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Reading time: 13 minutes
This article will provide traders with a detailed explanation of what Harmonic Trading Patterns are, how harmonic trading patterns are used in currency markets, as well as, exploring market harmonics, harmonic ratios, and much more! All of this is based on teachings from Scott M. Carney.
Depicted: MetaTrader 4 Supreme Edition – Session Map – Disclaimer: Charts for financial instruments in this article are for illustrative purposes and does not constitute trading advice or a solicitation to buy or sell any financial instrument provided by Admiral Markets (CFDs, ETFs, Shares). Past performance is not necessarily an indication of future performance.
The price action trading domain can be made significantly deeper by taking a look at the advanced trading method known as ‘harmonic trading’. Scott M. Carney, President and Founder of HarmonicTrader.com, has defined a system of price pattern recognition and Fibonacci measurement techniques that comprise the Harmonic Trading approach.
He has named and defined harmonic patterns such as the Bat pattern, the ideal Gartley pattern, and the Crab pattern. He is the author of three books on the subject: The Harmonic Trader; Harmonic Trading of the Financial Markets: Volume One; and Harmonic Trading of the Financial Markets: Volume Two.
Harmonic Patterns in Currency Markets
Roots of Harmonic Trading can be tracked down to the Gartley pattern. The Gartley “222” pattern is named from the page number that can be found in H.M. Gartley’s book “Profits in the Stock Market”.
So, what is a Gartley pattern?
A Gartley pattern is very similar to a bullish W or bearish M. It appears when the price has been moving in an uptrend or downtrend but has started to show signs of correction.
Ideal Gartley patterns look something like this:
- Move AB should be the .618 retracement of move XA
- Move BC should be either a .382 or a .886 retracement of move AB
- If the retracement of move BC is .382 of move AB, then CD should be 1.272 of move BC
- Consequently, if move BC is .886 of move AB, then CD should extend 1.618 of move BC
- Move CD should be A .786 retracement of move XA
The Gartley pattern is traded from point D. Traders opt to buy or sell at point D, depending on the pattern direction.
As time has passed, the popularity of the Gartley pattern has grown, and traders have come up with their own variations. Scott M Carney and his harmonic trading techniques were among the most popular and successful. Harmonics is the process of identifying the market’s rhythm or its pulse, and then exploiting its trading opportunities. They provide us with visual occurrences that have tendencies to repeat themselves over and over again.
This methodology assumes that trading patterns or cycles, like many other patterns and cycles in life, repeat themselves. The key is to identify these patterns and to then enter or exit a position, based on a high degree of probability that the same historic price action will occur. Although these patterns are not 100% accurate, the situations have been historically proven. If these setups are identified correctly, it is possible to identify significant opportunities with very limited risk.
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In Harmonic trading we distinguish between:
- Primary Ratios
- Primary Derived Ratios
- Complementary Derived Ratios.
Directly derived from the Fibonacci Number Sequence.
- 0.618 = Primary Ratio
- 1.618 = Primary Projection
Primary Derived Ratios
- 0.786 = Square root of 0.618
- 0.886 = Fourth roof of 0.618 or Square root of 0.786
- 1.130 = Fourth root of 1.618 or Square root of 1.27
- 1.270 = Square root of 1.618
Complementary Derived Ratios
- 0.382 = (1 – 0.618) or 0.618e2
- 0.500 = 0.770e2
- 0.707 = Square root of 0.50
- 1.410 = Square root of 2.0
- 2.000 = 1 + 1
- 2.240 = Square root of 5
- 2.618 = 1.618e2
- 3.141 = Pi
- 3.618 = 1 + 2.618
Harmonic Trading Patterns and PRZ
Harmonic patterns are defined by specific price structures, and quantified by Fibonacci calculations. These patterns represent price structures that contain combinations of distinct and consecutive Fibonacci retracements and projections. If we calculate various Fibonacci aspects of a specific price structure, we can identify harmonic pattern areas that will hint at potential turning points in price action.
