CHAPTER 5
Examining Price Patterns
So far, we have discussed three main price principles, along with basic candlestick charting on our quest to discover higher probability trade setups and determine how to profit from the next likely swing in price. This chapter will continue the journey by describing how popular price patterns help you uncover opportunities in the seemingly random movements of the markets.
However, simply finding a price pattern is not enough; rather, you will enhance your trades if you combine the principles, insights from candle charts, volume, momentum, and—as we will soon see in Chapters 6 and 7—Fibonacci principles, along with the life cycle of a price move. All of the concepts combine to form a complete strategy to increase the odds of success as you develop trading experience. Combining as much chart information as possible allows you to have a greater degree of confidence that the trade setup you are about to take has a high probability of meeting the price target that you expect.
This chapter will describe popular classic price patterns, show how the patterns are based on one of the underlying principles, and explain exactly what to know about each pattern to increase the probability of a successful trade. By the end of the chapter, you will be able to see the logic of pattern formations, rather than just recognizing them on the price chart. That will take some practice, but first, let's get to work defining these popular patterns!
WHAT ARE PRICE PATTERNS? ...
