The Only Chart Pattern Trading Video You Will Ever Need... (New Strategies Included)

hey traders i want to go ahead and throw up a timestamp for you right here beside me because this video did end up being quite long and for good reason there's a lot to go over whenever it comes to chart patterns the first 10 minutes of this video is going to be me discussing the top three things i struggled with at the beginning of my career in terms of chart patterns that caused me to lose money while trading them and how i fixed those mistakes in order for chart patterns to become one of the most profitable ways that i trade today so i would highly suggest that you listen to those first 10 minutes but for those of you who are like i have to see charts i did put on the timestamp where i start talking about my rules for chart patterns and even where i start going over full strategies a little later on the video but again if you're serious about your trading then you'll listen up to these first 10 minutes with that said let's go ahead and get started instead of making this intro super long by reading through everything that's included in this video just check out the timestamp that's everything that's included if you see something you think is going to be helpful for you feel free to smash that like button make sure you subscribe for more free content and i'll see you guys on the other side of the intro and [Music] disclaimer welcome back and we're gonna go ahead and get started with mistake number one that i made and that i see traders making all too often which is not having objective rules for chart patterns this means you look at a chart right and you say to yourself oh that looks like a double bottom or that looks like a head and shoulder pattern but you don't really know if it's correct or not imagine this scenario so you look at a chart and you see what you think is a double bottom but you don't have rules for a double bottom so you're not really sure if this chart pattern is correct so you decide to skip the entry you don't place the trade you come back to your computer a few hours later to see that the market shot up like a rocket ship would have hit multiple targets and made you a lot of money so you kick yourself and go man i knew it looked like a double bottom should have been in that trade if you haven't been through that yet in your trading career then just give it a minute i'm sure you will at some point i know i've been through that before myself and let's go ahead now into a different scenario scenario number two you look at a chart a stick with double bottom you see what you think is a double bottom or we'll do head and shoulders this time you see what you think is a head and shoulders pattern so you place your trade right you're all excited i know i traded that correctly it looked like a head and shoulder pattern so i should be good to go the trade goes on to lose and then you come back to your computer and you're staring at your chart for 30 minutes asking yourself was that really a head and shoulders pattern if this is something you've been through leave a comment below to let other traders know that they're not alone i know it's something i've been through personally and all of this confusion frustration and inconsistency is due to not having rules for your chart patterns that's why it's so important not having rules for chart patterns would be like trying to cook a really good meal with no recipe whatsoever unless you're a culinary expert chances are you're going to be ordering a pizza later that night because you didn't have a recipe to tell you exactly what to do whereas if you have a recipe then that recipe is going to ensure that you're taking the correct steps and that you know exactly how to prepare that specific dish in trading we want rules so that we know exactly when to use chart patterns so that we avoid inconsistency and confusion and we ensure that we can be consistent and avoid making mistakes when identifying chart patterns now later in the video i am going to go over my exact rules for chart patterns we just talked about the mistake and what you need to do to avoid it which is make rules later in the video when we fix the mistakes which is my plan for later on i'm actually going to give you my exact rules for double bottoms double tops head and shoulder patterns and inverse head and shoulder patterns but before that i want to make it all the way through the mistakes first so mistake number two is trading chart patterns in the middle of nowhere let's dive into that right now so what does it mean to trade chart patterns in the middle of nowhere well it just means to trade them with no other confluence and i remember whenever i first started trading i'll admit it i would go out into the market i would see a double bottom and i would buy why because i saw somebody on youtube tell me that a double bottom meant a reversal i had no other confluence i wasn't looking at higher time frame trend or structure levels or any other indicators or any other confluence at all and i was expecting that chart pattern to work and i would lose trades constantly because of it now that's not because chart patterns don't work that's because no matter what you're trading whether it be chart patterns candlestick patterns something based on indicators there's no one thing that will create profits i didn't understand that whenever i first started trading i always was looking for the one thing i was looking for the magic indicator i was looking for the magic candlestick pattern or the magic chart pattern that would be profitable with nothing else and that doesn't exist instead what we have to do is combine a number of technical factors including the chart patterns in order to create an edge or an advantage or a money making strategy in any market we need to add things like higher time frame trend and structure levels like areas of value based on indicators like trend based on indicators like the market being oversold and creating divergence on double bottoms these are all factors that we can add to chart patterns to make them go from something that is nearly irrelevant to a rules-based strategy we can use to make money over time just to drive this point home a little further let me give you an analogy let's say that you're having a house built and the contractor comes up to you and he says hey sorry uh all we have is the wood for this job you look over you see a bunch of two by fours two by sixes and plywood laying on the ground and he goes there's nothing i can do about it what's my point my point is having wood is not all you need to build a house you're going to need roofing supplies like shingles or metal depending on what you choose you're going to need bathroom supplies like a sink a tub a shower you're gonna need nails and screws to put the wood together so wood is a great thing to have when you're building a house but it's not all you need and in the same way double tops double bottoms chart patterns in general are a great thing to have when you're building a strategy and you're building a trading plan but they're not going to be all you need we need to add other factors with them in order to ensure that they become a profitable strategy for us this is a huge mistake that i made towards the beginning of my trading career and one that i hope this video helps you to avoid and later on i will be going through a number of different factors we'll actually be creating an entire rules-based strategy around head and shoulder patterns and double tops and bottoms but again