TRADING GUIDE

Short‐Term Patterns (ST)

Short‐Term Patterns can arise from a single candle or multiple candles and can
be recognized using bar charts or candle charts. Like Long‐Term Patterns, you will
see them on different trading timeframes, and are generally considered to
generate more reliable signals the higher the timeframe.

A short‐term pattern, for example consisting of 1 to 3 bars of data, can form on

any tradable time frame, such as 1 minute, 1 hour, 1 day, or 1 week, and so on.

Short-Term Patterns provide:

Signs of potential strength or weakness
Entry Signals
Exit Signals
Trade Management
 Short‐Term Patterns (ST)

Signs of potential strength and weakness:

Perhaps you are following a trend and trying to recognize the end of phase 2 or
the beginning of phase 1. Certain Candle formations can indicate a possible
turning point. However, with short term candles it is essential to combine them
with trends, support and resistance to make them more likely.

Entry signals:
Some patterns are ideal for generating buy or sell signals. However, the
challenge here is to identify both the trend and the support or resistance areas,
making it possible

Trade Management:
If you are already in a trading position and the price is moving, it is possible to
adjust your stop loss according to the price action. For example, if you see long
candles that are favorable for your trade, you can consider using the highs or
lows of these candles to place your stop loss behind.

You can also consider moving your stop loss if a candle formation appears that
poses a potential threat to the ongoing trade. This could be considered a
defensive move, where you actively respond to changes in market conditions to
reduce your risk.
 Long­‐Term Patterns (LT)
Long‐Term Patterns that require multiple (and usually significantly
more) bars of data to form, and are also known as Western Chart
Patterns.

These patterns are not tied to the trading period in which they are
observed, as Long‐Term Patterns can appear on any time frame.
However, a general rule of thumb is that the higher the time frame you
observe a pattern at, the more reliable it is generally considered, while
a lower time frame is more likely to generate false signals.

You can observe identical (or similar) patterns on a 1-minute chart,

which may take only 5 minutes to develop, while there are also
patterns that span years or even decades on monthly time frames.
 Long­‐Term Patterns (LT)
Examples of Long‐Term Patterns include:
- Double bottom (as shown), triple bottom, double top, triple top,
- Wig, Head & Shoulders,
- Symmetrical triangle, ascending triangle, descending triangle,
- Pennant, flag.

Long‐Term Patterns provide:

- Structure (especially when combined with trends and support and resistance levels)
- Insight into future direction
- Possible price targets
 Long­‐Term Patterns (LT)

Structure:
If we are familiar with these patterns and can identify their potential, this allows
us to make a rough estimate of what stage the pattern is in. These insights are
valuable because they help us look ahead to potential outbreaks, allowing us to
effectively craft our trading plan. At the same time, they serve as a warning to
avoid entering a trading position too early.

Potential future direction:

Once a pattern is confirmed, whether it is a continuation or reversal pattern, a
preference is created for the price direction in which we choose to trade and
continue to trade.

Profit targets:
Once we have established profit targets (or targets), we can examine whether
these levels overlap with areas of support and resistance (S/R). This overlap
helps build a stronger case for expecting the price to reach or respond to these
levels.
Short‐Term vs Long‐Term: Which is Better?

Many analysts or traders choose to specialize in one form of analysis.

Nevertheless, I believe that you get a more comprehensive perspective when you
combine both strategies, as the strengths and weaknesses of each complement
each other very well.

Long‐Term Patterns are useful for projecting future directions and setting price
targets, but they can be challenging when it comes to accurately timing entry
points while maintaining a good reward/risk ratio. Offer on the other side.

Short‐Term Patterns provide excellent timing for entry signals, but they often do
not provide a clear picture of profit targets or future direction beyond the
immediate candles being looked at.

Combining both approaches seems to be a good approach, allowing you to

leverage the strengths and weaknesses of each analysis. This way you get a more
complete understanding of price developments, which can be useful when making
trading decisions.
 Continuation, Reversal, Bullish of Bearish?

As the name suggests, continuation patterns assume a breakout from the pattern in the
same direction as the pattern started. Reversal patterns, however, break out of the
pattern in the opposite direction the pattern entered.

Bullish patterns are visible during rising trends,

while bearish patterns are visible during downward
trends.

A Bearish Reversal, on the other hand,

occurs during an uptrend as it indicates
that a possible transition from an uptrend
to a downtrend is imminent. Conversely, a
bullish reversal occurs during a
downtrend.

