(Trading Tutorial ) How to trade using simple patterns

"I am going to use a 200 EMA and what I'm going to do is just draw on the chart and we'll just pretend that this is the EMA this blue line you see here okay so as for my strategy the way I've chose to make these rules what I will be looking for I'll use green for Price action what I'll be looking for is a break above the EMA a pullback and a new high"

"I'll be looking for any type of simple price action pattern from a flag to a triangle to a pin it and also any kind of wedge patterns so what I'll do here is just draw in a little flag pattern and this is what I would be looking to trade when seeing this kind of formation here the big impulsive move up that breaks previous structure after after breaking above R 200 EMA I'll be looking for two resistance levels to be created one below the other and I will use that as a basis for my flag pattern"

"and I'll be using this same technique for penants as well you can see another break above a previous resistance level which is the first thing I'll be looking for using the rules that I've created for simple patterns is a break above a previous resistance level and then a pennant formation that broke out to the upside"

"as for triangles ascending and descending I can use this same way of trading after a breaking close above previous structure which is what I'll be doing but instead of only being able to trade the breakouts from the upside on the ascending and descending triangle uh have made a rule that states that I can trade an ascending or descending triangle as long as we don't break below our previous lows"

"so here would be our previous lows our previous lowest lows and what I mean by that rule is that I can trade a triangle from any point between the lowest previous low here and the higher high so any point between there I can trade an ascending or descending triangle and and trade the breakout in the direction of the underlying Trend"

"so now that you have an idea of what I would be looking for on the charts while trading the simple patterns we'll go ahead and go down to the charts of the euro dollar over the past couple of months and see what we can find all right guys so now I will take you through the euro dollar chart of the last few days and show you some trades that could have been taken based upon the rules that we created earlier in the video uh the first thing that I did was just scrolled back the chart to the first place I saw that we have come down and touched the 200 EMA which is here so once we've touched that 200 EMA according to my rules I'm waiting for a break above the 200 EMA see if we get it yes we do now I'm waiting for the creation of a high here's the creation of a resistance level and now according to my rules I'm waiting for a break above that resistance level little pull back here and still waiting on the break above we got it here and now we can start looking for some of those simple patterns a flag a pennant or a triangle pattern obviously here we have created new higher highs and here we have created a flag pattern our pole looking like this the resistance level being here for the flag pattern and our support levels being down here waiting for a break and close above we get it there"

"and targets would be higher than this but I would have to move the chart over and the whole point of doing this is to not see what's in front of you on the chart so we got a nice Target hit let's assume we're taking a one to one risk reward"

"and now we're looking for any other simple pattern because of the break above our previous resistance level here was our previous resistance level we obviously broke above it so now we wait on any kind of simple pattern there's another resistance level here from here now we can pull a flag pattern from resistance to resistance"

"obviously you can take much more than a onet to one risk reward for your targets you can use extensions or inversions you can use an extension of your previous low to high here and down and take your targets at a 127 a 1414 or a 1618 extension"

"and you can also do what is called an inversion which would be from your swing low back to your previous swing high so we would take from swing low up to swing high back down and as you can you can see you could also then put your targets at a 127 1414 or 1618 also"

"I have customized the extension tool to give me a two times any extension I draw so what this two in red up here is is just two times this move from here up to here and that's a way I'm testing to take Targets on some of these simple patterns"

"so assuming we took a one: one here we have hit targets and are still looking for simple patterns we have created higher highs so we are in the process of looking for a triangle a flag or a pennant any one of you that are familiar with an ascending triangle we'll see that here we've put in multiple resistance levels and higher support levels this is an ascending triangle and what we would do in this case is wait for a breakout only in the direction of the underlying Trend which is up so we're only waiting for a breakout of our top line of the ascending triangle if this bottom Line's broken then that is irrelevant to the process we're using here we have a break and close above our top line"

"so stops go below the swing low and targets one: one or which whichever type of Target you choose and if we scroll forward you'll see that we would have hit targets there and now we've just kind of fallen off the edge here back down in previous support levels"

"all right guys so here we are on the New Zealand dollar 5 minute chart and a couple of hours ago we went short this pair because of a pennant formation that formed after an impulsive move down so what I'm going to do now is just walk you through some of the analysis that we did in order to get involved in that penet formation you can see here that we have broke below our 200 EMA and according to my rules I need a rally which we get here break below rally and another lower low created and now if we scroll down we'll see that what we were looking for is a penet or a flag formation and right there I already view this as a penet formation you may ask why well because we've come down we've put in a support level a resistance and a higher support at that point I see this as one of two things either a penet formation or a descending triangle either way I want to trade this on a breakout of the support levels"