for now i want to go ahead and get through the rest of the mistakes so let's move on to mistake number three mistake number three that i definitely made and that i see traders making all the time is not being consistent with chart patterns and by consistency i don't mean consistent in the way that you trade them we talked about this a little bit before in the story i told at the very beginning of the video but a big mistake for me was going out and taking five trades based on chart patterns losing three out of five three out of five and then just giving up on chart patterns all together and switching strategies to something completely different this is the downfall of so many traders that it's not even funny and it's something that nearly caused me to never become a profitable trader because i would constantly switch strategies after a sample size of like five trades or ten trades and i would go oh i lost 6 out of 10 this doesn't work right and that may be something that you're dealing with right now so what i want to give you is an example let's say you're flipping a quarter and you flip that quarter 10 times we know that a quarter has two sides right which means you have a 50 chance of fitting heads a 50 chance of hitting tails but if you only flip that quarter 10 times it's not going to be tails five times and heads five times very often you're likely gonna get six and four seven and 3 2 and 8 sometimes because 10 flips of that coin is nowhere near large enough of a sample size for you to determine that that has a 50 chance in the same way in trading we can't look at just 10 trades we placed with chart patterns and go oh this doesn't work we need a much larger sample size and before that we need to build an entire strategy so what we're going to do in order to fix this issue is i'm going to teach you how to do something called back testing so in back testing we're going to look at a hundred instances where our rules based strategy happened in historic data and we're going to gather that data and then we're going to judge the strategy based on that data that we now have if the data turns out that we have a 60 chance to win with a greater than one to one reward to risk ratio then we have what is known as an edge an advantage we have a money making strategy that we can stick to so those are the three mistakes that i see traders making the most and those are the three mistakes that were the most difficult mistakes for me to get past when trading chart patterns now what i want to do is move on to showing you how to fix them in order to do that we're going to dive down into some charts and i'm going to share with you my actual rules for double bottoms and double tops and head and shoulder patterns and inverse head and shoulder patterns so let's go ahead and dive into that right now and i'll see you there [Music] okay so now we made it to the good stuff if you guys made it through all of that talking it was some really important points that i did want to get across before teaching you the entire strategy and the rules i have for these chart patterns if you made it through all of that that is awesome thank you so much go ahead and give this video a like if you've gotten value from it so far and now we're going to take a look at the actual rules i have for double bottoms first then we'll move on to the rest of the chart patterns so really really simple here as you can see this is the double bottom pattern that we are going to be looking at but for the purpose of this video what i'm going to do is put on market replay mode so you can see exactly what i would be doing after the first bottom was made so after we see a first bottom this looks like what this looks like a regular pullback but what this is is a situation where we could possibly see a double bottom and a reversal now what are the rules for that double bottom as i mentioned earlier you always want to have rules for each chart pattern that you're going to be trading my rule for these is that i make a box from the lowest body of the swing low to the lowest low of the swing low we'll do that with horizontal lines to make it easier to see so that would look like this right here this would be the zone that i want price to test but not close below what does that mean that means that price can come down with candles and i can see a wick come into this zone i can even see a body close right here in this zone i can see a wick come past this zone all of that would be a valid double bottom for me but what i cannot see is price come down and then a candle close below this zone and the logic behind this is that a close below a previous low like we have right here indicates further down pressure and indicates that we could be seeing a continuation of this downtrend that we have so i want market to stop before this low but i want it to at least test the lowest body of this swing low so this is what that looks like with real candles if i click forward a bit you'll see that we now have a test of our first bottom bottom excuse me giving us a double bottom but we don't have any candles that are closing below our wick so the market's showing us rejection from our first bottom by doing this and with that being the case now seeing rejection from that this would already qualify as a double bottom for me now i do not trade just because i see a double bottom we're going to get into entries and a lot of other factors that we add to these type of chart patterns a little bit later in the video but right now i want to go through all the rules that i have for double bottoms double tops head and shoulder patterns and inverse head and shoulder patterns a question i get asked a lot on double bottoms is how many candles do i need to see right here in the middle i don't necessarily have a rule for this but if you wanted to create a rule you could say that you need to see between five and let's say 25 candles between your first bottom and your second bottom that's just a way to give you an objective rule that's not what i use i don't really have a rule for that i just want to make sure this looks like an upside down v when i'm looking for chart patterns and i know that's subjective but i've been doing this for a really long time and i don't really need a rule for that personally again if you do use 5 to 25 candles in between for your double bottoms now as we can see this double bottom did happen and played out really nicely again we'll go over entry stops and targets a little bit later on in the video right now i want to go over double tops so now that we've looked at a double bottom let's find a double top and do the same thing [Music] and ironically really close by we have a good example of a double top so this is what we're looking at for a double top right here and what i'm going to do is the same thing i did with double bottoms we're getting into market replay mode and i'm going to show you what i would do after the first pullback at this point what does it look like it looks like we're in the middle of what a pullback we have a push higher pull back push higher pull back at this point the only way for us to define a double top is to wait for price to get to our area go ahead and see if you can assume or guess where my area is going to be my area is going to be from the top of the bodies of the swing high to the very high of the wick of the swing high and that looks like this top of the bodies top of the wick we now have a zone where i want to see price touch and test and be rejected from so in this case what i can see is the market can