Trends and patterns:

Once you've noticed a trend (or at least think there is one),
you're more likely to see a pattern that continues the trend for
a shorter period of time than you saw the trend. While trends
eventually change, it's important to remember that predicting
the end of a trend is less common. Look for signals for possible
changes on shorter periods that correspond to the longer
period.
 Pattern Confirmation
How do we confirm a pattern? There are several methods, and it is up to you to decide how you
want to attach your patterns. But be warned that using the word "confirm" can be somewhat
misleading, because confirming a pattern does not guarantee that the pattern will be fulfilled.
confirm simply means 'a point on the chart that we assume, if crossed, will allow the pattern to
reach an intended goal.

A pattern can be confirmed, but it is not uncommon to see the price reverse and return to the
alleged pattern, making it a 'failed pattern'. Each pattern includes a breakout line, which is drawn
in a similar manner to creating a trendline or identifying a support and resistance level.

Breakout: We just need the price to break the line. This is an optimal method if you want
to set pending orders to take advantage of the breakout. Nevertheless, the price can (and
often does) retrace the breakout line, invalidating the pattern.

Close: We want the price to end above

the line to confirm the signal. This
strengthens our confidence and reduces
the chance of a wrong signal. But we
also have to be careful that we don't
miss the move and the price rises without
us.

Multiple Closes: Some analysts rely on

2 or 3 closes to confirm the pattern.
While this provides extra certainty, you
again risk missing the move that could
be profitable enough for your
reward/risk ratio.
 Pattern Confirmation

Throwback: In a throwback, the price

breaks or closes to confirm the pattern,
but then returns to the breakout line. If
this level then holds as support or
resistance, it can provide an entry
opportunity with more confidence and
precision, and a significantly better
reward/risk ratio. However, the
downside of this strategy is that there is
a higher chance of repeatedly missing
moves if the price does not fully return
to the breakout line.
 Reversal Patterns

Reversal Patterns serve as signals that the control of the bulls or bears has
weakened and that a possible trend reversal is coming. During these patterns,
the current trend undergoes a break, after which the price can take a new
direction from the opposite side, whether it is bullish or bearish.

In a distribution pattern, which occurs at market tops, the traded instrument is

sold excessively, leading to a situation where there is more selling than buying.

On the other hand, an accumulation pattern is the opposite and occurs at

market bottoms. Here the traded instrument is more actively bought than sold,
signaling a possible reversal.

Among the most common Reversal Patterns are:

- Double Top & Bottom Patterns

- Head and Shoulders Patterns
- Rising & Falling Wedge Patterns
- Triple Top & Bottom Patterns
 Double Top & Bottom Patterns

Double tops and double bottoms occur when the price fails twice to break
above a key resistance level or below a key support level. This could be a signal
that momentum has waned in the current trend, which could lead to increased
selling pressure after an upward move that moves into overbought territory, or
increased buying pressure after a deep decline during a downtrend.

A similar and more powerful reversal pattern is known as triple tops and triple bottoms.
In this pattern, the price does not fail to breakout three times as opposed to two times,
indicating that the support or resistance level is stronger. This makes it a potentially
more powerful signal for a trend reversal.
 Head and Shoulders Patterns
Head and Shoulders patterns consist of three parts: a left peak (1, shoulder), a
higher peak in the middle (2, the head) and another peak on the right (3,
shoulder). The "Neck Line" is drawn by connecting the two bottoms, one before
the formation of the head and one after. This line is critical because a break
below it triggers the reversal signal. Both the bullish reversal pattern and the
bearish reversal pattern can be seen in the image below.

The inverse head and shoulders is a reverse pattern of the head and shoulders.

This pattern consists of three consecutive lows, with the middle deepest point (2)
being deeper than the two outer lows (1 & 3, the shoulders), which are shallower.
When this pattern is complete, it usually indicates a reversal of the bullish trend.

Head & Shoulders Inverse Head & Shoulders

 Rising & Falling Wedge Patterns

A wedge price pattern can be seen on a graph as two trend lines running
towards each other, with these lines connecting the highs and lows of the price
series. The wedge shows that the current trend will soon stop for a while.

Rising Wedge: The Rising Wedge pattern is a bearish pattern that starts wide at
the bottom and narrows as prices move higher. Unlike symmetrical triangles,
which have no clear slope and show no bullish or bearish bias, rising wedges
clearly slope upward and have a bearish bias.

Falling Wedge: The Falling Wedge pattern is characterized by a chart pattern

that forms when the market reaches lower lows and lower highs with a shrinking
range. When this pattern is observed in a downtrend, it is considered a reversal
pattern because the decreasing range indicates that the downtrend is losing
strength.
 Triple Top & Bottom Patterns

A triple top consists of three tops that touch almost the same price level and
indicates that the market may no longer be on an upward trend, with lower
prices on the horizon. The triple top can occur on all timeframes, but it must
follow an uptrend to consider the pattern. This chart reversal pattern looks like
the letter 'M' on a candlestick chart.

