Technical Analysis Course - Chart Pattern Course.
On this page you'll find a short introduction to some of the most important chart patterns every trader needs to know.
Technical analysis is the study of market action primarily through the use of charts, for the purpose of forecasting future price trends. It assumes three things: Market action discounts everything.
Price moves in trends.
History repeats itself.
The following patterns are the most recognized and followed. We actively follow and call them all in our Live Trading Room.
1-2-3 CONTINUATION PATTERN:
1. Wide range bar breaking out of support.
2. Narrow range bar near/at the highs of the previous wide range bar. Often this narrow range bar is also an inside range bar.
Entry: Switch to a smaller time frame and take a breakout from the base or use above the highs of the narrow range bar of bar 2.
Stop: Under the lows of the base or last major pivot low on the smaller time frame, under the lows of the narrow range bar, or under the lows of the third bar at the time of the setup.
THE 2B SETUP:
Criteria: A high followed by a slightly higher high.
Entry: As the high of the first high breaks on a pullback from the second high. Alternate entry (used by Toni): Under the prior bar's lows after the second high is made. For instance if the lows of the bar making the second high is $50, entry is under $50. The only time it is not under the bar that made the second high is if that high is followed by an inside range bar, so you would use a break in the lows of the inside range bar.
Target: Price or moving average support.
ASCENDING TRIANGLE:
Criteria: Equal/Nearly equal highs and higher lows on decreasing volume.
Entry: Breakout from the trend lines on higher then average volume as the trend lines converge.
Stop: Under the lows of the base or last major pivot low on the smaller time frame or under the lows of the setup bar.
Target: Equal distance on a breakout comparable to the distance between the first high and first low in the triangle. Ascending triangles tend to breakout higher.
2. Stronger than average rally.
3. Pullback of 3-5 bars comparable to or stronger than previous rally, usually on increasing volume, to moving average support (typically the 10, 20 or 30 sma.)
4. Hugs the moving average support on decreasing volume. 4-5 bars average.
5. Moving averages start to converge (10 and 20 sma if it's setting up on the 20 sma.)
Entry: Switch to smaller time frame and enter on a breakdown in support or going into resistance.
Stop: Over previous or current day's highs. Usually you will use current day's highs or intraday resistance.
Target: Next major simple moving average.
BASING / TRADING RANGE / CONGESTION / CONSOLIDATION.
2. Gentle pullback to resistance, such as the 20 sma, on decreasing volume.
Entry: Below the previous bar's lows or using an intraday breakdown such as a break in the uptrend line of the flag. Volume should start to pick up at this time to confirm the setup.
Stop: Above the previous bar's highs or above intraday resistance.
Target: New lows, usually on high volume.
Criteria: A base/trading range at highs or lows.
Entry: A breakout in the most recent section of the trading range or trend line in the direction of the trend prior to the trading range. Can also take an entry into moving average support in the case of a long and sma resistance in the case of a short.
Stop: Under simple moving average support such as the 15 minute 20 sma in the case of a setup on the 15 minute chart or under the last pivot low within the trading range.
Target: Moving average resistance (like the 15 minute 200 sma), price resistance (such as a previous pivot), or an equal move to that before the trading range on the move out of the trading range.
IBC was mentioned in the Live Trading Room on 7/16/2002 to watch on 7/17/2002 and again in the morning on 7/17 as a breakout daytrade.
BULL FLAG PATTERN:
2. Gentle pullback to support, such as the 10 or 20 sma, on decreasing volume.
Stop: Below the previous bar's highs or below intraday resistance.
BULL TRAP - A gap setup:
1. A bullish daily pattern. Preferably where the market opens at lows and closes at highs.
2. A gap down in the morning, generally on news, whereby the stock opens at or under the previous day's lows.
Entry: Break in 5 minute lows (A) or an intraday setups such as a breakdown out of a base at lows (B) or a bear flag.
Stop: Depending on the objective and entry. On a break in 5 minute lows for a day or swingtrade you can use above the 5 minute highs. For intraday breakdown setups use a stop over the last 5-7 bars or over significant intraday moving average resistance. The same goes for intraday bear flags. For position trades use over the high of the previous day or over the current day's highs.
Target: Equal distance on a breakout comparable to the distance between the first high and first low in the triangle.
CORE BUY SETUP:
2. Gentle pullback of 3-5 bars average to the 10-20 simple moving average zone on decreasing volume.
Entry: Above the previous bar's highs or using an intraday breakout. Volume should pick up at this time to confirm the setup.
Stop: Under the previous bar's lows or under intraday support.
Target: New highs.
CBH was given in the Live Trading Room on 4/24 as a Core Buy swingtrade.
CORE SHORT SETUP:
2. Gentle pullback of 3-5 bars average to the 10-20 simple moving average resistance zone on decreasing volume.
Entry: Below the previous bar's lows or using an intraday breakdown. Volume should start to pick up at this time to confirm the setup.