move up and i can have just a wick come into this zone i can have a body of a candle closed in this zone i can even have wicks that go up past the zone all of that is valid for a double bottom for me excuse me a double top for me what i don't want to see is trend continuation i don't know the market coming up here and then creating a candle that closes above this high of the double top for the same reason as we didn't want something or a candle excuse me closing below the first low of the double bottom this insinuates trend continuation to the upside i'm not going to be trying to trade a double top to the downside when i have a close above candle so those are my rules for a double top again if you need rules for in between use 5 to 25 and let's see how this played out if we click play do we have a valid double top right now yes we do why is that the case well we have the market rejecting this area by not closing above our previous high so with that being the case we have a valid double top now this specific trade took a while a little bit of consolidation here before it actually pushed lower but this double top did push the market lower eventually in a dramatic way so that is my rules for a double top and a double bottom if you want a more detailed version of that since i kind of sped through it for this video the reason i did that is because i have a full length video just going over double tops and bottoms that will give you everything you need to understand these two patterns and that'll be right up here in the top right hand corner of the screen you'll see a little card pop up right now so with that being the case and now that you know my rules for double bottoms and double tops let's move on and talk about my rules for head and shoulder patterns and inverse head and shoulder patterns after that we're going to be talking about and building out a full strategy by adding other technical factors to these patterns in order to make them strategies we can stay consistent to and that can make us money over time all right so what we have here is a valid head and shoulders pattern according to my rules this may not look like a perfect head and shoulders pattern and that's on purpose i'm not here to show you absolutely perfect examples i want to show you real-time examples that you can actually take and apply to real markets and this is a real-time example of a head and shoulders pattern that meets all of my rules let's talk about why doing the same exact thing that we did last time by placing the market in market replay mode which makes it really easy for me to teach so at this point what do we have we have a market pushing up pushing down pushing back up what we call this is our right shoulder and the head of our pattern the rules for this is we need a break and close below and a higher high excuse me i said below a break and close above and a higher high than our previous high in order to count this as the head of the pattern once we have the head of the pattern the next thing i wait for this is my first rule after getting the head of the pattern is i wait for the market to come down and retest the first shoulder so if we're drawing this out as a trend we would see the market pushing up to a high pulling back to our shoulder and pushing up to a new high this pullback to our shoulder i put a horizontal line on the lowest bodies of that pullback what i want to see and also on the lowest low of that pullback what i want to see is similar to the double top and double bottom thing i want to see the market come down and test this area i do not want to see a candle close below it what i want to see is that the market has come down and tested this area with either a wick or a body can close in it and a wick can go past it the only thing i can't see is a body closing below this area so anything else is fine as long as we test and reject this area to the upside so let's see what price does as i click play right there we have a test of this area with this candle wick right here so right now my rule number one is met which is a test of the bottom of the previous shoulder so that would be this zone right here which did get tested right here my next rules are that since we already have that one done and i'll just leave that here in case i need to do another example my next rules are that i want to see price come up at least to the right shoulder but price cannot touch the head of the pattern let me make these a little bit bigger it might be difficult to see there and there is my termination point for my second rule what this means is i want to see price push up and at least test this shoulder and as long as price does not push up all the way to our head of the pattern and touch it i don't want to see the market touch that head of the pattern whatsoever if it does it's an invalid trait turns into more of a double top than a head and shoulder pattern so what i'm what i'm waiting for is this area to me my termination zone and again this area is between the bodies of the candles the highest bodies of my right shoulder and the highest bodies of the head of the pattern that is the termination zone for what is considered our left shoulder so at this point we know we can see price or we must see price at least touch 129.57 because that's the highest bodies of our right shoulder we know that price cannot touch the highest bodies of the head of our pattern as long as that happens and we see a push lower we have a valid head and shoulders pattern let's see what price does eventually we push down and we break through the neckline and i do need a break through the neckline zone in order to classify this as a valid head and shoulder pattern now let's go through that really quickly one more time to make sure you understand it we need the creation of a right shoulder we need price to break above that right shoulder within the creation of the head which just means we need to start seeing a pullback the initial thing we're looking for with that pullback is that it comes down and tests the bottom of our right shoulder we want it to at least test the bodies of that swing low but we do not want to see price close below the low of that swing low as long as we get that as we do here and the market starts pushing higher we now have another zone to pay attention to between the highest bodies of our right shoulder and the highest bodies of the head of our head and shoulders pattern this is the termination zone for our left shoulder which is this right here as long as we have the market pushing down following rule number one pushing back up not touching the head of our pattern and at least testing the right shoulder then we have a valid head and shoulders pattern as long as we break through this neckline zone with a candle in this case we did and the market continued lower which of course will not always happen but in this specific situation it did so those are the rules for my head and shoulders pattern i know that was a long one but we're going to dissect the rules for an inverse head and shoulders we're going to go over that a little bit more quickly since you now kind of comprehend the way these rules work so let's take a look at inverse head and shoulders pattern then we'll dive into a complete strategy using these chart patterns combined with other technical factors to create a money making trading strategy [Music] an inverse head and shoulders pattern is just a head and shoulders pattern flipped upside down and looks a little bit like this this is the one we're gonna be taking a look at as an example