The opposite of the triple top is the triple bottom, where the pattern on the
chart looks like the letter 'W'. This pattern occurs after a downtrend, hitting all
three bottoms around the same price level before breaking through resistance
levels.

Triple top Triple bottom

 Continuation Patterns

Continuation Patterns are price patterns that show a temporary interruption of

an existing trend. For example, after a strong rally, an asset's price may
consolidate as some bulls take profits and others wait to see if their buying
interest will prevail.

Typically, traders wait for a breakout above/below the resistance/support line as

confirmation that the trend is resuming and then take a position in the same
direction.

When setting stop loss and take profit orders, many traders place the stop slightly
above or below the chart formation, while the take profit order depends on the
pip range within that pattern.

Among the most common Continuation Patterns are:

- Triangle patterns
- Pennant patterns
- Rectangle patterns
- Cup and handle patterns
 Triangle patterns
Triangle patterns are a commonly used technical analysis tool, essential for
traders in recognizing patterns in the market. Understanding these patterns is
crucial for identifying trends and predicting future outcomes, which helps traders
be more successful and profitable. Triangle patterns are particularly important
because they indicate the continuation of a bullish or bearish market and can
assist in identifying market reversals.

There are three types of triangle patterns: ascending, descending and

symmetrical. The image below shows these patterns. As you read the
explanation for each pattern, you can use this image as a reference point, a
useful visualization tool to form a mental picture of what each pattern might look
like. Here is a quick summary of the triangle patterns:

Ascending triangles are rising formations that indicate an expected

upward breakout.
Descending triangles are bearish patterns that indicate an expected
downward breakout.
Symmetrical triangles, where the price action becomes increasingly
narrow, can lead to a breakout to the side or down.
 Pennant patterns
A Pennant pattern is a chart pattern that occurs when a stock makes a
significant upward or downward move, followed by a brief consolidation, before
continuing in the same direction. The pattern resembles a small symmetrical
triangle, also called a Pennant, and is formed by several forex candlesticks.
Depending on the direction of the movement, Pennant patterns are described as
bearish or bullish.

Bullish Pennants are continuation patterns that occur in strong uptrends. The
Pennant is characterized by an upward flagpole, a consolidation period and then
the continuation of the uptrend after a breakout. Traders are looking for a break
above the Pennant to take advantage of the renewed bullish momentum.

Bearish Pennants are simply the opposite of Bullish Pennants. They occur in
strong downtrends and always start with a flagpole - a sharp price drop,
followed by an interruption of the downward movement. This break forms a
triangular shape known as the Pennant. This is followed by a breakout and the
downward movement continues. Traders aim to go short on a break below the
Pennant.
 Rectangle patterns

Rectangle patterns arise when the price repeatedly hits horizontal support and
resistance levels. The price fluctuates between these levels, forming a rectangular
structure. Eventually the price will break out, and the trend will follow that
direction, either up or down.

A bullish rectangle is a pattern of continuation of an upward movement. It is

typically formed after a period of bullish price action, where the price reaches at
least two lows and highs to form the rectangle. The boundaries of the rectangle
can be drawn by connecting the highs and lows with two parallel lines. There is no
specific rule for volume during the formation of this pattern, but volume often
tends to decrease toward the end of the pattern.

A bearish rectangle is a bearish continuation after a downward move. The price

moves between specific highs and lows to form a rectangle. Like a bullish
rectangle, it takes at least two highs and lows to call it a bearish rectangle. You
can consider getting in when the price breaks out of the rectangle.
 Cup and handle patterns

The cup and handle pattern can appear on both short-term and long-term
charts, ranging from daily to monthly time frames. It is a bullish continuation
pattern that gets its name from the characteristic shape on the chart. This
pattern can manifest itself when an uptrend temporarily pauses and stabilizes,
followed by a rebound of similar magnitude to the previous decline.

The head portion of the pattern is shaped like the letter "U", with both sides of
the head being parallel. The handle portion forms on the right side of the cup,
where the chart moves sideways or downwards, which can eventually lead to a
breakout of the instrument to a level higher than the start of the cup.

Cup With Handle Inverted Cup With Handle

 Candlestick

A candlestick, also known as a candlestick chart, is a graphical representation

of price movements in the currency market. It is a popular way of displaying price
data and is widely used by traders and analysts to analyze trends, reversals and
market behavior.

