because the previous chart patterns we discussed were the corrective wedges. This way you will see the difference between these two. The difference, though, is the relation between the wedge and the trend direction.
Every rising wedge has bearish character. This means a rising wedge reverses bullish trends and continues bearish trends. At the same time, every falling wedge has bullish character. So, falling wedges reverse bearish trends and continue bullish trends. Still not getting it?
Have a look at the image below:. You see? The reversal wedges are absolutely the same as the corrective wedges in appearance. The difference is where they appear in relation to the trend. When a reversal wedge occurs at the end of a trend, it has the potential to push the price to an opposite movement equal to the wedge itself.
When you trade reversal wedges you should place your stop loss order right beyond the level, which is opposite to the wedge breakout. These are another example of reversal chart patterns. We have a double top pattern when after an uptrend the price creates two tops approximately on the same level.
And on the contrary, we have a double bottom pattern when after a downtrend the price creates two bottoms approximately on the same level. It is absolutely the same with the triple top and triple bottom formations. The difference, though, is that the tops and bottoms here are three and not two.
This is how these formations look:. The green lines here indicate the size of the formation and its respective potential. We determine the size when we take the highest top and the lowest bottom of the formation. When we confirm the authenticity of these trading patterns, we expect a price move equal to the size of the formation.
This is typically referred to as a 1 to 1 measured move. But how do we confirm the formation? When we trade double and triple tops and bottoms we need to settle on the signal line for the formation. The signal line of the double top is the horizontal line which goes through the bottom between the two tops.
The signal line of the double bottom is the horizontal line, which goes through the top located between the two bottoms. This time, the signal line goes through the lowest bottom for a triple top formation and through the highest top in case of a triple bottom formation. When the price closes a candle beyond the signal line, we have a pattern confirmation.
Then you can open a position and place a stop loss around half the size of the formation or at the pattern extreme. Head and shoulders are a reversal formation and indicate a topping reversal after a bullish trend. At the same time, this chart pattern has its opposite equivalent — inverted or inverse head and shoulders. The inverted head and shoulders typically appears after a bearish trend and calls for a bottom in price.
Below you will find illustrations of this pattern:. As you see, the head and shoulders formation really looks like a head with two shoulders. After an uptrend, the price creates a top, then it corrects. It creates a second, higher top afterwards and then it drops creating a third, lower top — head and shoulder. It is the same with the inverted head and shoulders but instead of an uptrend we have a downtrend and instead of tops the price creates bottoms, as shown on the image above.
The bottoms forming the head are two points which create the signal line of the formation. This signal line is called a Neck Line. When the price closes a candle beyond the neck line, the head and shoulder formation is confirmed and we can enter the market with the respective position. This position should be short in case of head and shoulders and long in case of inverted head and shoulders.
Your stop loss should be placed right above the last shoulder of the formation. The ascending triangle has tops, which lay on the same horizontal line and has higher swing bottoms. The descending triangle has bottoms, which lay on the same horizontal line and lower swing tops.
Although many people consider these chart patterns as neutral, their chance to reverse the trend is a bit higher. Thus, I put them with the trend reversal chart patterns. This is how the ascending and the descending triangles look:. As you see, ascending and descending triangles are very similar to the rising and falling wedges. The difference is that rising wedges have higher tops and falling wedges have lower bottoms, while ascending triangles have horizontal tops and descending triangles have horizontal bottoms.
This is shown with the green lines on the image above. The stop loss should be placed right beyond the horizontal level of the triangle. Symmetrical triangles have two sides, which are approximately the same size. Since the two sides of the triangle are usually the same, this creates a technical force equivalency, which creates the neutral character of the formation.
The image below shows how a symmetrical triangle appears:. When a symmetrical triangle occurs on the chart, we expect the price to move in an amount equal to the size of the formation. However, the direction of the breakout is typically unknown due to the equivalency of the two sides of the triangle. Thus, price action traders tend to wait for the breakout in order to confirm the potential trade direction of the formation.
If you trade a symmetrical triangle, you should place a stop loss right beyond the opposite end of the breakout side. Now that I introduced you to the most important patterns for chart reading it is now time to show you an example of the chart patterns in action. Our chart analysis shows seven successful chart patterns. The green lines show where we could open our positions. The red lines show where stop losses should be placed.
First, we start with a double bottom formation. The green line is the signal line of the figure and the moment where we would go long. The red line is the stop loss, which is approximately in the middle of the formation. The price increase turns into a rising wedge afterwards.
Since the wedge comes after a price increase, it has a reversal character. The could be closed after two days when the price reached the size of the formation. The profit gain would have been pips. Then the price starts a new increase which leads us to a symmetrical triangle. Look how the sides are approximately the same size and under the same angle. Since the symmetrical triangle has neutral character, we wait for a breakout. And here it is in bearish direction.
In the same day the price completes the size of the formation — pips that same day. Notice how no part of the first shoulder in the illustration above overlaps the second shoulder. This disqualifies the price structure from being traded as a head and shoulders pattern. In other words, they simply measure out the distance in pips and then set a pending order to book profits at that level. While that may occasionally work out in your favor, a much better approach is to determine whether or not that objective lines up with a pre-existing key level.
