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Better Trading Series

  • Parent Category: Articles

Pattern Recogntion: Triangles

pattern recognition trianglePattern recognition is a popular topic especially with new and evolving traders. I've used pattern recognition to make trading decisions for 30 years. It's not the only way to trade but it's been a very successful method for me and I'm happy to share some insights wiht you.

Pattern: Triangles

The Setup: The bullish setup is simple to recognize. Firstly, the trend must be up; that is, our 30 day EMA (exponential moving average) must be higher today than what it was yesterday. The triangle you are looking for must have 4 distinct internal swings, which help define and differentiate the pattern from lower probability trades.

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  • Parent Category: Articles

Pattern Recognition: Flag

pattern recognition flagIn our last article we described the triangle pattern. Another trend following set up that is less common but still a useful strategy for your trading toolbox is the continuation Flag.

Pattern: Flag

The Setup: The flag is a bullish setup like the Triangle pattern. Firstly, the trend must be up; that is, our 30 day EMA (exponential moving average) must be higher today than it was yesterday. The Flag also has 4 internal swings, which help define and differentiate the pattern from lower probability trades.

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  • Parent Category: Articles

Patterns Recognition: Gaps

pattern recognition gapToday we look at several Gap patterns. I prefer to use them as a continuation pattern especially during a strongly trending market. The problem with Gaps is they can only be defined several days after they occur. Therefore, we must apply some rules to help define the validity of the gap pattern before or as they occur.

Patterns: Gaps

The Runaway or Breakaway Gap is where prices jump without actually trading and the Gap area is never filled. This may occur for various reasons, mainly due to unexpected news or an announcement. This type of pattern can indicate a strong continuation of the trend. There is no way to define this type of move beforehand.

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  • Parent Category: Articles

Pattern Recognition: Smash Bars

pattern recognition smash barsToday's trading pattern is for scalpers or those who want to get into the market, take a quick profit and move on. We are looking for quick moves of three to four days for profitable trades and losses of one day in duration.

Pattern: Smash Bars are based on the dynamics of a single bar. The pattern is easily programmed into most charting software packages (eg Amibroker) and can then be backtested (with quality data such as Norgate Premium Data) to test its performance.

I've done extensive work on this methodology and found it has a high strike or success rate, but the average dollar win was not high. The average dollar win was also very close to the average dollar loss. Be wary of this especially if you're paying high brokerage rates.

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  • Parent Category: Articles

Pattern Recognition: Swing Target Trading

pattern recognition swing tradingToday I'll introduce you to my version of Swing Trading which defines the risk/reward prior to the trade being implemented and is based more on momentum than trend following.

Pattern: Swing Target Trading

A swing is simply a move from a high point (HP) to a low point (LP) or from a low point (LP) to a high point (HP) and will take anywhere from 2 to 15 days to develop.

Equity traders must ensure that a strong trend or thrust is underway. This system will fail if traded in a market with no momentum.

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