This is one setup you can look to trade the triple top pattern.
Triple Bottom Chart Pattern
You should know what to expect…
This is a bullish reversal pattern.
The market is in a downtrend then it makes a low, bounces up higher, comes down and retests the lows, bounces up higher retests the lows once again.
Thinking it would break.
The sellers thought…
“Hey, this is our time, It’s victory”
Guess what?
The market bounces up higher and then they fail to take the price lower.
At this point, you have to wait for what we call the neckline.
If the price breaks above the neckline, this is where we say the triple bottom pattern is confirmed and the market could head up higher.
Chart Example:
You notice how cute these three bounces are. The three attempts to drive the price down but the market refused.
What is that telling you?
If it can’t go down then it probably should go up higher.
How can you trade the triple bottom pattern?
You can use the break and retest, the first pullback.
Cup and Handle Chart Pattern
This is a bullish trend continuation pattern.
The market is in an uptrend. goes up higher makes a pullback, goes up higher makes a pullback goes up higher.
This time, when you see a cup and handle pattern forming, you will notice that the pullback is much longer in terms of duration compared to the earlier pullback.
Then it starts to consolidate slightly.
The market is still bullish.
Sellers couldn’t push the price any lower. It has difficulty breaking the swing low
This tells you that the overall market is still bullish and then at this point you can draw the area of resistance or the neckline.
When the market breaks above the area of resistance, we will say that the cup and handle pattern is formed, and the market is likely to continue up higher.
Chart Example:
You notice how the market is in an uptrend, makes a pullback, and goes up.
This time you notice the duration is much longer compared to the previous pullback, then it tried to break out of the high but couldn’t.
Instead, it formed a consolidation, and when the price breaks above the high, this is where we say the cup and handle patterns are complete and the market could go up higher.
How do you trade the cup and handle pattern?
You can trade this by using the break and retest or the first pullback.
But another way you can trade it is…
Notice how tight the consolidation is for this cup and handle pattern.
What you can do is that when you notice the handle is very nice and tight. This is what we call a volatility contraction.
It’s also known as build-up.
Where the buyers and sellers are in equilibrium storing potential energy to make the next move.
Since you know the direction of the trend you probably want to be in the direction of the trend.
Inverted cup and handle pattern
This is a bearish trend continuation chart pattern.
The market is in a downtrend. It hits lower and then makes a pullback, this time around the pullback is longer than the preceding pullback.
It makes another pullback, it’s so weak that it couldn’t even take out this previous swing high
At this point, you have what we call a neckline or an area of support.
If the market comes down lower and breaks below these lows of support, you can expect the price to hit lower.
Chart Example:
Imagine a cup and handle without consolidation, the next logical place to set your stop loss would be at the swing high which is going to be large.
But a consolidation gives you a relevant place to set a tight stop loss, which offers you a favorable risk to reward on the trade.
Ascending Triangle Pattern
This is one of my favorite chart patterns to trade because it’s a bullish trend continuation chart pattern.
I find that it’s one of the most powerful ones to trade.
The psychology behind this pattern is just so significant.
How the Ascending Triangle Pattern works
The market is in an uptrend, goes up higher makes a pullback, then it starts to go up higher again but fails to do so then makes another pullback.
What’s interesting is that this pullback, now did not take out these lows.
At this point, you have what we call an area of resistance and sometimes we might have another smaller pullback before the price breaks out higher.
When it breaks out, this is what we call an ascending triangle chart.
To me is a sign of strength because it tells you that…
“The buyers are willing to fight to final for every inch trying to push the market up higher”
You can see the buyer is trying to push the price up higher even in front of resistance, they’re still willing to buy at these higher prices.
Why would people want to buy in front of resistance?
Probably because they expect higher prices to come, that’s why you’re willing to buy in front of resistance because you think that the market is likely to break out.
Before it breaks out, you quickly get on board.
This is a sign of strength.
Imagine someone shorts at resistance, where will your stop loss be?
Probably your stop loss is going to be above the highest of resistance.
That’s what most gurus will tell you to put your stop loss above resistance. Imagine when the price breaks above the resistance, it’s going to hit this cluster of stop loss.
When it hits that cluster of stop loss, that is strong buying pressure to push the price further up.
This is why I love trading the ascending triangle chart pattern.
Chart Example:
How can you trade the ascending triangle chart pattern?
You can look to trade the retest the break and retest.
Descending Triangle Pattern
This is a bearish trend continuation chart pattern.
It’s just the inverse of the earlier one.
Chart Example
How can you trade the descending triangle chart pattern?
You can use the break and retest strategy as shared earlier or the first pullback strategy
Bullish Pennant chart pattern
This is a bullish trend continuation pattern.
The market is in an uptrend, goes up makes a pullback but can’t break out of the highs. You can see that the volatility of the market is shrinking if you just connect the lines
This looks like a smaller asymmetrical triangle pattern.
This type of price action tells you that the volatility of the market is getting smaller.
As you know the volatility in the market is never constant. It moves from a period of high to low and vice versa.