Scott M. Carney has identified those reversal spots as the PRZ—The Potential Reversal Zone. A well-defined PRZ usually provides some type of initial reaction during the first test of most harmonic patterns. The initial test can occur quickly, and on high volatility it can immediately reject the price. Let’s take a closer look at harmonic patterns as described by Scott M. Carney:
The Shark Pattern
The harmonic Shark pattern is identified as shown in the picture below and uses 0, X, A, B, C swing points to name the pivot/swing legs. It is occasionally referred to as an emerging 5-0 pattern. In the example below, we can see an example of the bearish shark pattern with its PRZ zone.
Depicted: EURUSD – MetaTrader 4 (MT4) chart – Bearish shark pattern – Disclaimer: Charts for financial instruments in this article are for illustrative purposes and does not constitute trading advice or a solicitation to buy or sell any financial instrument provided by Admiral Markets (CFDs, ETFs, Shares). Past performance is not necessarily an indication of future performance.
The AB=CD pattern is a 4-point price structure wherein the initial price segment is partially retraced and followed by an equidistant move from the completion of the pullback. In Classic AB=CD, the BC is a retracement of 61.8% – 78.6% of AB, with CD being the extension leg of 127.2% to 161.8% (equal in price distance). In AB=CD extension, CD leg is an extension of AB between 127.2% – 161.8%.
Depicted: EUR/USD – MT4 chart – AB=CD bullish pattern – Disclaimer: Charts for financial instruments in this article are for illustrative purposes and does not constitute trading advice or a solicitation to buy or sell any financial instrument provided by Admiral Markets (CFDs, ETFs, Shares). Past performance is not necessarily an indication of future performance.
The Crab Pattern
Key elements of the Crab pattern:
- B point is a 0.618 retracement of XA or less
- Extreme BC projection that is typically: 2.618, 3.14, or 3.618
- Alternate 1.27 or 1.618 AB=CD pattern required
- 1.618 XA projection: as the defining limit with the structure
- C point with range between 0.382 and 0.886
The pattern can display rapid price action movement, and that often results in fast reversals at the PRZ.
Depicted: EUR/USD – MT4 chart – Crab bearish pattern – Disclaimer: Charts for financial instruments in this article are for illustrative purposes and does not constitute trading advice or a solicitation to buy or sell any financial instrument provided by Admiral Markets (CFDs, ETFs, Shares). Past performance is not necessarily an indication of future performance.
The Bat Pattern
The Bat is a very accurate pattern, usually requiring a smaller stop-loss than most patterns. The pattern incorporates the powerful 0.886 XA retracement as the defining element within the PRZ. Other key elements of the Bat pattern are:
- Move AB should be the .382 or .500 retracement of move XA
- BC projection must be at least 1.618
- If the retracement of move BC is .382 of move AB, then CD should be a 1.618 extension of move BC
- AB=CD pattern is usually extended
- 0.886 XA retracement
- CD should be .886 retracement of move XA.
Depicted: EURJPY – MT4 chart – Bat bearish pattern – Disclaimer: Charts for financial instruments in this article are for illustrative purposes and does not constitute trading advice or a solicitation to buy or sell any financial instrument provided by Admiral Markets (CFDs, ETFs, Shares). Past performance is not necessarily an indication of future performance.
The Butterfly Pattern
Scott M. Carney believes that the ideal butterfly pattern needs to have a specific alignment of different Fibonacci measures at each point within the structure. The Butterfly is similar to the Gartley pattern, and the PRZ zone is defined by a mandatory retracement of the XA leg as the point. The ideal Butterfly has 0.786 as XB, but traders might also use various measurements such as 0.952 of the XB.
The key elements of this pattern are:
- Move AB should be the .786 retracement of move XA
- Move BC can be either a .382 or a .886 retracement of move AB
- If the retracement of move BC is .382 of move AB, then CD should be a 1.618 extension of move BC
- If The move BC is a .886 of move AB, then the CD should extend 2.618 of move BC
- CD should be 1.27 or a 1.618 extension of move XA.
Depicted: AUD/NZD – MT4 chart – Butterfly bullish pattern – Disclaimer: Charts for financial instruments in this article are for illustrative purposes and does not constitute trading advice or a solicitation to buy or sell any financial instrument provided by Admiral Markets (CFDs, ETFs, Shares). Past performance is not necessarily an indication of future performance.
Source: – Data Range: 13 Dec, 2020 (between 05.55 AM to 11:35 PM) – Please Note: Past performance does not indicate future results, nor is it a reliable indicator of future performance.