Stop: Above the previous bar's highs or above intraday resistance.
Target: New lows, usually on high volume.
CUP WITH HANDLE:
A type of Phoenix.
Criteria: A stock coming out of a downtrend with rounded lows that puts in a slightly lower high and then pulls back gradually to put in a higher low.
Entry: On a breakout higher out of the pullback. There will often be a moving average crossover (such as a cross in the 10 and 20 sma)
Stop: Under lows of the pullback.
Target: Highs of the beginning of the cup or an equal move out of pullback as compared to move off lows.
HEAD & SHOULDERS:
Criteria: High (left shoulder) followed by a higher high (head) and then a lower high (right shoulder) which is comparable to the left shoulder.
Entry: Breakdown from the neckline. The neckline connects the lows on either side of the head. Alternative and preferred entry is using a bear flag breakdown to enter after the right shoulder has formed.
Stop: Over the past pivot high or 20 simple moving average resistance.
Target: Previous reversal prices and support zones such as a 5 minute 200 sma if the setup occurs on the 15 minute chart.
The Nasdaq was given in the Live Trading Room on 5/31 as a Head & Shoulders market alert. (05/31/02 10:41:54 <Toni> Market Alert: 15 minute Nasdaq Head& Shoulders)
OOPS DAILY BUY:
Criteria: Wide range bar on increased volume (preferably at a strong support level)
Entry: Above 5 minute high on a gap up or an intraday breakout to highs.
Stop: Under current or previous day's lows.
Target: Price resistance, 5 minute 200 sma, 15 minute 200 sma, 10 & 20 day sma. This is a 1/2 - 1 1/2 day hold, depending on objective.
PENNANTS / WEDGES.
2. Pullback higher of 3-5 bars comparable to or stronger than previous decline, usually off lows on high volume, to 20 simple moving average resistance.
3. Hugs the moving average support on decreasing volume. 4-5 bars average.
4. Moving averages start to converge (10 and 20 sma if it's setting up on the 20 sma.)
Entry: Switch to smaller time frame and enter on a breakout in resistance and/or the 20sma.
Stop: Under previous or current day's lows on a daily setup. Usually I will use current day's lows or a break in intraday support.
Target: Next major simple moving average. For example, a setup on the 2 minute chart has a target of 5 minute 20 sma and a setup on the 5 minute chart has a target of the 15 minute 20 sma. Also watch for equal moves.
REVERSE HEAD AND SHOULDERS.
General Criteria: Low (left shoulder) followed by a lower low (head) and then a higher low (right shoulder) which is comparable to the left shoulder.
Entry: Break higher from the neckline. The neckline connects the highs on either side of the head. Alternative and preferred entry is using a Phoenix to enter after the right shoulder has formed.
Stop: Under the past pivot low or 20 simple moving average support.
Target: Previous reversal prices and resistance zones such as a 5 minute 200 sma if the setup occurs on the 15 minute chart. Also whole number resistance.
SYMMETRICAL TRIANGLE.
Criteria: Lower highs and higher lows on decreasing volume.
Entry: Breakout from the trend lines on higher then average volume as the trend lines converge.
Stop: Under the lows of the base or last major pivot low on the smaller time frame or under the lows of the setup bar in the case of a buy.
Target: Equal distance on a breakout comparable to the distance between the first high and first low in the triangle. Symmetrical triangles tend to resolve themselves in the direction of the overall trend. There are exceptions, mainly at strong resistance in the case of an uptrend or strong support in the case of a downtrend. This tends to be one of the more difficult patterns for trader's to learn to use successfully.
For in depth information please see my day trading ebook.
9 profitable intraday trading strategies (that you can use right now)
9 profitable intra-day forex trading strategies you can use right now!
People who succeed at day trading do three things very well:
They identify intra-day trading strategies that are tried, tested. They are 100% disciplined in executing those strategies. They stick to a strict money management regime.
Jump right to one you like, just click on it.
Momentum Reversal Trading Strategy.
Role Reversal Trading Strategy.
Heikin-Ashi Trading Strategy.
RSI Trading Strategy, 5 Systems + Back Test Results.
The Moving average crossover strategy.
The swing day trading strategy.
Candlestick patterns.
The Bollinger band squeeze strategy.
The narrow range strategy.
The 2 period RSI strategy.
Binary options trading strategy that generates 150% return.
Your probably thinking:
“How do I find intra-day trading strategies that actually work?”
And Are there some day trading rules that will help me to trade forex, commodities, stocks?
All you need to do is: set aside a few minutes of your day to tackle one of the following forex day trading strategies which I outline for you below.
The reality is this:
Few people are actually successfully day trading forex or other markets for a living,
That’s the uncomfortable fact of life that marketers don’t like to speak of! And those few people are most probably trading with other peoples money, like traders working for a bank or a hedge fund.
That means the stakes are not as high for them, as they are for a person trading their own capital.