A candlestick consists of 3 main parts: the body, the shadow and the color. Here
are the basic components of a candlestick:

The body of the candlestick represents the price range between the opening
and closing prices over a certain time period (such as 1 minute, 1 hour, 1 day, etc.).
If the closing level is higher than the opening level, the body is usually filled
(colorful) or positive, indicating that the price has increased. If the closing level is
lower than the opening level, the body is usually hollow (not colored) or negative,
indicating that the price has fallen.

The shadow, those are the lines above and below the body. They represent the
high and low point of the price during the same time period.
 Candlestick

The color of a candlestick on a chart indicates the direction of price movement

during the specific time period represented by the candlestick. Here are the
basics:

1. Bullish Candlestick (Rising Price):

- The body of the candlestick is usually filled or colored.
- The opening price is at the bottom of the body, and the closing price is at the
top.
- This indicates that the price has increased during the period in question.

2. Bearish Candlestick (Falling Price):

- The body of the candlestick is usually hollow or not colored.
- The opening price is at the top of the body, and the closing price is at the
bottom.
- This indicates that the price has fallen during the period in question.

3. Doji Candlestick (Undecided or Undecided Price):

- A doji usually has a very small body or no body.
- The opening price is almost equal to the closing price.
- This indicates uncertainty in the market and could be a sign of a possible
trend reversal.

On most charts, bullish candlesticks are often shown in green or blue, while
bearish candlesticks are shown in red. The color scheme may vary depending on
the trading software used or trader preferences. Most importantly, the color
indicates whether the price has risen, fallen or stayed relatively the same during
the period in question.
 Candlestick

Opening Price: The opening price represents the

price level at the beginning of a new time period.
When the price rises, the candlestick is displayed in
green or white. On the other hand, the candlestick
turns red or black when the price falls.

Closing Price: The closing price refers to the last

price of the candlestick formed during the given
period. If the closing price is higher than the
opening price, the candlestick will be displayed in
green or white. If the closing price is lower than the
opening price, the candlestick takes on a red or
black color.

The range of a candlestick refers to the price

difference between the lowest and highest
point during a certain period of time. The total
range is therefore the sum of the length of the
body and the length of the shadows. A wide
range indicates significant price volatility over
the period in question, while a narrow range
indicates limited price movement.
 Candlestick

Price High: The high price represents the highest

price level reached during the period in question.
This value is indicated by the upper shadow of the
candlestick. In the absence of a shadow, the
opening or closing prices are considered the highest
prices during that period.

Price Low: The lowest price represents the lowest level the
price reaches in the candlestick, this is indicated by the
lower shadow. In cases where no shadow is present, the
lowest price is at the level of the opening or closing price.

Wick: The wick of the candlestick is equal

to the shadow. This wick represents both
the highest and the lowest price during a
specific period. There can be an upper
wick (top wick) or a lower wick (down
wick). The length of the blade indicates
the degree of price volatility.
 Candlestick

The Doji pattern occurs when the supply and demand of stocks or the market are
in equilibrium and neutralize each other. The Doji-c can be classified into five
types depending on who takes control first, be it the buyers or the sellers:

Doji Star:
- A Doji Star can be either Bullish or Bearish depending on the trend.
- A Bullish Doji Star, which resembles an addition sign (+), appears after a
downtrend. The pattern is technically analyzed when the candle that follows
opens above the Bullish star of the pattern.
- A Bearish Doji Star, similar to the Bullish, also resembles an addition sign (+)
and appears after an uptrend. The trend is considered bearish if the candle
opens after the star under the Bearish star sign.

Long Legged Doji:

- The Long Legged Doji appears as both a Bullish and a Bearish trend signal.
- It indicates that the opening and closing prices of a stock are almost the
same, but the high and low of the candlestick vary widely.
 Candlestick

Dragonfly Doji:
- The Dragonfly Doji indicates a possible turning point in an uptrend.
- This candle consists of an opening, closing and high that are close together,
with a long lower shadow. It signals a situation where sellers initially had the
upper hand, but buyers managed to bring the price back to the opening level.

GraveStone Doji:
- The GraveStone Doji pattern is considered a Bearish candle pattern indicating
a trend reversal.
- It occurs when a candle opens, closes and lowest prices are almost the same
and has a long upper shadow. The top shadow indicates that buyers initially
dominated but later lost control to sellers.

4 Price Doji:
- The Four Price Doji gets its name because all points of the candle (open, close,
high, low) coincide.
- It indicates high trading volumes and indicates that the market is in a situation
of uncertainty.

Doji patterns usually indicate that buyers and sellers are more or less even,
causing a lot of uncertainty in the market. The direction of the trend after a Doji
can be either up or down.