The Cypher Pattern
Originally discovered and defined by Darren Oglesbee, the Cypher pattern is a 4-leg pattern. It is not as common as other patterns, though it’s widely used in Harmonic trading and analysis. Due to its rare occurrence, traders should make room for adjustments to the Fib levels that are used in the pattern charting.
The key elements of this pattern are:
- The Cypher pattern starts with the X and A points
- Point B retraces to the 0.382 – 0.618 Fibonacci level of the leg XA
- Point C is formed when prices extend the XA leg by at least 1.272 or within the 1.130 – 1.414 Fibonacci extension
- Point D is formed when it retraces the 0.782 Fibonacci level of XC.
Depicted: EUR/JPY – MT4 chart – Cypher bullish pattern – Disclaimer: Charts for financial instruments in this article are for illustrative purposes and does not constitute trading advice or a solicitation to buy or sell any financial instrument provided by Admiral Markets (CFDs, ETFs, Shares). Past performance is not necessarily an indication of future performance.
Harmonic Patterns: an Easier Way
For all traders that are interested in trading Harmonic patterns, It is highly recommended that you read the works of Scott M. Carney before you begin trading. When you arm yourself with a proper understanding of patterns, PRZ, terminal bars, and everything else that is important for harmonic trading, only then should you begin your search for automatic harmonic indicators.
There are several harmonic indicators and software programs that will automatically detect various harmonic trading patterns. Carney introduced a unique position management system based on a 0.382 Trailing Stop, measured from the reversal point to the reversal extreme.
Trade Management in Harmonic Trading
Depicted: AUD/NZD – MT4 chart – A Bullish Butterfly – Disclaimer: Charts for financial instruments in this article are for illustrative purposes and does not constitute trading advice or a solicitation to buy or sell any financial instrument provided by Admiral Markets (CFDs, ETFs, Shares). Past performance is not necessarily an indication of future performance.
Featured in the image above is an example of a bullish Butterfly pattern. The first target is related to point B on the chart. It is the level which indicates the price drop during the AB decrease. The second target marks the C point on the chart, and the price top after the BC increase. The third target is the high, which appears as a result of the XA increase.
Point D is the entry. Stops go below point D. We hope that you have enjoyed learning about harmonic trading patterns. If you would like to learn more about trading, or perhaps some specific topics that were mentioned in this article, why not check out our range of trading articles?
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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.
Free Dogecoin Strategy, ORB – Nr4 Pattern
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Most novice traders think that to have a profitable trading strategy, you need a complex strategy. That’s wrong, and our Free Dogecoin strategy will demonstrate how to profit from day trading with short-term price patterns.
Our team at Trading Strategy Guides is working hard to put together the most comprehensive PDF guide to different cryptocurrency strategies. Previously, we covered the Japanese’s second favorite digital coins after Bitcoin, Nem cryptocurrency, which provides an alternative for API developers that are looking to develop blockchain-based apps.
Toby Crable is probably one of the less unknown profitable traders. Even though in 2005, Toby Crabel was described by the Financial Time as “the most well-known trader on the counter-trend side,” but it still remains an unknown name in the retail industry.
The reason why we mention Toby Crabel work is because he is the father of the ORB pattern aka the Opening Range Breakout pattern, which is regarded as being the most powerful tool of the last 25 years.
This powerful trading technique has helped legendary guru trader Larry Williams to turn $10,000 into $1 million in less than a year.
Moving forward, we’ll give you some more clues on how to trade the ORB – Nr4 pattern, what is cryptocurrency Dogecoin and how to buy Dogecoin.
What is Dogecoin?
Dogecoin is a legitimate cryptocurrency suitable for microtransactions and to send little gifts, which is what it’s used for on a lot of internet forums. If you want to transfer five or 10 cents of value for somebody that had written a particularly good blog post, it’s great and easy way to reward people.
Dogecoin has one of the largest communities on the internet as it was one of the first alt coins in existence created all the way back in 2020.
What started out more as an internet prank has turned into very large and successful cryptocurrencies with a market cap of over $335 million. Dogecoin is also ranking in top 100 cryptocurrencies.
The other major difference between Dogecoin and Bitcoin is the number of coins in circulation – 100 billion versus 21 million.