That being said;
There are intra-day trading strategies beginners can use to maximise their chances to stay in the game for the long haul. These can be use in most markets like forex, commodities or stocks.
Because, ‘the long haul’ is where someone can turn their initial starting capital, into a retirement nest egg!
So, in this article I will show you everything you need to know to get started including:
Awesome forex day trading strategies that are used successfully every day. The main chart patterns associated with these forex trading strategies. Instructions for implementing the strategies.
Then I will tell you,
The simple truth is.
Learning to use and implement a basic intra-day trading strategies can cut your losses by 63% immediately and will increase your profitability chances in the long run.
MUST READ: Few Things About Risk Management Forex Trader Should Know.
So lets get down to business.
1.Momentum Reversal Trading Strategy.
#1 The strategy seeks trading opportunities through the combination of fundamental and technical analysis.
#2 It requires a trader to analyse the fundamental aspects of the traded currency to establish mid to long term trend first. Then it uses the price momentum, support and a resistance zones to spot market reversals.
#3 The strategy allows to enter the market at low risk and provide a large profit potential through advanced money management.
#4 All trades are planned in advance to give a trader enough time to enter the market every time. Most trades are placed as pending limit orders often executed during London’s session.
#5 The strategy works well on all major US Dollar crosses. It generates between 1-5 signals per month. All trades are entered and held for anything up to several weeks depending on the price action and the market fundamentals.
#6 The strategy has been traded in live markets for the last 15 months and its performance is clearly documented in the performance section.
The strategy uses a few indicators only:
Stochastic Oscillator ( multi-time frame) Support and resistance Fibonacci retracements.
After establishing your bias and long term trend through Commitments of Traders report, it’s time to switch to daily charts and look for a price reversal phase.
To define the price reversal you need to analyse the price on daily charts first and answer 3 simple questions:
Has the market been clearly falling or rallying recently? Is the weekly and daily stochastic showing overbought or oversold levels on daily charts? Is the price trading around major support or resistance zones?
In the USDJPY chart above you can see four examples of the price being in a reversal phase.
Setup #1 on the chart.
Weekly and daily stochastics are above 70 zone and the market has been in a substantial rally prior to that. A trader should be marking this zone as bearish and switching to intraday charts to seek a bearish reversal price pattern.
Similar to setup #1, price, after a few days of rally, it came back up to an overbought stochastics zone ( above 70) and is now trading around a major resistance zone. A trader will be marking this area as bearish and switching to intraday charts to seek a bearish reversal price pattern.
Once again, the momentum is now overbought and the price is forming a clear resistance. A trader will be marking this area as bearish and switching to intraday charts to seek a bearish reversal pattern.
The price declined and reached a support at 117 area. The momentum is now oversold. A trader will be marking this area as bullish and switching to intraday charts to seek a bullish reversal price pattern.
The above setups will be attempted only in the direction of the trend established by the trader during a fundamental analysis. The fundamentals were pointing to the downside in USDJPY. The first 3 setups would be considered and the 4th would be either ignored or entered as a counter trend position with a lower lot size.
Fore more information CLICK HERE.
2:The Moving average crossover strategy.
Moving average indicators are standard within all trading platforms, the indicators can be set to the criteria that you prefer.
For this simple day trading strategy we need three moving average lines,
The 20 period line is our fast moving average, the 60 period is our slow moving average and the 100 period line is the trend indicator.
This day trading strategy generates a BUY signal when the fast moving average ( or MA) crosses up over the slower moving average.
And a SELL signal is generated when the fast moving average crosses below the slow MA.
So you open a position when the MA lines cross in a one direction and you close the position when they cross back the opposite way.
How do you know if the price is beginning to trend?
Well, If the price bars stay consistently above or below the 100 period line then you know a strong price trend is in force and the trade should be left to run.
The settings above can be altered to shorter periods but it will generate more false signals and may be more of a hindrance than a help.
The settings I suggested will generate signals that will allow you to follow a trend if one begins without short price fluctuations violating the signal.
On the chart above I have circled in green four separate signals that this moving average crossover system has generated on the EURUSD daily chart over the last six months.
On each of those occasions the system made 600, 200, 200 and 100 points respectively.
I have also shown in red where this trading technique has generated false signals, these periods where price is ranging rather than trending are when a signal will most likely turn out to be false.
The first false signal in the above example broke even, the next example lost 35 points.
The above chart shows the first positive signal in detail, the fast MA crossed quickly down over the slow MA and the trend MA, generating the signal.
Notice how the price moved quickly away from the trend MA and stayed below it signifying a strong trend.
The second false signal is shown above in detail, the signal was generated when the fast MA moved above the slow MA, only to reverse quickly and signal to close the position.
Although the system is not correct all the time, the above example was correct 6/12 or 50% of the time.
We can immediately see how much more controlled and decisive trading becomes when a trading technique is used. There are no wild emotional rationalisation, every trade is based on a calculated reason.
3.Heikin-Ashi Trading Strategy.
