Updated: Nov 15, 2021
Hello everyone ! This will be the first post of our new section , chart patterns !!!
Many of you have asked me if I utilize candlestick patterns , like the falling wedge , the bull flag , head and shoulder , etc. In short , yes , I do utilize them , but I rarely use them on their own, it's generally paired with another strategy on concept such as a supply or demand zone.
In short , these trading chart patterns can be useful when used correctly , and over these next few posts , I will highlight a few of the most common setups , and the ones I prefer to utilize.
We will provide a few examples , along with applications of when and where they can work best.
PATTERN 1: BULL FLAG
What is a Bull Flag ?
A bull flag , is a chart formation , that looks like a flag , looking to continue in the upward direction.
It is characterized by a flag pole (or a move up) followed by either a sideways consolidation or a slightly angled consolidation. This pattern generally plays out to a break on the upside , unless the pattern fails , which is where it breaks to the downside and the trade becomes invalid .
For the sake of these examples - we will focus on the sideways consolidation flags , because they are generally more accurate and play out more effectively in the traders favor.
TIME FRAMES ?
Can be used on a multitude of time frames , the larger that time frame the better the results.
I prefer using this on the daily time frame , and then 30 minute and 5 min time frames as well can be helpful when trading intraday.
BULL FLAG EXAMPLES:
BULL FLAG - QCOM - DAILY
BULL FLAG - AAPL - DAILY
Up above we have two examples of a bull flag pattern. Notice how the initial move was up (blue line) , followed by sideways price action (red channel) , and then a continued move back in the upward direction (2nd blue line).
Generally speaking , there are a few ways people chose to trade a bull flag pattern. The two ways I prefer to trade it are ,either buy the bottom of the channel , targeting the top of the channel. Or buy the breakout retrace on the top of the channel.
EX 1 (Buying the bottom of the channel) -
Once you start noticing a few days (or candles depending on time frame) , of sideways action after an initial up move you can start to look for a long trade on a hold of the base or the lower zone. Like for example on the QCOM chart we were holding above 130-131 , while sellers were selling off 134. In this scenario , we can look to buy 130-131 with our stop right under that 130 zone, say a hold under 129.7 , while targeting 133.5-134 , and looking for a potential break to the upside.
Took a few days for this to play out , but the consolidation / bottom of the flag was held , and as we got the break to the upside, that became new support (which is ideal) and we continued to grind higher from there - which leads us to the next example.
EX 2: (BUY THE BREAKOUT)
In the case of QCOM , the breakout would occur when we cleared the top of the range , which is 133.9 , and buyers would start to hold this range , which give us our breakout entry.
Notice how we broke , and held , giving confirmation that buyers were indeed stepping in higher , after we notice this , we can take a long trade , with a stop at the breakout zone,/the prior resistance and then target the next upside zones based on prior key levels.
Be very careful , and only buy if the resistance level holds , because if it doesn't we will fall right back into the zone , and it would just be a failed breakout. It's always better to enter on confirmation , then to enter early and get stopped out for an unnecessary loss.
Also be aware of the next upside levels in case the breakout does occur and hold , so you can analyze whether or not the risk reward of that trade is ideal.
Both trading setups work , and they are both great to master , so take some time to add these into your tool bag.
1. BUY THE BOTTOM:
ENTRY - Buy the bottom of the zone
STOP - Break under bottom of the zone
TARGET - Top of the zone , and then ideally you're looking for a break over the top of the zone , to next key level you have identified.
2. BUY THE BREAKOUT
ENTRY - Buy the break and HOLD , over the top of the zone / prior resistance
STOP - Failure to hold the top of the zone/ prior resistance
TARGET - Identified from other key levels on the chart
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