and just with every other pattern i'm gonna go ahead and put on market replay mode to ensure that i can teach this in the best way possible as if you were actually looking at it on a real chart so if we're looking this looking at this on a real chart and analyzing it we can see that we have a push down to a shoulder which is actually right here the reason i just did that let me explain that to make it easier as well here we have a low but here let me draw it out we have a lower low with that being the case this is what our pattern would look like it would go to there since that's the lower low then we have our first shoulder pushing up to this high right here we then need what in order to classify ahead we need the market to break through this low since we did break and close below and create a new low down here we now have a left shoulder and a head what are we looking for at this point what would you expect us to be looking for based on what you know about the regular head and shoulders pattern we just looked up well we want to see the market test this area let me make these black that might be hard to see with everything being blue so we want to see the market test this area right here why because this is the area between the bodies of this pullback and the wick of this pullback with that being the case this is the area we want price to test how do we want to test this area we want price to push up and at least touch this area with a wick we can see a body close in this area we can see a wick go above it what we do not want to see is price push up higher and end up creating a higher high right here in price compared to the previous high over here so let's press play and see what happens right there do we have a test of our zone that does not close above our zone yes we do so at this point what are we looking for we already have the test of our zone and if this pattern is just the opposite of the regular head and shoulders pattern then we would make a zone out of the bodies of the left shoulder along with the bodies of the head of this pattern this is the termination zone that we're looking for for our next rule what does that mean that means we want to see price now pull back and at least touch this area but what we don't want to see is price come all the way down and touch the head of the pattern if we get a touch of the head of this pattern then it invalidates the pattern but as long as we get a test of the previous shoulder then we're good to go to start looking for that break to the upside so this is the area that we're paying attention to for our next rule it is going to be between this shoulder and the head of the pattern so let's see what price does as we push up we do push up a bit higher right here but we do not close above our zone so with that being the case is this still valid yes it is and we're still looking for the test of our previous shoulder so let's go ahead and see what happens with price we push down we test that shoulder we now have a break of our neckline zone this is all turning into a valid head and shoulders pattern so we're gonna go through that really quickly one more time what we're looking for is the push down which we have right here we're looking for the first shoulder to create a pullback we're looking for a break through that pullback to create the head of the pattern at that point we create a zone with the top of our first shoulder that zone needs to be tested but cannot be closed above we then want to see a pullback from that zone to our second zone our second zone is between the left shoulder and the head of the head and shoulders pattern once we get a test of that zone we know we're looking for the break of the top zone for a valid head and shoulders pattern what we don't want to see is something like this where the market comes down and then we touch the head of the pattern that's more of a double bottom not really a head and shoulders pattern anymore so that invalidates head and shoulders patterns but as long as we just get a touch of the zone and we get a breakout above our first zone we have a valid inverse head and shoulders pattern so those are my rules for each of the patterns that we learned that takes care of mistake number one which if you remember mistake number one was not having rules around chart patterns at this point you should have solid and set in stone rules for each of these two slash four chart patterns and now we're going to do is move on to actually adding other confluences and other conditions to this so you're not trading chart patterns in the middle of nowhere and that is called creating a strategy so let's move on to creating a strategy right now so anytime you're building a strategy around anything not just chart patterns there's a system i like to use that i created that's called c e s t and what c e s t stands for i know what you're thinking i have great handwriting is conditions entries stops and targets so when you're thinking about building rules around a full strategy not just around chart patterns right when you think about building rules around a full strategy by adding these confluences you want to have rules for the conditions before you look for your actual entry you want to have rules for why do you press the buy or sell button what is your exact entry you want to have rules for where is your stop loss going to go and ideally you want to have rules for a target but there are some traders including myself at times that do subjective targets which you can do once you become more experienced but in a nutshell what you want to make sure is that you have rules for conditions entries stops and targets and that's what we're going to dive into now is conditions entry stops and targets for the strategy we're going to almost got him can you all see that there's a gnat in here for the strategy that you are about to learn so let's get down to some charts and actually talk about some of the things we can add to chart patterns in order to turn them into strategies because if you remember the mistake number two was trading these patterns with no other confluence let's start adding confluence and see what kind of strategy we can come up with there are two different ways i like to trade these chart patterns one is the typical reversal chart pattern and that's the one we're going to go over first so let's go ahead and talk about it really quickly in order to trade a reversal it would look something like this we may see a market pushing lower price pushing lower pushing lower and then we may see a head and shoulders pattern that signals a reversal in price to start heading higher this would be an example of an inverse head and shoulders reversal pattern in the same way we may see a market pushing higher pushing higher price going higher and then we may see a double top the break of the neckline and that signals a reversal to the downside this is the typical way that you will see these chart patterns traded and now that you have exact rules for each of these patterns that you know exactly when they actually happen you're no longer confused about how to spot them we're going to start to add different confluences in order to build an entire strategy in a very simple way and again one of my favorite ways to trade chart patterns as reversals is by simply adding an rsi indicator and using this rsi indicator as my signal that we're ready to reverse and what i mean by that is when the rsi is oversold it's telling you that the price of an asset has been pushing down for a while we know that what goes up must