"so I'll go ahead and draw in a line for those support levels and we can also draw in these resistance levels since this one here was created we can draw these resistance levels in and you see that we have a pennant now what we're interested in is selling the break below those support levels as you can see there this candle here we had a break below the support levels and once we came up to retest the line is when we went short"

"and with a stop that was above our previous resistance and it Target that was based on a 1618 extension of our previous swing High down to swing low so that's where we took our first targets off and now we are still short half of our position waiting the continuation of the trend to the downside"

"so what we did was came down and formed a pinit formation at this point right here I know what I'm looking for I know that I'm looking for a break below these support levels why you might ask because we have just put in an impulsive move down and this second support level tells me that we are either in a penet formation or a triangle formation and either way I want to sell the break of that support level"

"and my second targets will be based on an extension of the bigger most previous move which for me would be from this resistance level here down to support and back up and I will be looking for a 127 extension for my second targets"

"it looks to me that we are actually creating another another ascending triangle here in fact we are and if if I was not already clearly in this trade this would be another trading opportunity I would be looking at"

"all right guys so we sold this ascending triangle here as I said before in the rules that we stated earlier I am allowed to trade triangles at any point as long as I'm with the underlying Trend we came up put in an ascending triangle and we sold the Breakout here on this red Candle on the New Zealand Yen 5 minute chart"

"and for our reward I just wanted a little better than a one to one for today's example and as you can see we are pressing down now and getting pretty close to H our targets so hopefully this Market will continue down and we will be taking out for our take profit and I believe I'm going to trade this with multiple targets today"

"so I'll be taking out for first targets here at that point I'll move my stop loss down to break even and see if we can get some kind of trend continuation to the downside as you can see this Market has been bearish for the past couple of days"

"here on the 3 minute chart you'll see that we have actually put in a descending triangle as well and broken through the support level of that descending triangle just a few minutes ago we'll draw in our support level here and our descending resistance here so with this being the case what we are expecting to happen here is after this impulsive moved down this period of brief consolidation in way of a descending triangle the break through this triangle and hopefully a considerable move to the downside to continue the overall trend in the market which is down"

"and there we go guys targets filled on the New Zealand Yen trade we filled the targets for half the position that we were in we had a 400,000 unit position and now we are down to 200,000 units and we have now put $150 in the bank our stop has been moved to break even and we're just waiting to see if this Market continues to press down in Trend continuation second targets are going to be down at previous structure"

"and what I'm going to do is just as we break below the lows I'm going to to manage this position by placing my stop loss above the previous resistance for instance my stops are at break even now but if we manage to get a little more of a close under this level then I will be managing the position by placing my stop Above This resistance level and so on as the market continues to move down if it does in fact move down at all from this point so as we come down to my secondary targets all I'll be doing is taking my stop loss after every breaking close below a previous low and moving it down to above the previous High breaking close below the previous low stop loss above the previous high and that's how I'll be managing this position until we hit if we continue to press down towards Target number two"

"all right guys so as you can see trading these simple price action patterns can be a profitable strategy if you implement them in the right way if you create your own set of rules like we did here today and you test these simple patterns using the rules that you've created to see if it's profitable over time then you have an opportunity to create something that that could turn you into a consistently profitable Trader"

"and I know I talk a lot about back testing and guys let me tell you why back testing is not the most fun it takes a very long time it's hard for a lot of people to do some people enjoy it those people are weird no offense to you if you're one of them but back testing is not very enjoyable to me I just know that if I don't back test my emotions will control my trades"

"and you have no idea what the statistical probability of being right is in that trade then you should be scared you should be worried about placing that trade because you are living in the realm of the unknown but once you back test the strategy and you see that out of a hundred trades if you would have taken every one of them in the same exact way using the set of rules that you have applied to your strategy that you have been right 70 out of those 100 times or 60 out of those 100 times and you know that you on average had more than a onetoone risk reward then it becomes effortless it becomes emotionless"

"more importantly back testing is the only way to take the emotions out of trading in my opinion or at least that's been the case for my trading I found no other way to keep myself from getting emotional once I had real money on the line other than back testing a strategy for years for hundreds of Trades to see that if I do consistently place this trade in the same exact way I will be profitable over the long run"