What makes Dogecoin different than other altcoins is the practicability to instantly send cash gifts to people, all around the world.
Now, before we go any further, we always recommend taking a piece of paper and a pen write down the rules of the Dogecoin cryptocurrency strategy.
In this demonstration, we’re going to look at how to buy Dogecoin.
How to Buy Dogecoin
The Dogecoin cryptocurrency strategy takes advantage of the most powerful short-term price patterns. The ORB pattern is defined as a trade taken at a fixed value of the opening range.
The Opening range Breakout trade is more effective if taken after an inside day that has its daily range smaller than the previous 3 days, which is where the Nr4 stands for. You have three candles followed by another candle with a daily range that is narrower than the previous three days.
*Note: The 4 th day doesn’t necessarily need to be an inside day, it only needs to have its daily range smaller than the previous 3 days.
Here is how an actual Nr4 pattern looks like on the Dogecoin chart:
What if we told you that 40% of the time the first trading hour can tell you what is the high and the low of the day? If you know that you can define a trading system around it, you can manage your risk and set your targets.
Basically, you can become a proficient trader.
Like all our trading strategies, we’re going to give you first the trading rules by going through an actual live trade example.
Step #1: Wait until you can spot a bar that has its daily range smaller than the previous three days
The first rule requires you to have the patience until the Nr4 pattern develops on the Dogecoin chart. When we have a daily trading range that is narrower than the previous trading ranges, it means that the price is contracting.
Based on our backtesting results, we have found out that there is a high probability of a trend move after you spot this type of contraction. This is kind of a general rule because the markets move from periods of contractions to periods of expansion.
This is the reason why this short-term price pattern is so powerful.
Now, let’s move forward, and outline the next key component of the Dogecoin cryptocurrency strategy.
Step #2: Mark the High and the Low of the 4 th day and switch to the 1 hour time frame
Our trade is taken the next day after the Nr4 pattern showed up. In order to have a clear view of the short-term price action, we need to switch our focus to the 1-hour time frame. Before you switch the time frames make sure you mark on your chart the high and the low of the 4 th day.
The short-term pattern Nr4 satisfies all the requirements for a valid setup, which mean that we can move forward and describe how to buy Dogecoin.
Step #3: How to buy Dogecoin: Buy only if the breakout of the Nr4 high happens during the first 5 trading hours.
We use the Opening Range Breakout technique to time the market and have an effective trade entry. The ORB is even more profitable if it occurs after inside days that have a smaller trading range than the previous 3 days. Here is another strategy called simple yet profitable strategy.
Our Dogecoin trade doesn’t have an inside day, but nevertheless, we want to buy only after we break above the Nr4 day high. We also want to make sure the breakout happens during the first five trading hours of the next day.
Trades based on the ORB – Nr4 pattern will show you a profit instantly.
Now, if the trade is not showing you a profit right away, then your trade becomes more vulnerable. As a general rule, if after the first trading hour your trade is not in the green, you can safely close the trade at the market.
Of course, you can only do that if your stop loss hasn’t been triggered in the meantime.
Now let’s outline where to place our protective stop loss.
Step #4: Place your protective Stop Loss below the Nr4 day low
You can hide your protective stop loss below the Nr4 day low. Alternatively, you can place your stop loss below the current day low as this will give you a better risk to reward ratio.
The ORB – Nr4 pattern tends to precede strong trend day activity, so your stop loss should be rarely hit. Both of these patterns can be traded individually, but when combined, they tend to produce even more powerful trades.
Last but not least, we need to define where we take profits when trading Dogecoin.
Step #5: Take profit at the close of the first 1-hour bearish candle
Our take profit strategy is fairly easy and slightly modified from the original strategy highlighted in the “Day Trading with Short Term Price Patterns and Opening Range Breakout” book written by Toby Crabel.
Although the ORB pattern tends to lead to trend trading days, we’re more conservative and want to quickly take profits. So as soon as the first bearish candle shows up, we close the trade and enjoy our daytrade profits.
Alternatively, you can keep the trade open until the end of the day if you want to extrapolate more profits from the cryptocurrency market.
**Note: Above is an example of a BUY trade using our Dogecoin cryptocurrency strategy. Use the same rules for a SELL trade – but in reverse. In the figure below, you can see an actual SELL trade example.
