The Art & Science of Technical Analysis: Market Structure, Price Action & Trading Strategies

CHAPTER 6

Practical Trading Templates

Do not [just blindly] repeat the tactics which have gained you one victory, but let your methods be regulated by the infinite variety of circumstances.

—Sun Tzu, The Art of War (ca. 210 CE)

This chapter presents eight specific trading patterns that should be seen as guidelines for actual trades. They are also concrete expressions of quantifiable, directional edges in the market; they highlight points in market structure around which there are sometimes imbalances of buying and selling pressure that can set up profitable trading opportunities. These are not a simple set of patterns to be memorized, found in the market, and then traded profitably. We do not trade these patterns; we trade the underlying buying and selling pressure that sometimes creates these patterns. This is an important and subtle distinction that sets my approach apart from that of many other traders. There are reliable, repeatable patterns in the markets, but these patterns are useful only inasmuch as they reveal the buying and selling pressure that shapes evolving market structure. The true value in these patterns is that they define precise points for your entries and exits and give you tools to manage the risk in each trade, but enduring success will follow only if these are part of a larger analytical framework that encompasses a complete understanding of market structure, price action, and the psychological dynamics that create them.

These patterns are introduced in ...