Trading Price Action Trends

Chapter 12

Pattern Evolution

It is important to remember that the current bar can always be the start of a big move in either direction, and you have to watch carefully as the price action unfolds to see if a pattern is changing into something that will lead to a trade in the opposite direction. Patterns frequently morph into other patterns or evolve into larger patterns, and both can result in trades in the same or in the opposite direction. Most of the time, if you read the price action correctly, the original pattern will provide at least a scalper's profit. Likewise, the larger pattern should as well. It does not matter whether you label the larger pattern as an expanded version of the original pattern. Names are never important. Just make sure that you read correctly what is in front of you and place your trade, ignoring the pattern that completed a couple of bars earlier.

The most common example of a morphed pattern is a failure, where a pattern fails to yield a scalper's profit and then reverses into a signal in the other direction. This traps traders on the wrong side of the market, and as these traders are forced to exit with losses, they will then provide the fuel that will drive the market to at least a scalper's profit in the opposite direction. This can happen with any pattern, since all can fail. If the failure just goes sideways for a number of bars and then a new pattern develops, it makes more sense to simply regard the new pattern as being independent of the ...