PATTERN BREAKOUTS
In my previous eBook “Forex Surfing” I’ve illustrated some common patterns
for you, so I’ll not reiterate them here (so you might want to reread those
sections for a refresher), but I will discuss how scalping methods can be
employed on those common patterns.
Patterns are a scalper’s paradise as they present two wonderful trading
opportunities. They first provide a range that a scalper can trade within
(elaborated upon in a later section), and then when they eventually breakout,
which sooner or later must happen, they present a second trading opportunity
known as a “breakout”.
It is common knowledge to traders that pattern breakouts usually result in
marvelous trading opportunities, however the vigilant scalper can often
outperform the other traders who use more conventional approaches to trading
those same patterns.
The most common patterns to watch for include:
• Sideways Consolidations Channels
• Triangles (all varieties)
• Flags
There are certainly other patterns to watch for (feel free to work with them
too), but here is one in particular that isn’t so much a “pattern” but is also a
great “breakout” opportunity:
• Breakout of previous day high/low
The method for the breakouts of Channels, Triangles and Flags is all pretty
simple. Look for those patterns in your larger charts, such as the 5-minute
charts or hourly charts (the size of the pattern doesn’t really matter – the larger
the better), draw your trendlines that confine the pattern configuration, then
simply watch your charts much like a tiger watches prey – ready to pounce at
the right moment.
When the market has penetrated the lines (preferably a significant penetration,
not just a marginal one that is likely to retreat back into the pattern) then
simply watch for a suitable scalping opportunity.
After the breakout, and once you are in a trade, be watchful for reversals, as it
is not uncommon for the price to retreat back into the pattern range. Often in
consolidation channels you’ll see a dramatic breakout but then an equally
dramatic retreat back into the channel. Most traders call this a “Bull/Bear
trap”, and when you see something like that happened you can be sure that a
lot of folks lost a lot of money (because they probably set an entry order just
beyond the consolidation range and a stop within or on the other side of the
consolidation range, which they got entered then quickly stopped out by). As
a scalper you have a definite advantage to not get caught in the “Bull/Bear
traps” because you’d have quickly brought up your stop to at least a
breakeven point, and hopefully scalped your exit at the first sign of trouble.
Even though “Bull/Bear traps” happen (which can get annoying for some
traders) eventually the market must break out of the pattern, and when it does
you simply pounce (like the patient tiger) into a scalpable trading opportunity.
Once such a breakout occurs you’ll potentially see some kind of a micro trend
happen. It can be a very short one, say lasting less than an hour and maybe
only 20 pips, or it can be much more significant. The general rule of thumb is
that the larger the pattern the larger the resulting breakout.
For sideways consolidations most traders use the idea that the width of the
consolidation is similar to the height of the breakout, so you can use this to
kind of estimate potential profits of the breakout. I understand this reasoning
but personally think it is flawed because the relationship between the
horizontal axis timeline on your chart is arbitrary to the scale of the vertical
axis price scale, but nonetheless I’ll go along with that common trader’s cliché
since it does seem to (very loosely) have some merit. This is certainly not a
“scientific method” by any stretch of the imagination, and so don’t be using
that model to base any limit exit calculations upon.
So to briefly recap (since I think I went off into a tangent topic), after a
breakout look for a scalp entry opportunity. Quickly bring in your stop to at
least secure a breakeven or preferably a small profit. You may then proceed
with the trade in whatever manner you prefer. The breakout will usually form
a micro trend of variable duration that can also provide multiple scalping
opportunities.
session during the Asian/European overlap time. The consolidation was
constrained between 1.2319 and 1.2331 (12 pips) and broke out at 03:00
EST. The end of this chart shown is 05:37 EST. What would you have done
had you seen this tiny consolidation?