come down and in the same way with financial markets what goes down eventually will go back up as well at least for the most part and with that being the case what we're looking for now is going to be these same price patterns these same chart patterns you've learned the rules to already to happen when markets get oversold for an inverse head and shoulder pattern we would look for the market to go into an oversold situation we would then have specific rules for our entry stops and targets again this is going to be our condition we're going to do this on some real charts i just wanted to give you a quick overview the opposite would be true for a double top or a regular head and shoulder pattern we would be waiting for the market to double top but only trading that double top if the market has went overbought because that overbought condition is telling us that this market is primed to have a possible reversal again we'll go down some charts and talk about entries stops and targets and i'll give you examples of full trades let's go ahead and do that right now okay here we are on the four hour chart of the aussie yen i want you to see if you can spot the head and shoulders pattern here hopefully you were able to it is right here quite easy to see this one it's nearly a perfect head and shoulders pattern and is our other condition met that we've already talked about did price go into the overbought area of the rsi while creating this head and shoulders pattern yes it did so let's go ahead and talk about what would happen if we were actually seeing price create this head and shoulders pattern as we have throughout the video so right here we already have what we call our first shoulder right it's right here what's the next steps we're looking for we want a test of this area here the bottom part of our first shoulder we need price to come down and test that does it yes it does once we've tested that we need price to then push up and at least touch the bodies of our first shoulder but price cannot touch the highest bodies of the head of the pattern so here we get the touch of the previous shoulder without pushing up and touching the head of our pattern do we have a valid possible head and shoulders pattern right now yes we do now again as mentioned for conditions these are our conditions for the actual pattern itself another condition is the market must be overbought at the head of the pattern let's put a vertical line here as you can see here this green line is showing the head of the pattern and yes the market is still above the 70 line of the rsi by the way my settings for the rsi are exactly as they come i just have a 14 period rsi so with all of this coming together we now have a valid strategy not just a valid head and shoulders pattern but we have a valid head and shoulders pattern when the market is primed to reverse coming out of an overbought situation so at this point all we need right now what do we have we have all the conditions met now we need to know how we're going to enter this market well to confirm this head and shoulders pattern i need to see a break and close below the lowest body of the neckline so this is what's considered the neckline the two the bottom of the two shoulders is considered the neckline of this pattern what i need to see is a breaking close below the lowest body of that neckline so let's go ahead and get rid of these lines to make this easier at this point all we're waiting on for an entry is a close below that body of this neckline the lowest body of the neckline let's see what price does we move forward and move forward again yes we get that close right here on this candle so at this point when we're creating a strategy we have our conditions met our conditions are we have all the conditions met for a head and shoulders pattern the market's coming out of a valid overbought situation telling us that this market is primed for a reversal after conditions we then looked for entries our entry specifically was the breakout of the neckline of the head and shoulder pattern and very specifically was the breaking close below the lowest body of that neckline so at this point we have a valid entry let's go ahead and put a position tool on right here for a stop loss here on the four hour chart to make things very simple i'm going to use 20 pips above the entry candle now for stops and targets it's completely up to you what you use this is just an example strategy and i'm just showing you how you would go about building a full strategy using these chart patterns for me let's go 20 pips above the entry candle that'd be about 81 pips and for targets i personally normally go for about a 1.4 to 1 with my first targets and i have two separate positions that's way too complicated to get into in this video that's already going to be lengthy so you can either do a straight 1.4 to 1 reward to risk which is what we're going to do throughout the video but some other examples of things you could do is you could go with a two to one reward risk ratio or you could come down to the next previous level of structure that you think the market will bounce off of to the upside so with that being the case let's hit play and this trade worked out pretty well if you took a either 2 to 1 or a 1.4 to 1 but if you would have tried for those extended targets it looks like you would have been stopped out in that case but again that's an example of the full strategy at this point we have conditions with the conditions for our pattern and our condition of being overbought on the rsi we also have our entry which is a close below that neckline we also have stops which in this case was 20 pips above our entry candle and we had targets which for me are going to be a 1.4 to 1 on the rest of these examples so that was a full overview of the strategy we're now going to take a look at this full reversal strategy on each and every one of these chart patterns starting now with the the inverse head and shoulders pattern which is just the opposite of this flipped up upside down let's go take a look at that right now okay so this one's a little bit less clean of a pattern but guess what guys that's exactly what markets look like at times you're not going to have the cleanest looking pattern every single time you place a trade so why don't you go ahead and see if you can spot this inverse head and shoulders pattern based on the rules you have learned so far in this video hopefully you were able to see it it is in fact right here and let's go ahead and confirm that by checking our rules we have a push down after this push down we want to look for the lowest low which is right here for our first bottom and that is our right shoulder we then get a pullback and then a break breakdown means that we now have a shoulder and a head to this pattern we then want to see what we want to see price come up and test between the highest bodies and the highest highs of our initial shoulder pull back right here so what we want to see is price come into this area but not close above it do we get that right here yes we do as i said before a wic can go above this area that's totally fine i just want to see the closing prices and opening prices not go above it so in this case we have a valid right shoulder or second shoulder now what's our next rule our next rule is we need price to pull back and touch between the lowest body of our first shoulder and it cannot touch the head of our pattern being the lowest body of the head of that pattern so with this being the case do we have a valid shoulder here yes we do