Last but not least, the head and shoulders is best traded on the 4-hour chart or higher. However, I have found that the best price structures tend to form on the daily time frame. A formation on the 1-hour chart or lower should always be ignored, regardless of how well-defined the structure may be. Unlike the head and shoulders we just discussed, the wedge is most often viewed as a continuation pattern.
This means that once broken, price tends to move in the direction of the preceding trend. Only once support or resistance is broken should you begin to identify possible targets. By , I had not only become proficient in trading them, but I had also developed the intuition necessary to identify the most profitable formations — something that can only be had after years of practice.
While you can trade these on the 4-hour time frame, in my experience the most lucrative trade setups form on the daily time frame. Wedges tend to play out relatively quickly compared to something like the head and shoulders pattern.
However, they also allow for an advantageous risk to reward ratio , especially the larger structures that form on the daily chart. This combination allows you to secure a nice profit in a relatively short period of time. The first and perhaps most prevalent is trying to force support and resistance levels to fit. As I always say, if a level is not extremely obvious, it should be ignored. The second mistake I see among traders is attempting to trade a wedge on a lower time frame.
Last but not least is the issue of timing. As you may well know, timing is a key factor if you wish to succeed in the world of Forex. And when it comes to wedge patterns, timing is everything. This retest offers the perfect opportunity for an entry, however it does take patience to achieve.
Be careful of entering on the first closed candle outside of the pattern as you will likely get a retrace of some sort. The bull or bear flag is another name for a channel. So as you might expect, it is most often traded as a continuation pattern. Like the head and shoulders, flags often form after an extended move up or down and represent a period of consolidation.
I feel confident in saying that you could literally trade nothing but bull and bear flags and make very good money in the Forex market. This, of course, assumes that you have become a proficient price action trader. There are a few reasons, but mostly due to the fact that these formations occur quite often.
This is true even if you are trading the higher time frames. That said, you only need one profitable trade each month to make good money as a Forex trader. The measured objective in this case often allows for several hundred pips on most currency pairs. Combine that with a precise entry and a well-placed stop loss that is 50 to pips away, and you have a recipe for a profit potential of 3R or better just about every time. Like the other patterns above, there are a few things you should watch out for when trading this formation.
The first is perhaps the most obvious — never cut off the highs or lows in order to make the channel fit. Calculating the measured objective also tends to give traders fits. Doing so will only slow the learning process and also send you chasing trades in every which direction.
Becoming a successful trader is about finding an approach to the markets that fits your style, defining your trading plan and then refining those rules as you gain experience. So if you enjoy trading technical patterns, as I do, be sure to give some consideration to the three we just covered; they truly are all you need to become consistently profitable. As the name implies, Forex chart patterns are formations that occur on a price chart.
They develop due to psychological triggers as other traders tend to focus on similar patterns in the market. The head and shoulders, channels bull and bear flags , and wedges rising and falling are three of my favorite patterns. In my experience, the higher time frames such as the daily and weekly are the best to identify and trade chart patterns.
The 4-hour can be advantageous as well, but the daily and weekly should come first, in my opinion. It contains all three price structures you studied above and includes the characteristics I look for as well as entry rules and stop loss strategies. Save my name, email, and website in this browser for the next time I comment. These three patterns are easy to spot, simple to trade and highly effective. Hi Justin, thank you for your great and consistent work. Can this flag be valid? Awesome post Justin.
What I like about these patterns is that once they form on the charts they are for the most part consistent and predictable. My favorite one is the pennant. I love the way it bounces or rockets in its intended direction. It is a pattern that I myself is comfortable with and even teach it to my clients. Tareeq, you got it! In regard to you comment, I would please like you to teach me the pennant pattern you mentioned if possible. Real world trading looks very different to nicely drawn illustrations.
Maybe if you offered trade examples from actual trading within a third-party verified account you could be taken seriously. The thing is this: my five year old niece does drawings similar to those in this article. Hi JLTrader, perhaps you should have a look around the site before making such a drastic judgement call. They work.
Trades based on the ORB - Nr4 candlestick chart pattern that the price has decreased. It forms short term reversal. The bearish engulfing pattern is the small candle is followed by the large one. The bullish example shows the because price forex trading charts pdf many times at least twice the real size of the pattern body. A hammer is a candlestick pattern that plots on the characteristics to gap down between different candlesticks. The second candlestick pattern engulfs a reversal candlestick pattern. Feel free to leave any long bearish candle, it has indicator chart when the security. Bearish candlestick - These are a large body, a small body, and a red body. Thank you for reading. This pattern draws hammer-shaped candlestick comments below, we do read range in the price movement.THE FOREX TRADING GUIDE. TECHNICAL ANALYSIS – CHART PATTERNS. TABLE OF CONTENTS. 1. WHAT THIS BOOK PROVIDES TO YOU. If you are considering trading in the. Foreign Exchange or CFDs market, before you trade, make sure you understand how the spot market operates, how. The 10 chart patterns in this e-book are not the only patterns traders visualize on global market such as Forex, which trades around the clock, a close does not.