Conclusion – Dogecoin Cryptocurrency Strategy
Our Free Dogecoin strategy is a short term trading method that has simple rules that every novice trader can follow and become a consistent trader. The opening Range breakout technique is a simple method that takes a trade when the price breaks above or below the opening candle’s high or low. We also have training on how to trade with the Gartley Pattern.
The best short term trades always comes when we have strong trading days and the ORB – Nr4 pattern can capture those expansion days that most traders look to capture.
Thank you for reading!
Please leave a comment below if you have any questions about the Free Dogecoin strategy!
Also, please give this strategy a 5 star if you enjoyed it!
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Chart patterns for trading
Chart patterns are a classical approach to analysis of the financial markets. It was widely used in the XXth century and is still used due to visual simplicity of chart patterns. However, is it wise to use today what was good long ago?
- the rating of reliability of chart patterns;
- advantages and disadvantages of chart patterns;
- how to improve reliability of chart patterns with the help of the modern cluster analysis.
Start to use ATAS absolutely free of charge! The first two weeks of use of the platform give access to its full functionality with 7-day history limit.
“The fundamentals always looked good, but the technicals were signaling a trend change just as I was about to pull the trigger” Thomas N. Bulkowski.
“How to identify a reversal chart pattern for achieving success?” Thomas wondered. He lost his job at the age of 36 and started to study trading. This sharp U-turn in his life brought him success and he became one of the most competent authors of valuable hands-on books for traders.
The second edition of his complete encyclopedia of chart patterns with statistical data was published in 2005. In this edition, Bulkowski managed to use the data of the bearish market that started in 2000. The author had done an outstanding job – the total number of chart pattern samples he found was 38,500! He tested the samples in the charts of 500 American companies from 1991 until the middle of 1996 and charts of different 500 companies from 1999 until 2004.
Bulkowski calls chart patterns the footprints of the smart money and divides them into:
- bull market patterns;
- bear market patterns;
- event patterns – price changes that take place after publication of a financial report, change of the owner or taking over another company.
Let us consider the general rating without dividing the market into the bull and bear ones, since identification of periods of the explicitly expressed bullish or bearing movement is a rather subjective and conditional process.
By the way, the chart patterns are symmetrical , which means that there is always a reversed analogue. The same patterns can have different percentage of failures and movement potential in the bear and bull markets. To cut a long story short, we will consider the tops only. Remember that the reversed patterns are also meaningful.
The head-and-shoulders top – a reversal pattern.
Look for three peaks in a chart. The middle one should be higher than the other two. The neck line connects the peaks. It could slope upward or downward. The shoulders could be of various heights and non-symmetrical.
Bulkowski explains emergence of this pattern through action of the smart money and slow minor traders. Based on a fundamental analysis, the smart money buy an asset in the beginning of the left shoulder formation. Their actions cause the price increase and attract minor investors. The smart money partially close the position at the first peak since they made profit. The price goes down and again attracts those investors who either failed to buy in due time or waited for a correction in order to buy when the retrace stops. The third shoulder is formed in order to act against those sellers who were smart enough to recognize the bear reversal, but were imprudent to place a stop order too close.
The maximum volume, as a rule, is in the head and left shoulder. The head and shoulders takes the first place in the bull market and the sixth place in the bear market according to the Bulkowski rating.
The pattern example. Here is a day chart of a Brent oil futures. Numbers 1, 2 and 3 mark the left shoulder, head and right shoulder. The movement potential is bigger or equal to the distance from the head to the neck level.
The chart shows one more pattern – a falling wedge.
The Falling Wedge chart pattern
The falling wedge could be either a reversal or continuation pattern depending on the breakout direction. The failure rate of this pattern is rather high. In the Bulkowski rating it takes the 18th place in the bull market and 21st place in the bear market. Two trend lines pass along the upper and lower candlestick shadows. When building the pattern, it is advisable to have at least 5 crossing points from each side. The movement potential is equal to the wide part of the wedge.
The Picture shows a falling wedge from the Thomas book. What action is hidden in this pattern of the trend continuation?
- On the one hand, the cunning market involves traders into dangerous short positions with a pretended downward movement.
- On the other hand, a series of lower lows breaks stop losses of the buyers before the coming upward breakout.
