Greg Secker – U.K. Market update brought to you by Traders University

Two types of chart patterns

• Continuation patterns

Trend Continuation patterns

• Excellent trading opportunity as with the overall trend and will generally be above both of the major moving averages.

• Reversal patterns
  • Occur at the end of a trend and are a signal that the trend is likely to change direction
  • Are a slightly higher risk trading opportunity as they may be against the long/medium term trend and they tend to form on the wrong side of the moving averages
  • Can be very profitable when you get them right as you catch the start of the move which is often the most powerful

Locate and stalk the trade

Ideally you would locate a chart pattern while it is still setting up

You would then stalk it until it finally breaks out. Use the portfolio function in Sharescope to build yourself a list of stocks that you are stalking

How do we enter and trade chart patterns?

• Option 1. – Enter on the day of the breakout by setting an ‘if done’ order to enter the trade just above the resistance line ( note, you will not be able to see the current volume or Level 2 therefore you could be subjected to a higher number of false breakouts)
• Option 2. – Enter on the day after the breakout has occurred
  • Ensure the breakout day has closed above the resistance line and the volume has increased
  • If you still wish to enter the trade, you will enter the next day just after the open with a stop loss just below the resistance line. (note, this is the more conservative option however you will often miss the move)

Entering breakouts – intra day traders

• Wait for breakout to occur
• Check volume and level 2
• Decided whether to enter or not

Placement of stops

• Aggressive – place the stop below the resistance breakout level
• Conservative – place the stop below the uptrend level
• Alternative – place the stop below the resistance breakout level and alos below the 50ma to provide even stronger support

Exiting the trade

• Set a ‘limit’ order to exit when your target is hit, OR
• Run a trailing stop. Ensure you give the stock enough room to move before trailing your stop. This is an individual decision based on your risk profile, but ensure that you do give it some time before moving your stop. Trail your stop to just below the low of the previous day