Heikin-Ashi chart looks like the candlestick chart but the method of calculation and plotting of the candles on the Heikin-Ashi chart is different from the candlestick chart. This is one of my favourite forex strategies out there.
In candlestick charts, each candlestick shows four different numbers: Open, Close, High and Low price. Heikin-Ashi candles are different and each candle is calculated and plotted using some information from the previous candle:
Close price: Heikin-Ashi candle is the average of open, close, high and low price. Open price: Heikin-Ashi candle is the average of the open and close of the previous candle. High price: the high price in a Heikin-Ashi candle is chosen from one of the high, open and close price of which has the highest value. Low price: the high price in a Heikin-Ashi candle is chosen from one of the high, open and close price of which has the lowest value.
Heikin-Ashi candles are related to each other because the close and open price of each candle should be calculated using the previous candle close and open price and also the high and low price of each candle is affected by the previous candle.
Heikin-Ashi chart is slower than a candlestick chart and its signals are delayed (like when we use moving averages on our chart and trade according to them).
This could be an advantage in many cases of volatile price action.
This forex day trading strategy is very popular among traders for that particular reason.
It’s also very easy to recognise as trader needs to wait for the daily candle to close. Once new candle is populated, the previous one doesn’t re-paint.
You can access Heikin-Ashi indicator on every charting tool these days.
Lets see how a Heikin-Ashi chart looks like:
On the chart above; bullish candles are marked in green and bearish candles are marked in red.
The very simple strategy using Heikin-Ashi proven to be very powerful in back test and live trading.
The strategy combines Heikin-Ashi reversal pattern with one of the popular momentum indicators.
My favourite would be a simple Stochastic Oscillator with settings (14,7,3). The reversal pattern is valid if two of the candles (bearish or bullish) are fully completed on daily charts as per GBPJPY screenshot below.
Once the price prints two red consecutive candles after a series of green candles, the uptrend is exhausted and the reversal is likely. SHORT positions should be considered.
If the price prints two consecutive green candles, after a series of red candles, the downtrend is exhausted and the reversal is likely. LONG positions should be considered.
The raw candle formation is not enough to make this day trading strategy valuable. Trader needs other filters to weed out false signals and improve the performance.
MOMENTUM FILTER (Stochastic Oscillator 14,7,3)
We recommend to use a simple Stochastic Oscillator with settings 14,7,3.
I strongly advise you read Stochastic Oscillator guide first.
Once applied, it will show the overbought/oversold area and improve the probability of success.
Enter long trade after two consecutive RED candles are completed and the Stochastic is above 70 mark.
Enter short trade after two consecutive GREEN candles are completed and the Stochastic is below 30 mark.
To further improve the performance of this awesome day trading strategy, other filers might be used. I would recommend to place stop orders once the setup is in place.
In the long setup showed in the chart below, the trader would place a long stop order few pips above the high o the second Heinkin-Ashi reversal candle.
The same would apply to short setups, trader would place a sell stop order few pips below the low of the second reversal candle.
Accelerator Oscillator filter.
As another tool you could use the standard Accellarator Oscillator. This is pretty good indicator for daily charts. It re-paints sometimes, but mostly it tends to stay the same once printed. Every bar is populated at midnight. How to use it? After Heikin-Ashi candles are printed, confirm the reversal with Accellarator Oscillator.
For Long trades: If two consecutive GREEN candles are printed, wait for the AC to print the green bar above the 0 line on the daily charts.
For Short trades; If two consecutive RED candles are printed, wait for the AC to print the red bar above the 0 line on the daily charts.
The reversal pattern is valid if two of the candles (bearish or bullish) are fully completed on daily charts as per GBPJPY screenshot below. Don’t enter the market straight after a volatile price swing to one direction. It important to consider fundamental news in the market. I would advise to avoid days like:
Move position to break even after 50 pips in profit. Move stop loss at the major local lows and highs or if the opposite signal is generated. Let your winners run. Stop loss 100 pips flat or use local technical levels to set stop losses. Every trader is advised to implement their own money management rules.
Strategy examples and screenshots.
Strategy doesn’t generate much setups, but when it does, they are usually important market tops or bottoms. See some sample trade setups before and after.
To get the ready MT4 templates for the setups below please CLICK HERE TO DOWNLOAD.
You can then unzip it and place them in your MT4 and have the below charts ready.
Date: 22 May 2013.
Date: 21 June 2013.
Date: 31 October 2013.
4. The swing forex day trading strategy.
Swing day trading strategy is all about vigilance!
The trader needs to be on guard to notice a correction in a trend and then be ready to catch the ‘swing’ out of the correction and back into the trend.
“And what’s a correction?” I hear you ask.
Simple. Corrections involve overlap of price bars or candles, lots and lots of overlap!
A trending price makes progress quickly, corrections don’t.
Lets look at some charts for an example.
Take the above chart, EURUSD at 240 minute candles, within the green circle we have 26 candles where the price stayed within a 100 point range.
