Market patterns

Traders develop trading techniques by identifying patterns in the market. After rigorous backtesting, the trader watches for those patterns that indicate the potential for a specific price movement and enters a trade before the movement happens.

In the following sections, I’m going to present some of the basic patterns that most traders use, but before I do that, let me present you with...

The five pattern commandments:

1. The story of the pattern is more important than the pattern.
2. The story changes as the pattern develops.
3. Every pattern instance has a random outcome.
4. Seek confluence, not certainty.
5. There’s always a pattern you haven’t noticed.

I. The story of the pattern is more important than the pattern

The price tells a story. When it rises, it’s because there are more buyers than there are sellers, and we say that the buyers are pushing the price up. And when it falls, the sellers are pushing the...