Simplest patterns to recognize on any chart

Hello all,

I am a newbie trader and to get right to the issue I tried trading last year and got lost in all the free information and resources available as well as the charts and market itself. This got me thinking that perhaps there are some really simple standard trading patterns that occur pretty much across the market from time to time. There are so many patterns and ways to trade I felt that trying to learn to recognize too many of them would result in my utter failure; I figured backing off was a good idea. I’m up for hearing any experiences with simple standard trade setups any trader should learn and become familiar with that will help me find my center balance me and give me a stable upwards curl in my trading and help me maintain the trading standard.

Thanks for any help,
cedrismw

Patterns are indeed a great tool to aide in trading.
However, they can’t be relied upon solely, or you’ll simply end up blowing your account and more importantly, your mind.

I rely explicitly on:
Ascending/Descending Wedges
Ascending/Descending Triangles
Ascending/Descending Channels

Each is a very specific indication of order-flow. You’d be wise to learn the underlying reasons why such a pattern would form.

From there, I validate the patterns (for potential entry), using multiple timeframes and:
Candlestick Formations
Structure (Double bottom, double top)
Tick Volume + Price Spreads
Environment (Volatile, Non-Volatile; who is in control?)
Risk Event
Stochastics
Harmonics
Some indices (SP500, USDollar, Fixed Income, Commodities)
Other pairs trading the same currency (for breadth)

Open a position around the opening of the London (or NY) session, against the trend that has formed in the last 1h. Here the m15 GBPUSD chart. This is an idea, don’t get me wrong. Good luck.


Hey,… I am using a candle stick pattern scanner which automatically scans japanese candlestick patterns from all the charts itself.

It may be useful for you. Its FREE to download from Ultimate Fx Scanner - Tracker Stats

Thanks for the scanner!

Have you been using the scanner? If so can you provide some feedback of what you think?

There is only a handful of candlestick pattern that really are powerful in the forex world.
Western chart patterns mostly work but it takes more time to complete than candlestick patterns.

Autochartist is a good thing and it’s offered in many brokers too. Some brokers offered this thing for free.

Hey Cedrismw,

Best thing, close all your time frames below the 4H Chart. If you used lower time frames, that might have been part of the challenges you faced. Start identifying

Trend Lines
Counter Trend Lines
Ranges, Pennants


This allows yu to get used to these charts patterns.

Also identify

Bullish/Bearish Engulfing Patterns
Counter Trend Line Breaks
ABC Signals
Consolidation breaks

These are the strongest and most reliable signals you will need.

Have a look at my blog (drfxtrading.blogspot.com) where you can look how I analyze these charts and past trading examples.

I started to trade the higher charts with better results but kept going back to the lower charts out of impatience. It was after getting ***** slapped again that I focused entirely on the higher charts. I recommend my Manual available on that blog which goes into detail on trading these charts. Users are emailed my trade setups to see actual trades taking place. In the meantime, you can do those things I mentioned earlier before deciding to get the Manual.

Hope this helps

Trading off of Trendlines and Patterns on their own will do nothing but drain your account, until your head has been flattened from banging it against the wall so many times.

Pattern recognition is key, but, is only a very small aspect of actually trading the pattern.
You’d be wise to understand how and why these types of patterns form, and what to look for as to whether or not a trade opportunity actually exists.

I.e. we know ascending channels break to the downside- but, that information alone is not enough to place a trade to the downside.

The advice was not to use these things on their own, but as guide to get started …other things are needed in conjunction with those tools.

A few lines in a thread cannot comprise a full trading plan.

Happy Trading

DRFXTRADING

Thanks for all the useful information everyone. I will definitely browse to your blog DRFXTRADING thanks for the link. FOREXunlimited that also seems to make a great deal of sense to me. If some patterns form so often they have names then that means the reason they form must be pretty well known, please correct me if I’m wrong. How can I learn the reasons because the ones that are known so well must have some pretty good indications they are going to happen. I’m not saying 100% for certain they will but like a 70-80% chance of rain it’d be a good idea to carry an umbrella. I believe I’ll have a great deal more confidence in placing a trade if I can find help in knowing these reasons. For example in DRFXTRADING’s screen capture it shows a trend line connecting lows, a counter trend line(I’m not sure what that is exactly except it has counter in it so reverse something maybe), and pennants and ranges. Those seem to be well defined patterns, so how could I learn what the reason is?

Well there are a few reasons for these patterns. Generally they occur

when a trend has ended and there is a transition to a new trend
there is a brief pause during an existing trend, (usually at the Weekly Range for Daily Chart trends)
represent periods of market indecision or iliquidity which is definitely the case right now
can be just before a major news item is about to be released

Counter Trend Lines are just small trend lines drawn below/above candles that are pulling back temporarily against the existing trend. Breaks of these, like Pennants and ranges indicate the resumption of the trend.

Price can only move because of an imbalance between supply and demand.
The patterns which are carved out on a price chart, are a reflection of that imbalance.
Understanding how the pattern forms, is just as crucial as being able to spot the pattern itself.

Take an ascending triangle for example.
We all know these typically break to the upside, except when they don’t.
You can vastly increase your probability of being on the right side of the market, if you’re relying on more than the fact that the pattern has formed.

For me, I’d be looking @ price action on an intraday basis @ the base of the triangle and how price trades toward it.
You’d need to consider volume, event risk, and a few indicators to determine whether or not the level will break, or, break and trap weak hands only to reverse.
We can’t determine the outcome of the move 100% of the time, but you can use common sense to analyze whether or not the pattern will do what it’s supposed to, or not.

If price is simply being marked up ahead of the break, and the subsequent break has no supporting volume, you can easily spot this (no demand scenario) and expect a false breakout. If you trade the break, find the next logical resistance point (using price action on a higher timeframe, or a FIB expansion) and take profits quickly so you’re not trapped.

How is an ascending triangle formed, and why do you think it breaks to the topside with such strength?

Bro, patterns are just foot prints of past price action. And it is the big boys that leave these footprints not you or me. The fact is that a pair at any given point in time is just as likely to rise “x” pips as it will fall. What works in our favor is that there is always a bias in the markets. The banks aren’t in the business of losing money. So find that bias then its down to your own personal style on how you exploit the market.

This forum is old but why do I don’t see a “Thanks” button?

Some posts must be awarded with “Thanks”…

For me the simplest patterns are:

engulfing
harami
triangles
channels

they will jump from your chart.

Thanks again for the info, I’ll research a few of those patterns. I have also read that the banks earn money regardless of the trade because they get paid off the spread so how can I learn to detect market bias and trade ‘with’ the banks.

Read up about volume spread analysis and accumulation/distribution.

Personally I think that reading Steve Nison’s works on Japenese Candlesticks would do you a lot of good. I have been trading based on what I learned from him and I am very pleased with the result. Candlestick patterns are simple, easily recognizable and can be applied to almost any chart.

Thanks I suppose it only makes perfect sense to read his material. Somehow I didn’t even think about that.

Absolutely agree mate. Steve Nison’s Candlesticks help me a lot in trading. But at the same time I applied it with ELLIOT WAVE made the whole thing perfect to me. If ask me what candle patter are the most easier to recognize, I believe it should be Double Top and Diagonal Top.