As I have marked with the blue lines the price even contracted to a daily move of only 20 points!
A swing trader would be on HIGH ALERT here! Contracting price, lots and lots of overlap.
This presented a very high probability that the price was going to continue in the trend that had started the previous week.
The trade would involve selling when the first candle moved below the contracting range of the previous few candles, A stop could be placed at the most recent minor swing high. ( Orange Arrows )
Another example of a swing trade is shown in the chart below.
Again we are working on the EURUSD 240 minute chart.
In green we can see a correction to the downside, notice the slowing downside momentum?
Notice all the overlapping price candles?
The entry point in this trade would be a little harder to execute, although the principle is the same.
We want to wait for the price to show a sign of reversal, at the end of the correction, two separate candles moved above the upper blue line.
This showed that the price was now gearing up for reversal.
A trader would buy the open of the following candle and place a stop at the lowest point of the correction.
The risk here was about 30 points, the gain was about 600 if you managed to ride it all the way up!
Swing trading is a little more nuanced than the crossover technique, but still has plenty to offer in terms of money management and trade entry signals.
5.Candlestick patterns.
MUST READ: Candlestick patterns – 21 easy patterns ( and what they mean )
Engulfing patterns happen when the real body of a price candle covers or engulfs the real body of one or more of the preceding candles.
The more candles that the engulfing candle covers the more powerful the following move will likely be.
There are two types. Bullish and bearish.
The bullish engulfing pattern signals a bullish rise ahead and the opposite is true for the bearish engulfing candle.
In the above chart I have circled the bullish engulfing candles which led to price rises immediately after.
Well, the bullish engulfing pattern is a precursor to a large upward move.
So, when you see an the engulfing candle taking shape you should wait for the following candle and then open your position.
Your stop should be placed at the low of the engulfing candle.
The bearish engulfing pattern signals a bearish price decline ahead.
In the above chart I have circled the bearish engulfing candles which led to price declines immediately after.
Again, the more candles that the engulfing candle covers the more powerful the following move will likely be.
It is the same principle as the bullish pattern, just the flip side of the coin!
The bearish engulfing pattern is also a precursor to a large decline.
So, when you see an the engulfing candle taking shape you should wait for the following candle and then open your position.
Your stop should be placed at the high of the engulfing candle.
The ‘long shadow refers to the length of the line from the closing price on a candle to the high or low price of that particular candle.
The ‘shadow’ should be at least twice the length of the real body of the candle.
These shadows tend to occur at turning points.
And they tend to lead to large price moves!
As with the rest of the candle stick patterns, we wait for the long shadow candle to close and we place our trade at the open of the next candle.
Your stop should again be placed at the extreme high or low of the shadow candle and trailed to follow the trend.
A candle forms a ‘hammer’ when the real body of the candle sits at one end of the candle leaving a head and handle!
Again these candles tend to form at price reversals giving a strong signal for traders.
Its the same trick!
We wait for the long hammer candle to close and we place our trade at the open of the next candle.
Your stop should again be placed at the extreme high or low of the hammer candle.
and again trailed to follow the trend.
6.Support and Resistance.
Role Reversal Day Trading Strategy.
To start I needs to assume that you know what is the support and Resistance in Forex trading. If not see few simple definitions and examples below.
Support and Resistance are psychological levels which price has difficulties to break. Many reversals of trend will occur on these levels.
The harder for price to cross a certain level, the stronger it is and the profitability of our trades will increase. The most basic form of Support and Resistance is horizontal. Many traders watch those levels on every day basis and many orders are often accumulated around support or resistance areas.
It important to mention, support and resistance is NOT an exact price but rather a ZONE . Many novice traders treat the support and resistance as an exact price, which they are not. Trader must think of support and resistance as a ZONE or AREA.
These levels are probably the most important concepts in technical analysis. They are a core of most professional day trading strategies out there.
Let me introduce you to the “Role Reversal”. Let’s see how can you use it in your every day’s trading.
Role Reversal is a simple and powerful idea of support becoming a resistance (in the downtrend) and the resistance becoming a support (in the uptrend).
Let see how this plays out in the uptrend.
Once the price is making higher highs and higher lows we call it uptrend. Technical trader must assume the price is going to go up forever and only long trades should be considered. Once the uptrend is defined, the lowest strategy to trade is – buy on pullbacks.
As per definition of an uptrend, the price punching through the resistance and pullback before it makes another higher high.
“Role reversal” concept comes handy for bulls in this scenario.
Once the resistance is broken to the upside, it becomes a new support level.
Resistance changes its role to support, hence the name “Role Reversal”.
After making a new higher high, the price in uptrend must correct. It is likely to correct to the new support level. This can present an excellent buying opportunity for bulls.
We don’t know where exactly price will resume an uptrend. Risk management must be applied.
Trader must remember to treat support and resistance levels as ZONES rather than exact price.
The same principle applies to downtrends.