price comes down and tests this area without touching the head of the pattern now with all of this coming together this is all of our conditions for a valid inverse head and shoulders pattern what's our other condition we have our pattern we also need to see oversold in this case on the rsi indicator because oversold means we're primed for a reversal to the upside so if we have those two things coming together we can actually go from looking for conditions to looking for entries if for a bearish entry we're looking for a close below the bodies of the neckline what do you think we're looking for on a bullish entry we would be looking for the close above the highest body of the neckline of this pattern which is right here if we look at this neckline in total we have bodies of candles right here for the neckline and the highest bodies of the neckline is actually the next neckline part of this pattern which is right here so with this being the case we have an entry on this candle the close of this big green candle we're using a 20 pip stop loss below the low 62 that would be an 82 pip stop and for those of you going how did he get 62 62 is to the bottom of this candle and i'm adding 20 pips next up we're looking for targets what did i say before we're going to do a 1.4 reward to risk ratio for these examples this easily got hit here for the inverse head and shoulders pattern so again we're just using exactly what we've learned about these chart patterns we're then adding the condition of coming out of either oversold or overbought depending on the direction we're looking to trade and we're adding confluence for an entry we're adding rules for stops and targets again the best way to build a strategy is by looking for conditions entries stops and targets and being sure that you have all of these in place before you ever place your trade which is what we're accomplishing with this strategy now that we've looked at the head and shoulders and inverse head and shoulders reversal patterns reversal strategies let's now go move on to the double bottom and double top reversal strategies okay so here we're looking at price as it would be before even looking for this pattern and for a double bottom all we need to see is that one of the bottoms goes into the oversold area on the rsi oversold is below 30 on this rsi again it's just regular factory settings for the rsi now let's remember what we're looking for in terms of a valid double bottom what we want to see is price come down and terminate between the lowest bodies and the lowest low of our first bottom which would be this little box right here so what we want to see is price come down at least test this box we can have a wick go below it we can have a body close in it what we don't want to see is price come down in the body of a candle close below it because that's telling us trend continuation to the downside we actually want to see a double bottom here so with that being the case let's move price forward see what we get slash if we get that retest of this area and eventually we do okay now we have tested this area as for an entry on this specific pattern for this specific strategy what we're going to look for is a candle closed above the top of the neckline the bodies of the top of the neckline so there is a line for that as you can see that is the top of the bodies of the neckline of this pattern so let's move the chart forward here see if we eventually get an entry not yet and now perfect now we have an entry now for a double bottom that would be our entry and same thing we will go 20 pips below our entry candle the entry candle is right here so we will have a stop loss at 14 plus 20 which is going to be 34 pips and we will have a 1.4 to 1 reward to risk ratio which is right up here now of course if you would like to test this and use this strategy the same exact way but put your stop loss below the net uh the lows of the double bottom that is totally fine again i'm just giving you an example of how you can build strategies around these patterns so here's an example of how you could do it of course you could put your stop loss below the lows of the double bottom as well if that's something you'd like to do let's click play and see what happens oh no but stephen i thought every pattern was supposed to win just kidding about that of course you will have losses that's why i wanted to throw this in here because it was a perfect example of a double bottom that met all of the conditions but lost and guess what guys losing is a part of trading it happens but either way win or lose this was a really good example of creating that strategy out of a double bottom using the condition of waiting for the strategy to be at the price excuse me and the rsi indicator to be oversold showing you primed for a reversal this was just an instance where the market did not cooperate with that analysis with that said let's go take a look at the opposite of this which would be a double top reversal right now okay so now we're going to take a look at a double top and if you look all back through here on the rsi every bit of this the market is trending up but this is why we wait for an overbought situation to tell us that this market is primed for a possible reversal we don't just wait for that right that's our first step so right now do we have our first step complete if you were actually trading this or testing this type of strategy you would be looking for this you would see okay we have an overbought situation and a pullback what's our next steps double top means we come back up and we re-test this top so let's put our box where we need to which is between the highs of the wicks the highs of the bodies of the first top let's click play eventually do we get a test of that first top right here the market does test that with a wick we do not get a body closing above this area so therefore we have a valid double top now with the double bottom we traded our entry was based on the break of the neckline we're doing the same exact thing here we're using the body of the neckline for the break and we're going to wait for a candle to close below the body of that neckline so this is going to be our entry right now we have a double top that happened while the market was overbought all of that showing us possible reversal to the downside now we need our entry stops and targets because all of our conditions are now met the entry being a break below our line here and a close below that line right here we have that break and close now a lot of people may be like well what about this isn't this showing us a a new pattern no once i see the double top in real time and i have my line on the neckline i'm just waiting for a break of that i don't really care what happens in between i'm waiting on the break of that neckline to show me price wants to go lower and that's exactly what happened here so we would have a short entry right there we would have 20 pips above our entry candle which would be 44 pips we have 24 to the top of that candle so it'd be 44 as the total stop loss we would then have a 1.4 to 1 reward to risk ratio click play and price eventually does push down and hit that target for us again this is the strategy that i wanted to teach you to give you a really good example of adding another confluence like a reversal scenario with the rsi indicator showing you a market is primed to reverse could you use other things yes you could use rsi divergence as well looking at the price of the aussie new zealand having nearly equal highs and the rsi having extremely