Price Bar Patterns You Must Know
Hello Traders, Thiru Nagappan here, founder of Master the Markets, Elite Traders Conference and The Traders Open Day.
Today I want to share with you this topic on a Price Bar Pattern You Must Know.
This price bar pattern is actually a reversal pattern and it’s really good because, as you should know by now, reversal patterns are meant to capture really big moves. This would be of interest to you especially if you’re a swing trader. Let me explain.
First, we’re looking at an up-trend. Let’s say if you’re looking to short this market. So in an up-trend, rather than just saying ‘This will overextend the market, I want to start shorting it right now’ – no, let’s get a few steps in place. I’m going to explain this bar pattern before you actually short the market.
There are three points. Firstly, the market needs to be in an up-trend. Secondly, we need to be looking for the last most recent swing low to be taken out. When it is broken at a particular level it is what we call price structural failure (PSF). It needs to break the last swing low. The third thing is it needs to now retrace and the most important thing here is that this swing low has got to confirm – swing low confirmation. After that once the set-up has happened, then we can look for short opportunities and that’s where we then plan to get into the trade.
There are a few aggressive ways to enter. Firstly, once the swing low is confirmed we can already put a short on it as one way of entering it. That’s very aggressive, I wouldn’t really advise it unless you have all your research done and all your stats are in place. The next one is you can wait for it to turn and do a specific price bar pattern. A very simple one is where it is falling and that’s what we call a momentum pivot. Then you can start to enter it, so we call it minor confirmation. This is less aggressive. The third one, which has higher reliability but a bit late is where we have major confirmation. Major confirmation is when a swing high gets confirmed. So these are the three ways in which you can enter it but you only enter it after you’ve got these three points confirmed. First, it has to be an up-trend in the market. Second, it has got to go to price structural failure, it breaks the swing low. Third, it’s got to retrace and the swing low has got to be confirmed.
Finally, the last thing is you’re looking for points to enter into the market. Possible target points – definitely one you can look at is for the swing low to be taken out. Actually Traders, do you know the probability of that being taken out? What would be the probability of this trade if you entered at one two or three for it to take out the swing low? We know the stats. What I want you to do as homework is quite interesting. Go and look at these patterns and see how many times does it really break the swing low that has formed after breaking the price structural failure and retracing. Send us your answers and comments and if you have any queries or challenges, always email us.
Now in terms of the opposite way and how it actually forms if you’re looking for a long, you should be looking for a down-trend and instead of calling it a price structural failure we call it a price structural break. Finally it has to be a swing high confirmation. So we have down-trend, finally we’re looking for the last swing high to be taken out and then it reverses, comes back down. Then you’re good to go. As I said follow three steps when you look to enter into the market as I explained before.
Traders, the final point I need to tell you about this price bar pattern is so critical because if you do not have this, the whole price bar pattern is invalid and you won’t be able to constantly identify it. It’s the swing lows and the swing highs because if you do not have a consistent or quantified way of measuring the swing lows and swing highs in the market, you can’t identify this pattern in a consistent manner. You’ll always have doubt as to whether you’re entering it right or whether you’re seeing it right or whether it’s really the right price bar pattern. We call it a variation 5 set-up. There are six variations altogether in the market which forms a trend. This is one which is called variation 5.
Definitely go around and look at these set-ups and if you have any challenges at all such as quantifying swing highs and swing lows so that you can constantly reproduce it, please email us with your indicators that we have put into place where it can constantly map out the swing highs and swing lows in the market so as to help us achieve consistency.
I believe this has been very useful. Over to you now, find these bar patterns, do some research on what the stance of these bar patterns taking out the high or low for the short. Until the next time, as we always say, stay disciplined, follow your trading plan and keep Trading Like a Master.