If the market is in downtrend, the price will punch through supports making new lower lows. The broken support becomes new resistance and offers opportunity for short positions.
Sometimes the price will pull back a bit further than just the former support or resistance. It might retrace toward other important technical levels.
I like to combine pure price action with other major, widely used leading indicators. My favourite would be: Pivot Points and Fibonacci retracements. After many years of using these tools, I can say with confidence, they are pretty accurate.
The popularity of these tools makes them so responsive.
You could also establish few levels of entries for example:
If you are looking to buy the market after the price made fresh high, you would be waiting for the price to retrace towards role reversal, Fibonacci Level or moving average. As you are pretty confident, the price is moving higher, you don’t know how far the price will pullback.
If it’s an aggressive day, the price can only come back to 20MA and shoot for new high again. Another day, the price can dip as far as 38% Fib retracement.
You can divide you position into 3 equal parts and set limit orders based on the logic above:
1/3 at 20MA, 1/3 at role reversal, 1/3 at 50% Fib retracement. This way you lower the risk and increase the odds of getting filled.
7. The Bollinger band squeeze strategy.
Bollinger bands are a measurement of the volatility of price above and below the simple moving average.
John Bollinger noted that periods of low volatility are followed by periods of high volatility, so when we notice the Bollinger bands ‘squeeze’ in towards each other, we can infer that a significant price movement may be on the cards soon.
So, the Bollinger band squeeze trading strategy aims to take advantage of price movements after periods of low volatility.
I urge you to read: Bollinger bands ( the COMPLETE how-to guide! )
The above chart is the EURUSD 240 minute chart.
The Bollinger band indicator should be set to 20 periods and 2 standard deviations and the Bollinger band width indicator should be switched on.
When trading using this strategy, we are looking for contraction in the bands along with periods when the Bollinger band width is approaching 0.0100 or about 100 points.
When all the conditions are in place, it signifies a significant price move is ahead as indicated within the green circles above.
A BUY signal is generated when a full candle completes above the simple moving average line.
A SELL signal is generated when a full candle completes below the simple moving average line.
Stops should be placed at the high or low of the preceding candle, or, to allow for a maximum loss of 3% of your trading capital, whichever is the smaller.
8. The Narrow Range Strategy.
The narrow range strategy is a very short term trading strategy. The strategy is similar to the Bollinger band strategy in that it aims to profit from a change in volatility from low to high.
It is based on identifying the candle of the narrowest range of the past 4 or 7 days.
A suitable candle would consist of a ‘ Chubby’ look with an opening and closing prices close to the days high and low as shown in the chart below.
Quite often you will find two or more narrow candles together this only serves to contract the volatility and will often lead to an even larger breakout of the range to come.
Once a narrow candle is identified we can be reasonably sure that a volatility spike will be close at hand.
Your stop is placed at the low or high of the Narrow candle and trailed to suit.
9. The 2 period RSI strategy.
This strategy is pretty simple really.
In general this is a very aggressive short term strategy as you can see by the amount of signals that are generated in the chart shown.
As such this aggressiveness will be caught out by a ranging market and may lead to several losing trades in a row.
The aggressive nature of the strategy should be matched with an equally rigorous stop loss regime.
The merits of the system shine when the market begins to trend in a particular direction. In this case Extra BUY or SELL triggers can be used to add to positions.
Those positions should be closed when an opposing signal is generated.
As in the chart above, when the RSI moved above 90 the first BUY signal was generated and the first position was opened, the RSI then triggered another BUY signal and another similar position was opened.
Both trades were then closed when the RSI moved back below 10.
In the End!
Day trading, and trading in general is not a past-time! Trading is not something that you dip your toes into now and again.
Day trading is hard work, time consuming and frustrating at the best of times! It is no wonder that over 93% of people that try it, lose money and give up!
“the excuse doesn’t matter; the cold hard number is that only about 4.5% of traders who start day trading will end up being able to make something of it.”
BUT, by recognizing the difficulty and learning some basic trading strategies you can avoid the pitfalls that most new traders fall into!
The honest truth of the matter is this, most new traders get involved because they see huge profits straight ahead by simply clicking BUY .
Believing they will wake up the next morning a newly minted millionaire! What actually happens goes more like this.
Your friend has just opened a trading account, he claims to have made a hundred dollars in ten minutes, he just sold the EURUSD because the U. S economy is so great right now, it said so on TV!
So you go home, lodge a $1000 into a trading account, SELL the EURUSD at $5/ point.
You wake up the next day and the market has moved against you by 200 points, and your account is wiped out!
Lets look at the facts. There are three main reasons behind the high failure rate of new traders, and you can avoid them easily!
As in the story I told above, trading based on hearsay or some popular narrative will lead you to almost certain doom!
The value of using a tried and tested trading technique is immense, and will save you from loosing your hard earned savings.
By using a day trading strategy, you remove the emotional element from the trading decision.