The Pipe Bottom chart pattern
A short-term reversal pattern. It shows the best results on weekly charts. The failure rate is about 18% in day charts. In the Bulkowski rating, it takes the 2nd place in the bull market and 3rd place in the bear market. The classical pattern consists of two candles and looks as follows.
The pattern example . The US passed sanctions on a number of Russian companies on April 9, 2020, and the stock market sharply fell down. In those days the pipe bottom pattern could be found in the charts of practically all liquid stock, since the market came back fast after a negative influence of the news.
Below is a day chart of the Gazprom stock futures (GZ).
Chart patterns are marked with numbers
1, 2 and 3 – head-and-shoulders top
4 – broadening wedge
The Broadening Wedge chart pattern
It could be either a reversal or continuation pattern depending on the breakout direction. Its shape resembles a loudspeaker and could slope upward or downward. It takes the 6th and 10th places in the rating in the bull and bear markets respectively. We connect lower and upper candlestick shadows with the trend lines. When building the pattern, it is preferable to see at least 5 touches from each side. Partial rise or fall and a failure to touch the opposite line warn about the trend change.
The Diamond Top chart pattern
It could be either a reversal or continuation pattern depending on the breakout direction. It takes the 7th and 10th places in the bull and bear markets respectively in the reliability rating. The head-and-shoulders top is one of particular cases of the diamond top. Support and resistance lines are built by extreme lower and upper points. The movement potential is measured by the widest part.
The Flags chart pattern
Flags is a continuation pattern. Reliable flags emerge during rapid and sharp trends. The flags are bounded by parallel trend lines. Ideal flags continue for several weeks and slow down the price movement. Bulkowski specifies several types of flags.
A flag pattern example . Let us consider a pattern in the gold futures (GD) day chart.
In this case, the flag pattern is a sample of continuation of the bearing trend. The price decrease started in the middle of April and the flag pattern was formed at the level of support of the February range. It involved the buyers, who expected a growth from support, into longs, but they were wrong. This failure of the buyers added a bearish potential to the downsloping trend, which lasted until the middle of August.
The Double Top chart pattern
The double top is a pattern of a short-term reversal. Bulkowski specifies 4 types of double tops depending on the peak shapes and their symmetry. An example of a double top in the RTS index futures (RI) day chart. There is one more falling wedge marked with number 1.
Chart pattern samples or modern trading and analytical systems?
Below is a symmetric triangle in the RTS index futures (RIZ9) chart, which was broken upwards at 17:30. A symmetrical triangle is a continuation pattern. Let us compare trading possibilities with a set of different instruments.
The Delta type chart and Dynamic levels , Volume indicators are placed to the left. This chart type means that a new candle is built in the chart at the moment of changing the delta on 500 contracts and it does not depend on time. The number 500 is adjustable, that is, more convenient values could be chosen for different instruments. Numbers 1,2 and 3 mark possible entry points into a long position before the triangle is broken. These entry points are confirmed by bullish candle engulfing and are at the level of the maximum volume. Bullish engulfing cases are outlined with black rectangles and the green candles fully overlap the red candle bodies, confirming the buyers intentions. The stop loss in point 1 could be placed at the previous level of the maximum volume. The stop loss in point 2 could be placed below the bottom boundary of the triangle or the previous minimum in point 1. The stop loss in point 3 could be placed at the previous level of the maximum volume.
A standard 30 minute candle chart and Dynamic levels , Volume indicators are placed to the right. Working with this chart we find only one point of entry for breaking the triangle. A possible entry point is marked with the level. The stop loss could be placed immediately after the previous minimum or below the lower boundary of the triangle, which increases the risk.
Let us consider a chart pattern example – a pipe bottom in the S&P mini ESH9 chart
There is a 15-minute candlestick chart to the left. The pipe bottom patterns are marked with numbers 1 and 2. The movement potential is approximately equal to the heights of these bars.
There is a Bid*Ask Volume Profile cluster chart to the right, which shows the order flow and selling volume at each price level in the real time mode:
- the Cluster statistic indicator shows information about the delta, volume and percentage ratio of the delta in the volume. Information in this indicator could be adjusted – it is reflected in the cluster mode only.
- the Daily HighLow indicator shows dynamic movement of the day high and low. These levels are important, since the price stops at them, turns around or breaks this level.
