Trading the "U" shaped pattern

This system is very simple, and easy to trade, and we will see how profitable it will be in the long term

On this thread we will trade the "U" shaped pattern, which is very very very frequent on the EUR/USD, it repeats in almost every HOUR!
(on M1 timeframe) The pattern is a volatility based pattern, which by default means that we will look at the volume to check the breakout, and possibly the ATR indicator can also be used.

Here are the characteristics of the pattern illustrated:

The bearish version of the pattern:



The bullish version of the pattern:



Characteristics:

1. The pattern always starts with a breakout in either direction, which consists of 1-3 long candles, short candles dont count, the longer the candle the bigger chance for the pullback to happen
2. The initial breakout is always accompanied by a volatility/volume increase, so if you trade with MT4 like me, you might wanna check the volume for increase, or you can use a period 14 ATR to check it.
3. The pullback is usually bigger or the same size as the initial breakout
4. The second phase of the pattern, when the initial breakout is over, is a consolidation or a range phase, when the bulls and bears fight to control the price, this is characterized by a constant, yet similar volume level.A consolidation phase, with small candles is better, but a ranging whipsaw phase is also acceptable,but it must not be bigger than the breakout candles range. So small consolidation candles have a higher chance for pullback
5. The consolidation phase has also a higher chance for pullback when the candles are flat and following a S or R line, if they are rounded, like the rounded top pattern, then its not valid, so they must be aligned horizontally after one another without any inclination, an inclidation in an angle suggests that the pattern is not as valid.
6. The third phase is the pullback phase,when the price pulls back itself to equilibrium state, since the initial breakout is so big and unsustainable the price must pull back itself to the original balance state, this is what we will trade, the pullback!

How to trade it?

1. Recommended pairs: High volume, high volatility pairs, with preferably small spread.And also must be a very choppy market, trending markets are not that good for this, so obviously the best pair to trade is the: EUR/USD
2. Recommended timeframe: Any timeframe you want,it appears almost as frequent on every timeframe,but if you have a big daily average spread , then try higher timeframes like M15 or M30, but i can trade this pattern even at M1.
3. Recommended time to trade: Well since we trade the EUR/USD, try to stick yourself in high volatility time, so it should be traded only between the LONDON-NEW YORK session,you can check the FOREX FACTORY calendar to see what time is that, 7 AM -> 9 PM usually @ GMT +0 in summer and 8 AM -> 10 PM usually @ GMT +0 in winter.
4. Market type to trade: avoid times when the market trends, it works better in choppy ranging markets

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ENTRY CONDITIONS: A breakout in either direction which lasts 1-3 candles, accompanied by a volume increase

ENTRY POINT:

1. After the initial breakout is over, wait a bit to see if the consolidation starts to form
2. NOTE: small candle consolidation is better than a whipsaw ranging phase
3. After you see the consolidation formed enter in the opposite direction than the initial breakout, so for the "U" pattern, go bullish (BUY) and for the inverted "U" pattern go bearish (SELL)

STOPLOSS: A few pips above/ below the maximum high of the consolidation, so if you waited 2-3 candles after the initial breakout, and see that those 2-3 candles are in consolidation, then just check the maximum high or minimum low of the candles and put the SL above/below it by a few pips (YOU SHOULD HAVE A POSITIVE RR, SO SIZE THE SL ACCORDING TO THAT)

TAKEPROFIT A few pips less than the low of the initial breakout candle, since we know that the price will only pull back to the initial level so we must cut our profit earlier than that in case that the price stops a few pips before.

You can customize the TP/SL levels but you must note that you should have a positive RR, meaning the TP winning to be bigger than the SL losses.

Here is my yesterdays trade example how i traded this pattern:



I hope you can understand now this pattern, good luck trading it!

Last but not least:

RULES OF THE THREAD:

1. NO TROLLS, any troll will be banned immediately!
2. (Try to) stay on topic!
   
3. NO FLAME WARS, and NO INSULTING EACHOTHER, try to keep this thread an intellectual debate!
   
4. Trade this system and show picture of your trades,your observations about the system & the pattern, and help improve this system!

EU is just useless most of the time. Gbpaud and EJ are my prefer fav's currently, slighty had on the spreads but 3 times the range so worth it.

Good luck,


P.s. it's M1 so don't expect a big response it's shunned pretty much here.