Let’s now look at the other “opportunity” that was mentioned – breakout of
the previous day’s high/low.
candles of EUR/USD. Also notice that it shows the S.E.X. lines (as taught in
“Forex Sailing”), and a couple of resisting trendlines. What I simply want for
you to see from this chart is that as the prices change day to day, and as they
trend, that most days the price will at some point in time during that day break
through the price of yesterday’s high or low (sometimes on busy days it’ll
break both). Sometimes the breakout of the previous day’s high/low will be
marginal, and some days it’ll be quite dramatic.
Everyday make a note of the high price and the low price of yesterday’s
candle. Simply search for a suitable scalping opportunity when the price
penetrates through the previous high/low, and secure your stop at a breakeven
or profit as soon as you can, and continue the trade as you consider to be most
appropriate based on the market conditions you see.
To refine this concept even further use trendlines to spot potential trendline
bounces (as discussed in the previous section), and watch your S.E.X.
lines. Generally speaking, when the market is trending (as you can see with
your S.E.X. lines quite easily) you’ll mostly be interested in the breakouts that
occur in the direction of the trend, however, when the candles are far away
from the trend line and far from the mid S.E.X. line after a pronounced
movement in the direction of the trend then start to pay more attention to the
day’s high/low penetration in reverse of the trend to capture some of the
retracement.
Also notice that some days are trending days (that have moved significantly
from the breakout of the previous day’s high/low), and some days are just
“trading days” that didn’t move much at all. Notice on the chart how there
appear to be stagnant areas; almost like flags or consolidations on this large
scale. On such days the market might break through the previous day’s
high/low, but then retrace back into the range of the previous candle – watch
for a clear market reversal and just scalp a bit (if it appears like a nice
opportunity) on it’s way back into the range. We’ll discuss more about within
range trading later in this eBook.
Keep in mind that not every day will be a spectacular trading day for this
approach, but it can certainly be used advantageously to help you to catch
some nice pips.
The following technique, which is an adaptation of what was mentioned above
can be a HUGE OPPORTUNITY!!! Definitely familiarize yourself with this
technique as it could score you some unbelievable profits once in a while
(certainly not everyday, not even every week, but often enough). Properly
executed this one trade could potentially DOUBLE, TRIPLE, or even
QUATRUPLE your account IN A SINGLE TRADE!!! I can’t even begin
to tell you of the immense joy you’ll feel when you pull this off! Doing
this a few times a year can completely set you nicely financially. If you
could only trade one technique at all (thank God we don’t need to be
restricted like this though) then make this be the trading technique you
engage in. It is that powerful!!!
After writing this technique I realize that it is SOOOOO GOOD and
SOOOOO JUICY that I have to include it in “Forex Sailing” rather than
here. Go right now to that section and read it! Once you get the concept of it
you’ll probably be unable to sleep tonight! You can find it in the eBook
“Forex Sailing” and it is the section titled “THE INCREDIBLE
SCALP”. There are two specific techniques there that ALONE can be all you
ever need to do to score some truly incredible gains.
Go and read it now! After you’ve read it then you probably won’t be
able to sleep tonight, and if you don’t feel blown away with excitement
(like you’ve drank 20 cups of coffee) after reading it then you’d better
check to see if you have a pulse! Go ahead, find that section within “Forex
Sailing” now and read it. You don’t have to read that whole eBook before
you read that section, so feel free to skip right to it.
So here is a summary for pattern breakout related opportunities:
• Patterns are a scalper’s paradise as they present two trading
opportunities. (1) within range trading, and (2) breakout trading.
• Most common patterns to watch for include Sideways
Consolidations, Triangles, and Flags.
• Look for those patterns on larger chart time frames.
• Scalp to enter after a breakout.
• Watch out for “Bull/Bear Traps”.
• Breakouts usually result in a micro trend, so use the principles
applicable to micro trend scalping once one has begun.
• Additional pattern to watch for is the breakout of the previous day’s
high/low.
• Read “The Incredible Scalp” within the eBook “Forex Sailing” for
two powerful techniques.
forex sato
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