Over the next week, I want to share with you the most valuable, accurate and profitable chart trading strategies I know.
As always, they’ll be completely free for everyone and hosted here on the site. In the next few articles I will be zeroing into three (3) of these powerful patterns and I encourage you to make sure you read each article and test these out in your own trading.
When you hear terms like “price action” or “chart patterns” or “technical analysis” we are talking about the same thing…
The idea is to interpret market behavior visually and use this information to profit from the inevitable reaction of other market participants.
Take the “double bottom” pattern for example. It is generally accepted as a reversal pattern signaling a move higher.
Below is a weekly chart of Alphabet (GOOG). It doesn’t take a professional technician to spot the formation at the $665 price area.
And, like a good pattern should, it worked. The double bottom low held and shares soon traveled higher.
But why? What makes this pattern and so many others work?
What Makes A Pattern Tick?
It’s not Wall Street voodoo? Price action is simply giving a visual representation of market sentiment.
In Alphabet’s (GOOG) case, traders were rejecting prices below $665. At this price, buyers stepped in on the belief that shares were worth more. A single occurrence could easily be random. But twice? I don’t think so.
If you look closely, you’ll even notice a volume spike at each of these lows as well. This is further evidence of GOOG buyers taking long positions.
But most traders don’t care about market sentiment. And why should they? Who wants to pour through mountains of tick data when a simple chart pattern tells the same story?
If you’re overwhelmed with market statistics, don’t have the patience to analyze ever-changing financial news, or simply don’t want to waste your time…technical analysis could be for you.
And to shorten the learning curve even further, here’s the first of my three favorite chart patterns.
The High & Tight Bull Flag Pattern
The first is called the High & Tight Bull Flag pattern. It is a bullish breakout pattern designed to signal the start of an up move. Tom Bulkowski ranked it #1 in his 1,012 page “Encyclopedia of Chart Patterns.” And for good reason.
After exhaustive research, he concluded “None of the 307 patterns I looked at failed to rise.”
William O’Neil, author of How To Make Money In Stocks called it “…the strongest of patterns. Many stocks can skyrocket 200% or more off this pattern.”
But enough hype. Let’s break this one down.
The 3 Stages of the Bull Flag Pattern
The formation of the High & Tight Bull Flag has three stages.
- Stage 1: Price trends sharply upward forming the “flag pole.” This rise should happen in less than 2 months.
- Stage 2: A consolidation pattern forms after the rapid rise higher. It can look like a flag or pennant, as long as there is a pause in the price rise.
- Stage 3: Price breaks out. The pattern is confirmed once the stock or commodity closes above the highest peak in the pattern.
Here it is in action with Endeavour Silver Corp (EXK).
**Keep in mind that the great thing about price action patterns is that it works in all markets.
After a quick 80% jump over 8 trading days, the flag pole is in place.
Following the flag pole formation, price begins to consolidate and form a flag. You will likely see decreased volume during this period as well.
Finally, the pattern was confirmed once the stock broke above the highest price in the flag pattern. When this confirmation takes place, we have a very clear BUY opportunity with virtually unlimited profit potential (especially if there’s a powerful trend behind us on the longer term charts).
Here’s another from Achillion Pharmaceuticals (ACHN).
After a quick spike formed the flag pole, volume subsided and the stock consolidated in a tight range for almost 2 months. High & Tight Flag traders patiently waited for a break of the flag high at $8.61.
Once the pattern was confirmed, Achillion continued its move higher, advancing 52% in less than a month.
Here’s one more from Medicinova (MNOV).
This pattern happens over and over again in the market on every time frame and every instrument. And, if you’re “picky” about making sure it is a high and tight flag that you’re trading, your win rate will be exceptional.
Managing these trades is a breeze also. We simply protect the trade with a stop below the flag (so the market has room to re-test) and trail the stop with whatever trailing strategy you prefer to get maximum value out of this powerful trend continuation pattern.
So there you have it! That’s the High & Tight Bull Flag Pattern.
As I mentioned earlier, it’s one of the most consistent patterns in existence. If you’re looking for a good price action pattern to start practicing, then I highly suggest you start with this one!
The most successful traders aren’t people who have gone out and learned every trick and pattern that exist. They are the people who picked a select few and kept practicing them over and over, until they became masters at them.
So pick one or two patterns and stick with them.
What separates the winners from the losers is persistence.
Those who push through and don’t quit, they are the ones we remember in history.
In the next few days I will be releasing FULL guides on the next 2 patterns I want to share so that you have a full arsenal of price action strategies at your disposal.
Looking forward to your feedback.