I trade using just a handful of trading patterns. I primarly use moving averages, and volume for my technical indicators. Everything else is based off of time, and price; supply and demand. My style, and chart trading patterns used, are mainly derived from techniques used by Jeff Cooper, Steve Nison, Oliver Velez, and Greg Capra. I don’t use many technical indicators when trading. I believe when you start adding too many indicators, it just confuses the situation. All technical indicators are based off of time and price anyway. Pattern recognition is one of the first steps to becoming a profitable trader. I hope some of these patterns will help you.
I’ll use real trading examples for this page, and the abbreviations I created for each trading pattern I use in my trading journal.
BL1: In the two charting examples, this trading pattern is used on the daily chart. It occurs when the stock closes near the low after three to five days in that direction, but gaps open higher than the previous wide range candlestick. In essence, bears are trapped, or those that sold will need to buy the stock back which causes buying pressure. The success of this day trading pattern is very reliable.
BL2: This setup is a classic chart trading pattern. It’s basically a trade in which you follow the trend by buying the dip. The trade works best when the pullback is 3 – 5 bars. Watch for moving averages that are moving the same direction as the trade, which would be up, with this pattern. In the first example chart, you see the stock gap higher and trade up with higher than average volume. The stock proceeds to pull back 4 bars on decreasing volume. An entry is taken when the stock makes a higher high. In this case, it’s on the 6th bar. A stop is placed under the pivot low, or the day’s low based on your amount of risk. This trading pattern is in play on all time frames.
BS1: This trading pattern is directly opposite of what occurs in the BL1 trading pattern. I’ve found this to be quite a profitable stock trading pattern, because like the BL1 chart, it catches traders off guard. As you can see from this daily chart of HANS, the stock closes near it’s high (look for 3-5 days in this direction). Bulls are feeling good. The next morning, the stock opens below the low of the previous day’s candlestick. Those buyers are now in panic mode. This allows an opportunity to short the stock under a 5-minute low, or using another intraday technique to enter this trading pattern.
Here’s another example of the BS1 trading pattern from a 032807 trade.
BS2: This second trading pattern in the Shorts category occurs after a stock has seen some buying strength. This usually happens on a bounce after the stock has found some support. The trigger will usually occur after 3 – 5 bars. A stop is placed above the 4th bar in this example of TOL, or above the high of the day. Look for moving averages heading down in whichever time frame you’re trading the setup. This pattern works in all time frames. 5-minute – monthly charts.