diverged highs meaning lower highs so with that being the case you can add that as another confluence you can also add structure levels looking left on higher time frames you can add higher time frame trend the amount of confluence you can add is nearly endless but just remember that the frequency of trades you have with each confluence you add is going to drop dramatically because naturally you're looking for more things before you can enter the trade so you want to keep that in mind the more confluence you add the less trades you will have throughout the year so now that you know how i'm using these patterns as reversals the second strategy i want to show you is how i like to use these patterns in trend continuation so let's move on now to using chart patterns for trend continuation by adding a completely different confluence to them and using them at the end of pullbacks i'll see you guys there the typical way of using chart patterns is exactly like we just went over as reversals but right now i want to tell you a really cool way that i use these types of chart patterns for trend continuation and what that would look like is a market may have prices pushing higher pushing higher and then we may see a double bottom at the end of a pullback for a bullish trade this is one of the ways i like to use double bottoms in trend continuation we're going to talk about exact rules for it but i do want to go over a brief overview with you right now so that's what a bullish version of this would look like for a bearish version we may see prices pushing lower pushing lower and then we may see something like this at the top of a pullback a head and shoulders pattern at the top of a pullback would signal that this market is going to continue in the overall bearish trend so that's what we're going to be looking for on a chart we're going to have a different type of confluence for this and we're going to go over all of that and i'm going to give you four real examples on real charts right now of how i use chart patterns in order to trade with the trend okay so as for our confluence on this specific trend continuation strategy the only thing we need to add to the chart is a 200 period ema or exponential moving average that's all this black line is and that is going to be our trend filter now with the rules you already know about all of the price patterns and chart patterns we've discussed in this video we're all we're also going to be using the same exact entry we discussed on the reversal version of these patterns so again one of the only added confluences is that we have a 200 period moving average on the chart now this is a really important part of this what we want to see is price make a higher high like this right here this is our higher high now the price pattern the chart pattern that we use must be at the bottom of the pullback from our previous higher high what i don't want to see is price doing this and then see a double bottom right here i want to see this at the bottom of the pullback from our previous highest high so let me show you an example of that right now what we're going to be looking at is a double bottom just to give you a hint into this we have a higher high this is in fact the bottom of the pullback we're going to put our box on that we've been discussing throughout the entire video we're going to wait for price to get into that box once it does we are then waiting for price to break and close above the bodies of the neckline of this double bottom so let's push price forward we do not ever close below this box which tells us that we still have a valid double bottom we'll continue pushing forward and eventually we get a close above our neckline now as i said the entry is exactly the same as we discussed on the reversal pattern the difference here is going to be that for trend continuation chart patterns i'm going to be putting the stop loss below the previous low of this double bottom so this is what that would look like i'm still going to be looking for a 1.4 to 1 reward to risk ratio for these examples but i do want to put a stop loss instead of being below my entry candle like we were doing on reversals below the neckline i keep saying that below the bottom of this double bottom the reason is in a pullback this market is still considered to be in an uptrend until we break these lows so i want to make sure i'm safe with the way i'm placing my stops and targets and then if i hit play this specific trade did in fact push up and hit that target with ease so that was an example of how i would use the double bottom chart pattern for trend continuation we'll go over c-e-s-t we have conditions which are the conditions for our pattern itself the other condition is that we are above the 200 ema if those two conditions are met then i can look for my entry what is my entry a close above the neckline of this double bottom i then have to place my stops and targets and as we said the stops are going to go below the bottom of this double bottom target to the one point four to one reward to risk is how i personally like to set targets you can decide on stops and targets on your own when you're going through your back testing process but that's what i like to use so again that was a good example of how i used the double bottom chart pattern for trend continuation let's now take a look at the double top chart pattern for trend continuation so here on the aussie canada is our first condition met our first condition is we need to be below the 200 period moving average so yes that is met our second condition is just the rules we already have for a double top so let's see what happens here with price what are our rules for a double top we want to see the termination point be between the high and the bodies of that first top do we get that right here yes we do and another rule i have for these trend continuation setups is obviously my neckline cannot come all the way down to the previous low that would just be consolidation so as long as that neckline stays above the previous low i still have a valid double top in this case i have that valid double top and as long as no candle closes above that first stop then this stays a valid double top with all my conditions now met what do i need to focus on the entry what is the entry breaking close below the neckline the bodies of the neckline of the double top so if we hit play you'll see that we eventually do get that close below the bodies of the neckline we have a entry right here stop loss above the double top we then have a let me do this 1.41 reward risk ratio and if i hit play you will see that this trade eventually comes down to eventually this is how trading goes sometimes guys so i'm gonna let this run hit your stop loss isn't that a shitty situation right because you got really close to your target here and then the market pushed back up pushed back up and eventually stopped you out now this is the part of trading that most people do not like to discuss for whatever reason they don't want you to think that it's a possibility that you're going to be frustrated emotional and lose trades this happens a decent amount when you're actually trading live and it's just a part of trading again i don't want to cherry-pick the best examples possible of just winning trades and that's it i'd like to cherry-pick examples that look really nice for you to be able to learn from but i also want to show you the reality of trading which is at times you will in fact lose trades but that was either way a really good example of how i would trade a