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FOREX Chart Of The Day: TREND TRADING PATTERNS

Following last week’s ‘the trend is your friend’ video we are looking at trend trading patterns.
What are the key patterns you should look for when trading the trend?
Follow the link to learn more…

Hi, and welcome to this Blueberry Markets video update, with me, John Kibbler, Head Currency Analyst.

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In this video, it’s not going to be different from last Monday’s. On Monday, we did GBP/USD where the trend is your friend. This week, we’re going to do trend continuation patterns, and we’re going to use the GB Pound again, and the reason we’re doing this is to show you the key things to be watching for when you find that trend. I believe as a trader, one of your jobs is to find that trend because it’s easier to make money in a trending environment. I like to find that daily to four-hour trend. There’s a couple of different examples and I’m going to use the recent example that we’ve looked at for the GB Pound. We’re going to dive into that in a bit more detail then I’m going to go over some older examples on different timeframes.

If you want to look for simple trading opportunities, I like to look at this daily timeframe.

The first example we’re going to go through is a buying opportunity and what we should look for to continue trading that trend. The first step is to look for a trend, which appears here, with this higher high. Once the market has created that higher high in the daily timeframe, it allows me to identify an area of support and an opportunity to potentially buy the market if we see the right conditions in our lower timeframe.

The next step, once I see that higher high, is to look for a price to pullback to an area of support. I’ve marked out 1.2250; it’s open and closes. I like to use the candles’ bodies as the main area of support and resistance, but I also do zones with the tips and the wicks, especially on those lower timeframes. But, we’ll go through that in more detail later.

Right now, the next step is to look for daily timeframe buying opportunities. I want my daily candles to be in a trend or in an uptrend, and then what I’m going to do is place our support and resistance and then wait for an entry.

What I do is set an alert at that key level. Once the market hits that key level, my next step is to dive into the lower timeframe and look for an entry. One way you can do this is by looking at those hourly charts.

What I look for is something called ‘trend confirmation’ patterns or changes in simplicity. You may hear me say things like ‘changes in simplicity’ a lot. That means that when the market trends, we have phases, we have impulse phases, and we have retracement phases. The market is essentially pushing to the upside in a trend, slight retracement of that – you may have heard it called a ‘slight pullback’ as well – and then another impulse move. And, what we’re expecting is for the market to continue to do things like this. So, within that, you get a smaller timeframe trend. If I change the color of this in the daily timeframe, we go for a one-hour. So, the one-hour within this would be something like this: the mini-trend to the upside.

What we can do is trade these impulses on that lower timeframe. So, what I do is look for the daily to retrace back to an area of support. Let’s say we look left: this is our support area, we’re looking to buy from this area here. We would see a pullback on the hourly, and what I’m looking for is a trend continuation pattern or a change in cycle pattern, and that to me is any double-bottom for an uptrend. We look at double-bottoms, inverse head and shoulders patterns, and normal changes in the trend where we get a higher low and a higher high. So, for this instance, here on the GB Pound, prices are in that pullback move because we’re getting lower lows and lower highs. The market pulls back in, and it pulls back up again.

Again, nothing’s changed. We’ve hit our level but nothing has changed yet. What I need to see is the market to form a higher high. So, what we get is another pullback, a continuation move. A lot of traders may think that price is continuing to push to the downside here. We then get a four reversal, and the market forms a higher high with this candlestick close, here.

Now, there are two ways you can trade that: you can either buy that candlestick and place your stop losses below the swing low or wait for a pullback so you could mark out a little bit of an area, which would be these highs down here. These would be your support zone, looking to be bought up. We don’t quite make it. The market then moves around a little bit, it doesn’t go as we expected it to, but we do get a little bit of an inverse head and shoulders pattern forming at that point. We can buy the dip because we’ve got our trend confirmation bias. We’re looking for buys because the daily timeframe is bullish. So, we need the one-hour to become bullish as well, and the only way it does that is to become an uptrend by forming a higher high, which happens there. We can look to buy the market after that point, which would work out well.

Last week, we looked at selling GB Pound for the same reasons. But, we were looking at the daily downtrend. It was one of the only markets that were looking to form a bit of trend going into last week, and you can see, here, the reason why we were looking for that short was that the market came down and formed a lower high; we were looking for resistance at this level. It found resistance then it started pushing to the downside. What you could look for, here, is one of our trend continuation patterns. When price pulls back into that zone, you’re looking for trend continuation patterns.

I like to dive in and look at the hourly timeframe because an hourly is a good scope of what’s going on when you’re looking at your daily timeframe. Also, I like to look at the four-hour, 15-minute ratio, which we’ll go through in a second. But look, the market comes back; it’s trending to the upside. It’s trending to the upside because they saw that daily retracement phase. So, the daily would be looking at one straight line to the upside. The market then breaks down and forms a double-top pattern here; double-top, retested that high, we have a neckline there, then the market breaks that neckline. That’s a good idea to look for short, stop-losses above the high. Look for the market to play-out to the downside — good opportunity there.

If we look at it from a four-hour point of view, I like to say the four-hour is a good midterm. I like to look at the daily close, which is bearish for my support and resistance. Then, I like to enter on a 15-minute timeframe, a change in cycle or a trend continuation pattern.

So, we can see here, on the four-hour timeframe. I believe we pointed this out in one of the videos as well, which was the fact that we were looking to get short around here because the market is finding some support and resistance. And we can even look at it today, the market came back and retested the wick lows there. We’ll have a look at those as well.

The four-hour is trending to the downside; what I would then be looking at is the zones again. So, I’ll be looking at the opens and closes down to the wicks, and I’ll be looking for a price to enter that zone to then look for a trend continuation pattern.

I’ll dive down into a 15-minute timeframe. We can see those patterns come into fruition when the price gets into that zone. We’re looking for the market’s pullback first. It’s moving in an uptrend; we get another move up break. The market breaks to the downside here. You could look to short there, place your stop-loss above the highs, wait for the market to play out or wait for a pullback, then wait for a trend continuation candlestick.

The next step is the market’s impulse to the downside; we wait again. The market is trending back to the upside. Boom – double-top faker at the top, there. We break the candlestick low with this candlestick, here; the market is now breaking to the downside.

So, there are really simple patterns at key structure points. What we’re looking for is the daily to one-hour areas, or you’re looking at your four-hour combined with your 15-minute change in cycle.

I hope you enjoyed this video update. I hope you learned a lot. If you did, please give it a thumbs-up, and I’ll catch you in the next video.

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