Learn to recognize the 6 key price patterns in trading

A chart stripped of all indicators will give you a fine reading of the behavior of the crowd that tirelessly shapes the recurring price sequences found in the markets.

Even today, I wonder about this regularity and harmony that presides over major movements.

Is there a self-perpetuating mass phenomenon? Like the famous self-fulfilling predictions?

Would the mass of traders anticipating a "known" price structure participate in its creation, formation and repetition?

In my opinion, no. In any case, not consciously.

I am convinced that the crowd of millions of traders and investors acts in the same way as a school of fish or a flock of starlings (a beautiful phenomenon to watch, called "whispering") and thus constitutes a homogeneous group in which each individual participates in a natural but unreflected global movement.

Chart analysis allows us to read each time a specific story and very often we can see that the most powerful movements emerge from harmonious and orderly bases.

And the less interference, and therefore the fewer indicators, derived from price or volume, the better your understanding of the story this crowd is telling you.

Don't forget that the crowd follows its leader, which is the price. So why look at anything other than the price? Everything else is just a distraction in my opinion.

The price is more than enough to not only see things with an objective and unbiased eye but also to follow the movement as long as the trend lasts.

Adding an indicator like RSI, MACD or any moving average will not only limit your ability to observe and analyze things as they really are and not as they should be but will also limit in most cases the amplitude of the movement you will be able to capture.

How many stocks have I seen cross all the "logical" price levels, all the reference moving averages that most people considered as ceiling price levels, not to mention the RSI that was already at a block level halfway through the movement?

This is a strong opinion I have on the matter but it is supported by an in-depth empirical analysis of the subject: price and volume are enough and the less indicators you use the better, generally speaking.

I don't want to offend those who use indicators in their trading activity and their approach can be quite profitable for them.

I'm just an advocate of keeping it simple.

Let's get back to the subject at hand, namely the price/volume structures that have a sufficiently reliable statistical advantage to consider dealing with them systematically.

I am not the author of any of the following structures.

Most of them are well explained and documented.

And this directory is not meant to be exhaustive and you may well discover other structures but I only use those so far.

This means that it is useless to reinvent the wheel and that it is essential to use what has been discovered and worked before us.

However, these configurations are not an end in themselves. Many structures that look like the ones I am about to present to you may fail.

But with experience and when you have "read" and analyzed thousands or hundreds of thousands of charts, you will be better able to distinguish between the most reliable structures and those that are much less reliable.

The brain is an unbeatable tool for recognizing the slightest nuances in the quality and harmony of a structure as long as you feed it enough of what to observe.

One last word before starting to analyze and read these different patterns: recognizing price sequences is a first step towards consistency and performance of the trader but it is not enough.

It is necessary to integrate this expertise into the larger framework of a complete trading system that includes risk management, control of your emotions, backtesting, a logbook, an exit strategy, discipline, etc.

My credo is and will remain: "a good trading strategy is not enough to be consistently successful".

I took the option of not putting arrows or additional indications on the chart, on the one hand not to overload it and make it unreadable and on the other hand in an educational interest so that you can start to get used to read naturally the story that these charts tell you without unnecessary frills.

For each stock, I have produced here first the chart of the day of the entry bar and then a second chart of the movement that follows this break.

Finally, you can click on each of the graphs to enlarge them.

A very classic structure and highlighted for the first time by the great William O'neil.

It is a structure that is generally formed by an initial upward movement (1) followed by a downward movement that forms the bottom of the cup (2), a recovery that stops a little below the previous high and then a plateau with a slight overhang (the handle) (3), during the formation of which the "weak hands", impatient, progressively exit just before the upward explosion at the time of the breakout.

The pivot point, i.e. the optimal place to enter, is the high of the handle (here around $2.35).

Note that the recovery stops below the high of the structure. Many traders who bought at this price level exit before the value reaches their cost price, happy to exit at a lower cost.

The break of a resistance line is a configuration that can be very powerful. It appears as a fairly long period of consolidation (sometimes several months) relatively homogeneous like a Flat base with at least 3 unsuccessful attempts to cross a clear resistance level in the form of what I call volatility spikes (reversals on large volumes).

The crossing of this resistance is often done from above on record volumes with a gap.