A trading strategy requires a number of elements to be in place before trading.
So, when those elements are in place, you place the trade.
It is a binary decision rather than an emotional decision. All other actions are off the table, by following a trading technique you avoid the cardinal sin of trading, that is, over trading.
So often new traders place a trade without even placing a stop loss position! An error which can lead to catastrophic losses.
Money management can be as simple as using the 3 / 1000 rule.
That is: never ever ever ever risk more than 3% of your capital on any trade.
And never risk more than 1000 th (or as close to) of your capital per point.
Now, I’ve given you the tools, so get to it, and start trading profitably!
Please let me know, which intraday trading strategy is your favourite in the comment section below. I will expand of the most popular ones.
Author: Roman Sadowski.
I truly believe the journey to profitability and freedom is a function of hard work, commitment, persistence and boring routines.
There is no magic to trading. I believe in making calm rational decisions what, when and how to trade based on a decade of intense learning.
2 Comments.
Very good and valuable information thanks for sharing.
Leave a Reply Cancel reply.
You must be logged in to post a comment.
Try us for 30 Days ( No Credit Card Required )
50 Page Trading Strategy E - Book.
Popular courses.
Recent posts.
Warning! This E-Book improve your trading dramatically.
9 Powerful Forex Trading Strategies.
42 pages E-Book teaching you the most successful Trading Strategies.
Strategies include step-by-step instructions for Momentum and Role Reversal, Heikin-Ashi, RSI and Moving Average Crossover, Candlesticks and more.
Common Intra-Day Stock Market Patterns.
What the stock market tends to do at certain times of the day.
When day trading the US stock market you may notice certain tendencies, based on the time of day, which occur more often than not. These tendencies or pattern don't occur every day, but many occur often enough for professional day traders to base their trading around them. The simplest pattern is that there is a tendency for the stock market to become less volatile, flatten out, and see less volume in and around the New York lunch hour.
Many day traders stop trading about half-an-hour to an hour before this slow down kicks, and don't trade again till well after the lunch hour when volatility and volume pick up again.
There are other tendencies though, and they are broken down by time of day, as follows:
All times are Eastern Standard Time. Other than the open and close (9:30 AM and 4 PM) times are approximate, only providing a rough gauge of when a tendency typically occurs.
9:30 AM : The stock market opens and there is an initial push in one direction (may take a couple minutes to get going).
9:45 AM: The initial push often sees a significant reversal or pullback. This is often just a short-term shift, and then the original trending direction re-asserts itself.
10 AM: If the trend which began at 9:30 is still in play, it will often be challenged around 10 AM. This tends to be another time where there is a significant reversal or pullback (see Truncated Price Swing Strategy for Stock or Forex).
11:15 to 11:30 AM: The market is heading into the lunch hour, and London is getting ready to close. This is when volatility will typically die out (for a couple hours), but often the daily high or low will be tested around this time. European traders need to close out positions or accumulate a position before they finish for the day.
Whether the highs or lows are tested or not, the market tends to "drift" for the next hour or more.
11:45 AM to 1:30 PM: The lunch plus a bit of a time buffer. Usually this is the quietest time of the day. Best for day traders to avoid it.
1:30 to 2 PM: If the lunch hour was calm, expect a breakout of the range established during lunch hour. Often the market will try to move in the direction it was trading in before the lunch hour doldrums set in.
2 to 2:45 PM: The close is getting closer and many traders are trading with the trend thinking it will continue into the close. That may happen but expect some sharp reversals around this time, because on the flip side, with the close getting closer many traders are quicker to take profits and/or move their trailing stops closer to the current price.
3 and 3:30 PM: These are big "shake out" points, in that it will force many traders out of their positions. If a reversal of the prior trend occurs around this time, the price is likely to move very strongly in the opposite direction as traders are forced out of losing trades with time winding down. Even if the prior trend does sustain itself through these periods, expect some quick and sizable counter-trend moves.
As a day trader it is best to nimble. Don't get tied to one position or one direction. It is going to be very hard to hold a trade for very long between 3 PM and the close.
The last hour of trading is the second most volatile hour of the trading day. Many day traders only trade the first hour (or two) and the last hour of the trading day.
3:58 to 4 PM: Market closes at 4 PM; after that liquidity dries up in nearly all stocks and ETFs, except for the very active ones. Close all positions a minute or more before the closing bell, unless you have orders placed to close your position on a closing auction or "cross" (see NYSE and NASDAQ closing auction info).
The enlarged versions of figure one and figure two show these tendencies playing out in the S&P 500 index and the S&P 500 SPDR ETF (SPY). These screenshots were taken almost two years apart, yet the tendencies still tend to play out (although not always exactly, as the charts show).
Ready to start building wealth? Sign up today to learn how to save for an early retirement, tackle your debt, and grow your net worth.
Considerations.