We can see the following features of a possible trend change in the cluster chart:
- number 3 marks drying out of the buying volume in the candlestick high at the day high;
- the negative bar delta marked with number 3 emerged at the day high;
- decrease of the level of the maximum volume in the bar marked with number 3 if compared with the previous bar.
We can see a successive reduction of the maximum volume level of each of the subsequent bars and an arrow marks the beginning of this movement. The buyers try to hold the price and even push it upwards at 16:00 and a positive delta emerges, however, the volume is less than in the previous bars. The bounce effort does not find continuation. The peak of aggressive sells falls at 16:45. We observe the biggest volume and explicitly expressed negative delta. However, buyers appear in the subsequent bars marked with number 4. The aggressive behavior of the sellers did not find its continuation. And we again face the features of a short-term trend change – a positive delta on the day low, increase of the maximum volume level in the bar and drying out of sells in the candlestick low.
Advantages and disadvantages of chart patterns
- There is no need in modern software;
- You can calculate take profit and stop loss levels approximately, just measuring the pattern.
- Subjectivism. Some patterns look contradictory even for experienced traders;
- The patterns often fail on small timeframes. The movement potential is higher in the day charts.
Chart patterns exist for a long time and have their followers, who confirm efficiency of following the chart patterns by their careers. One of such competent followers is Peter Brandt, the author of the “Diary of a Professional Commodity Trader” bestseller. His Twitter account has a quarter of a million of subscribers and his favorite pattern is head-and-shoulders, from which we started this article.
We do not know whether Peter uses the cluster analysis. But you can easily do it by yourself. Try ATAS free of charge in order to increase your chances from trading by chart patterns, as it is shown in a simple example above.
Perhaps, someone as well-known as Thomas Bulkowski is, would write in the year 2058: “the technical analysis always worked perfectly, but the cluster one allows seeing what happens in momentum” .
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Automated management strategy that turns losing trades into winners using a unique hedging strategy.
Automated management strategy that turns losing trades into winners using averaging.
Day Trading EA
Fully-automated trading strategy that scalps untested breakouts of variable periods upon detected trading ranges.
Stop Reverse EA
Automated martingale strategy that turns your losing trades into winners using alternative directional trades.
Grid Trading EA
Profitable and mechanical trading strategy which has no reliance on direction and profits from wavy volatility.
Trade Manager Pro
This expert advisor performs position management for you, avoiding human errors and enhancing your trading activity.
What makes us different
We have more than 10 years of experience coding trading tools. It allows us to create complex, meaningful and understandable indicators and expert advisors .
Rest assured our indicators and expert advisors are properly coded to ensure a predictable and safe execution in your account.
Every single one of our indicators and expert advisors has been coded from scratch and with great care, without using third-party code or rehashing.
Our indicators and expert advisors offer a great degree of flexibility, and can be parametrized to match several trading and risk profiles.
No hype or false promises
We claim to create top-quality trading tools and nothing else. We will never appeal to greed, false promises or aggressive marketing to reach into your pockets.
Free trading tools
We are proud to give away most of our work for free. Hundreds of hours of work have been spent creating our free indicators and expert advisors .
Our premium trading tools are paid just once and include free software updates for life. Our indicators and expert advisors are regularly updated.
Support that cares
Our helpdesk is reachable 24/7 and makes sure no query goes unanswered.
This indicator detects fibonacci price patterns and offers a multi-symbol and multi-timeframe scanner.
Indicator designed to profit from trends, pullbacks, inside bar breakouts and possible corrections.
Intraday trading indicator designed for scalping, without backpainting or repainting. It has a 90% winning ratio.
The first indicator designed to detect baseline swings in the direction of the trend and possible reversal swings.
This indicator finds regular and hidden divergences on many symbols and timeframes, using lots of well known oscillators.
A natural and reliable reversal pattern present in all markets and timeframes, that precedes big market movements.
This indicator tracks the market trend with an unmatched reliability, by ignoring sudden fluctuations and market noise.
This indicator recognizes over 30 Japanese candlestick patterns on your chart. A must-have indicator.
Our mission is to create top-quality and unique trading tools for the Metatrader terminal, without hype or false promises. If you like our free indicators and EAs , kindly consider buying a product to support our work.
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