This is what we call it bullish pennant.
Chart Example:
Usually, when you trade such trend continuation chart patterns it’s useful to trail your stop loss. You can use things like a moving average to trail your stop loss
You can hold that position until the price breaks and close below your moving average so that’s one way to go about trailing your stop loss.
Bearish Pennant Chart Pattern
This is a bearish trend continuation chart pattern.
The market is in a downtrend, goes down lower makes a pullback tries to head down lower but can’t break below the lows then pulls back up higher but again fails to break out of the highs.
Then it hits down lower again and can’t take up the low before it makes a slight pullback which again fails to take out these highs and then goes down lower once again.
At this point, you can connect the highs and the lows.
At this point, the volatility of the market is shrinking.
If the price breaks and closes below, we’ll say that the bearish pennant is confirmed and the market could go down.
Chart Example
You might hear me saying things like “could”
I’ll never say things like guaranteed, that doesn’t work in trading.
We are dealing with probabilities, never certainty.
Trading strategies for chart patterns
First on the strategy…
Double Top False Break
If you recall earlier, I talked about the double top chart pattern and there’s a technique that you can use to enter your trade with low risk even before the price breaks below the neckline.
How do you do it?
Let me explain in this example…
You can see that the overall trend of this market is in a downtrend and what’s interesting is that this market has come towards an area of value.
If you’re not familiar with that term, it simply means areas on the chart where buying or selling pressure could come in.
As you know resistance is an area where selling pressure could come in to push the price lower.
Once I see this on the daily time frame, I want to go down to a lower time frame like the 8-hour time frame, and look for this specific chart pattern.
You see that this market is respecting this area of resistance
8-Hour Timeframe:
If you look at the most recent price action, what do you see?
You will see that it is a bit too early. Half of the double-top pattern is already being formed.
We could get another one coming.
What we are looking for is the second portion to form to show us a bearish price rejection.
Let’s see what happens…
In this case, the market goes down and starts to rally higher.
We are back at the highs again.
The double-top pattern is near completion.
This is valid only if it breaks below the neckline. This is what I mean:
But since we have numerous factors working in our favor…
Is it possible to enter the trade before the price reaches the neckline?
Yes.
How do you do that?
Looking at the overall market on the daily timeframe, it’s in a downtrend and this is an area of resistance that I have highlighted.
You can see we have an entry trigger known as the shooting star. Telling you that the sellers are stepping in and about to push the price lower.
This is an entry trigger to go short.
What you can do is go short on the next candle open.
I set my stop loss a distance away from the price structure. a distance away from the highs the distance away from resistance:
You can use an indicator called the average true range ATR
I like to use a 20-period SMA for the ATR.
What about our target?
Since you are now trading even before the double top pattern is completed, you can be in profit before the price breaks below the neckline.
Here’s the thing about the neckline…
Sometimes it’s not the best time to short the market because the price breaks below the neckline.
If you think about this logically, the neckline is an area of support.
The price would re-test the neckline and then bounce up higher and continue.
That could happen.
If you want to be a little conservative, you can have your target at the neckline where people are looking to short the market in an uptrend.
You can take profit and exit half of your position.
Hopefully, this illustrates the power of trading the double-top pattern.
Inverse Head and Shoulders pattern
EURCAD Daily
We have an inverse head and shoulder pattern, there’s a left and right shoulder and this would be the neckline.
One thing I want to highlight is that, to know whether the market is likely to reverse or not, you want to see where the reversal pattern has formed.
Is it leaning against any higher time frame price structure?
Example
On the daily timeframe, if you look at the weekly timeframe you will notice that the inverse head and shoulder pattern leans on the areas of support on the weekly timeframe.
This is significant and could be the long-term reversal on a higher time frame.
Let’s find out how can we get on board a trade with low risk to trade this reversal chart pattern.
Going back to the daily time frame.
The next thing that you can do is if you want to find a low-risk entry, you can go down to a lower time frame like the 8-hour time frame, and look for an entry trigger to go long.
My game plan over here is that since I know this is an area of value, The neckline could become previous resistance which could become support.
I’m looking for trading opportunities around the neckline.
What I’m thinking of is for the market to do a retest into this area, come back in, and then close back above it giving me an entry trigger to go long
The market seems to be breaking down, it retests the lows.
You want to be paying attention to this level because this is a swing low and buyers could come in to push the price higher.
What we are looking for is a rejection for the price to close bullishly above the lows signaling buying pressure is coming in and the market could go up higher but it failed.
The market broke lower:
Let’s see what happens next:
This is what I call a false break.
You can see that the market took out these lows making traders think that…
“This is going to be a breakdown”
This to me is an entry trigger to go long.
Here’s what I’ll do…
Let’s put it in green that’s our entry price point
Then as for our stop loss, we set at a distance below the lows using the ATR method I shared with you.
We can have our first target just before the recent swing high.
What’s significant about this entry trigger is that when you trade this inverse head and shoulders pattern, you’re no longer just buying the breakout of this neckline.