Big news events can throw a wrench in these tendencies, resulting in big trends, reversals or movement through the lunch hour (or other time) which would be uncommon without some sort of external catalyst. The times provided are estimates only, and therefore can be incorporated into a trading strategy (if you adequately test if the tendency is reliable). but the tendencies should never be used as a strategy or trade signal on their own.
Sign up for Cory's weekend newsletter, which includes stocks, futures and forex pairs to watch, as well trading tutorials.
High Probability Chart Patterns To Watch.
How To Choose The Best Chart Patterns.
Today I want to discuss a few different chart patterns that beginners should focus on when they first start out day trading. Many traders start out with what I call indicator fascination and delve into advanced analysis methods that can confuse them and often times discourage them from continuing trading.
When I started out trading I was under the impression that the more difficult trading methods would produce bigger winners or higher probability of winning trades.
I purchased several books and magazines that discussed Gann Lines, Geometric calculations and Elliot Wave Principles that required a PhD in physics to understand correctly. It goes without saying but I can promise you that the only thing I learned after following these methods was to stay away from them as far as possible.
Profitable Day Trading Chart Patterns Should Be Simple.
Fortunately, I met a few professional traders who mentored me and showed me some simple strategies that got me on the right track and more importantly made me understand that profitable trading is not about complex and confusing trading patterns or strategies but about finding simple methods that matched my emotional make up and my risk tolerance. So today, I'm going to show you a few basic day trading chart patterns that should get you started on the right track.
Always Begin With Daily Chart Patterns.
The most fundamental mistake beginners make is beginning their search for chart patterns using intraday time frame. I always encourage traders to begin their analysis with daily time frame and then move on to intraday time frame when they are actually getting ready to enter the trade. While there are some markets such as E-mini SP futures and Forex markets that you can begin analyzing using hourly or shorter time frame bars. However, for the most part most financial instruments respond best to daily chart analysis to begin with. You can see in this example I'm looking at a symmetrical chart pattern set up. I want to wait for the initial breakout to occur so that I can day trade if the stock continues momentum after the breakout. Usually after a tight symmetrical triangle, the stock is very wound up and is ready for strong momentum that should last 2 to 5 days.
Symmetrical Triangles Offer Very Low Risk And High Profit Opportunity.
You can see the actual entry in this example. Notice I completely relied on the daily chart for my analysis, entry and exit. I do watch the intraday chart while I'm in the trade, I mostly focus on the daily chart to make sure the pattern is developing correctly. In this case the triangle breakout continued upwards momentum and closed near the high of the day. I would use a simple MOC (market on close) order to liquidate the position at the end of the day. What I like about triangles is the inherently limited risk due to lack of volatility while the pattern is setting up. This is one of the reasons why triangles are good low risk high reward patterns for beginners.
Make Sure The Market You Choose Demonstrates High Volatility Before Entering The Triangle Pattern.
The next low risk day trading chart pattern I want to show you is the bullish flag pattern. It's similar to the triangle pattern but has a slightly wider channel range and typically slopes down a bit more. Notice the risk level is equal to the size of the bars that make up the flag. I would look for a strong breakout day outside of the flag for an upside entry. Flags are congestion patterns that tend to explode with good momentum once the congestion phase comes to an end.
Breakouts From Bullish Flag Patterns Typically Begin With Strong Momentum.
You can see the entire sequence in this example. Notice how low the risk level can be when the bars before the breakout are consolidating and have a tight trading range; these are the type of patterns you want to isolate for day trading. The risk is very small compared to the profit potential and because your entering right after the consolidation stage the market is primed for volatility. The profit on this trade was close to three dollars and the risk level was close to one dollar. Unfortunately, day trading does not provide opportunity for huge profits because you are limited to how much time your position has to develop. You should look for set ups that provide you with a two to one risk opportunity at a minimum.
The Stock Broke Out Strongly After Two Weeks Of Range Bound Trading.
Things To Keep In Mind.
Start Day Trading with simple patterns that make sense. Avoid difficult mathematical formulas or calculations that involve geometry or statistics. Look for opportunities that provide high potential reward and low risk so that the size of the winners is at least twice the size of your losers. In day trading the profit potential is limited because the market is only open for a limited amount of time. You need to maximize your profit potential by picking simple trading patterns that make sense to you. For more on this topic please go to: Opening Range Breakout and Technical Analysis Patterns - Continuation Patterns.
Wishing you the best,
Popular posts.
How To Decide Between The Bull Call Spread And Bull Put Spread?
Swing Trading Strategies.
Gold Trading Strategies For Stock Traders.
Day Trading Strategies That Work - Intraday Pullback Tactics.
1976 South La Cienega Blvd #270.
Los Angeles, California 90034.
Connect With Us.
Past performance is no guarantee of future results. This site is for educational and general information use only. Please contact your financial adviser for specific financial advice. Nothing on this site constitutes advice or recommendation to buy or sell a particular stock, option, futures or any other financial asset. Copyright © Market Geeks, LLC. All Rights Reserved.
Комментарии
Отправить комментарий