double top in trend and it is something that has given me an advantage over a large sample size so let's now move on to how i would trade the inverse head and shoulders pattern with the trend so right now i want you to see if you can actually spot this inverse head and shoulders pattern before i point it out hopefully you were able to see it right here it is a pretty large pattern but this is what we're seeing we have the market pushing down to a low pushing back up to a initial shoulder pushing down breaking below that low for the head of our pattern what's our rules now here is our termination box between the highs of those first candles right here and the bodies of those candles do we have a termination in that zone we do the next termination zone we have is down here between the lowest bodies of the first shoulder and we cannot touch the head of the pattern right here is that rule met with this candle yes it is so we'll go ahead and draw that out we have a push up we then have a pullback to this shoulder what are we waiting on now to enter this pattern we're going to enter in the same exact way we're waiting for a break and close above the highest bodies of the neckline which is right there so i push the market forward you will see that we do get that entry right here so our first condition was what we need to see price staying above the 200 period moving average our second condition was just the conditions for the head and shoulder pattern itself our entry was a close above that neckline we now need to work on stops and targets for a head and shoulders pattern i do things a little bit differently here as well my entry would be the close of that candle of course my stop-loss would go below the most recent shoulder which is right here and then i would also still have my 1.4 to 1 reward to risk again that's my favorite target scenario it gives me a better winning percentage and also keeps me above a one to one reward to risk ratio let's see how this bullish inverse head and shoulders pattern with the trend played out as you can see it did push up and eventually hit targets and move on to what would have been great targets eventually if you would have been patient and held onto this trade but that's an example of how i trade inverse head and shoulder patterns with the trend and a full strategy you can now take and go test in the markets to see if it's profitable for you and to see if it's something you want to add to your trading arsenal the last strategy we're going to take a look at is how i trade regular head and shoulder patterns with the trend let's go ahead and go take a look at that right now okay so let's work through c e s t first our conditions are we below the 200 period moving average meaning that overall long term we are in a downtrend yes we are do we have the conditions met for a head and shoulders pattern yes we do let's go ahead and discuss them one more time really really quickly push up shoulder down push up head down we gotta terminate inside of our box right here do we do that yes we do we need to push up and at least touch the bodies of this shoulder without touching the head of the pattern all that's true correct yes it is so since all of that is true what are we waiting on now we're waiting on a close below the lowest low of the neckline let's see what we get price eventually does in fact close below that we would have an entry right there our stop loss for this specific pattern would be above the most recent shoulder since we have that in place we can now set a target for me yet again 1.4 to 1 reward to risk ratio clicking play and as you can see price pushed down to more than hit those targets again this is the full rule set for a strategy you can actually take and go test in the markets you can test this because it has completely objective rules we have an objective rule for being below the 200 period moving average we have an objective rule for how we classify a valid head and shoulders pattern we have objective rules for entries stops and targets and my friends this is exactly how you go about building a profitable and easy to stay consistent to trading strategy and eventually a trading plan having a roles-based trading strategy like what i just taught you is absolutely necessary in order to become a consistently profitable trader but it's not going to be all that you need you still need to take those rules write them down and then go back test them in historic data since they are objective rules and every part of your strategy is defined that becomes a lot easier also you need to create a risk management plan and a full trading plan built around the strategy you choose to trade and all of that is absolutely necessary as well and just as important as the strategy itself but it's not something i actually have time to get into in this video because it's already super long so if you're interested in some more advanced training then we do have a small amount of space available in the eap training program we keep members limited because i answer every trading related question personally for every student so yahoo finance actually just did a article on the eap training program i will link that article below in the description but in this program what you'll learn essentially is more of the strategies that i use on a daily basis you will also learn everything you need to know about risk management and about creating a full trading plan it pretty much takes you step by step from wherever you are in your trading journey through the process of creating a profitable and a full trading plan it also comes with what i call priority email which means every single email that you send that is trading related about the course or about trading in general will be me personally answering those it is a mentorship program and i'm here to guide you along your path to becoming a professional trader on top of all of that there is much more included that you can find out about in either this yahoo finance article or you can go over to eaptrainingprogram.com either way is fine but on top of all of that it also comes with a 60-day money-back guarantee meaning that for any reason if you decide that you don't feel as though the program is as valuable as you thought or if you just decide you don't want to trade anymore feel free to send my staff an email telling them your situation and i'll get you refunded asap so with that being the case it is a risk-free offer if you'd like to take me up on that go ahead and click the top link in the description or go visit the yahoo finance article which will also be linked in the description if that is not something you're interested in that's totally fine too make sure you keep it locked here by clicking that subscribe button click like if you made it to the end of the video make sure to comment and let me know i'm gonna go eat i'm starving it's like five o'clock and i haven't even eaten breakfast yet so i'm out and i will talk to you guys in the next video see you soon

Channel: The Trading Channel

Views: 325,196

Rating: 4.9630857 out of 5

Keywords: chart pattern, chart patterns, chart pattern strategy, chart pattern strategies, chart pattern analysis, chart pattern trading strategies, chart patterns forex, chart patterns for beginners, chart patterns for swing trading, chart patterns for options trading, chart patterns crypto, chart pattern trading, chart patterns in stock market, chart patterns in technical analysis, chart patterns explained

Id: 08i_xRB5jMA

Length: 60min 2sec (3602 seconds)

Published: Tue Jul 27 2021