I traded 4 trades with this pattern already in the past 2 days on the E/U, and won all 4 of them, its a very powerful pattern

I dont know about GBP/AUD, but with E/J you might have a point, but still i think the E/U is decent too, however i didnt tested in on other pairs yet.

The E/U since the crisis, just got very choppy, and this is perfect for our pattern, the EUR/JPY seems to be trending which is not that good for this pattern.

As i said in the first post, the pattern can be traded on any timeframe, it appears in all timeframes equally much,and very frequently, the fact that i choose M1 is my personal choice, but anyone not comfortable with such low TF can trade it on any timeframe they wish

Here are a few examples of this pattern on higher timeframes, for longer term traders:

Hourly chart:



Daily chart:




NOTE: As you go higher and higher in timeframes, the volatility increase caused by the breakout is harder and harder to detect, because the news which cause those breakouts have a smaller effect on higher timeframes, but the pattern is still valid, because a large enough breakout will always trigger a pullback of some sort!

So you might have to check the size of the breakout candle on higher timeframe instead of the volatility or just use an ATR indicator set to period 14 like in this picture, so an ATR is better for higher timeframes than the volume indicator:

I will post similar trades only I use a slightly different set of criteria .although the basic principle is the same.i also only trade from 1 min chart.
I only trade cable
Good luck with the thread

Dice

The GBP/USD is 70% correlated with the EUR/USD so i guess it will be very similar, it's only different by the spread, but still similar, so good luck with that

Anyway, the pattern is the objective here, so any choppy & high volume market will do the job.

I personally dont use candlesticks for my trading decisions
but I thought you may find this of help................may save you some time
Good Luck!

I have all of his books, but ty anyway.But still this pattern is a good idea to trade

Besides he uses stock markets to find patterns, and this is a forex forum, and i know that forex and stocks markets are not very similar in terms of patterns.

Stock markets are more speculator oriented than forex, forex is just a part of the general economy, and speculators dont have so much power here, so it may be that not all patterns which work on stocks will work on forex, but this pattern works on forex,and i dont know and dont care how well it works on stocks, because i only trade forex

PS: Although maybe i should use Bulkowsky's method to quantify this pattern and do a full statistic analysis of it, but on forex historical data not on stocks

Very similar to this I think.
www.forexfactory.com/showthread.php?t=402865

What do you think?

Yeah i havent searched the entire forum to see if there is anyone talking about similar things.But the difference in this thread is that we only trade the pullback, since the initial breakout is probably unpredictable, so we wait for the consolidation which is the signal for the pullback.This will maximize our chance to get the trade right.

I just thought it might be of use for understanding your method better. The thread I posted also describes entry after consolidation to trade the pullback.

Hmm, ok then, thanks for posting, i will check the thread and see what i can learn from there to incorporate in this system too.

Prox, have you been able to pin down WHEN this pattern is likely to emerge? That is job one, I think.

Does that matter?

We just wait for a breakout, check the volatility increase, and then wait for a period of consolidation, and then trade the pullback.Doesnt matter when the pattern comes, just check the chart frequently and when you see a breakout of this kind explained in the 1st post, just trade the pullback and profit

Here was a typical bullish U pattern which ocured yesterday, right after the 13:30 GMT+0 USD Unemployment Rate , Non-Farm Employment Change, Average Hourly Earnings m/m report.

According to the FF calendar, the unemployment rate got less in the US which is positive, but the hourly earnings and the non-farm jobs were less, so this triggered a huge bullish candlestick at the EUR/USD , so anyone who traded this should have observed it.

However we dont trade the news because its very uncertain, but we only trade the pullback which forms a "U" pattern:

It was very visible on the M5



Just waited before the bulls calmed down, and then a quick retracement happened, this could have been traded also, but i think the spread was still big, so just waited, and saw that consolidation appears, this was a good sign for my "U" pattern to happen.

Volume increased from the aftermath of the news, the bearish pullback was the breakout, then the consolidation/range phase, here i entered long, and as you can see, the price retraced itself back to a higher level, thus this long trade was also a winner

So you can see now guys how powerful this pattern is

Add it to my range direction method ( I posted it elsewhere yesterday so I have that )



Hint, this happens a lot!

Is it right pattern???
скриншот

http://SSmaker.ru/831f8192_s.jpg

Yeah i think its valid, although your pic doesnt show the volumes, i checked it on my chart and it showed a nice volume increase at the bullish breakout, then a consolidation, and the retracement will be soon.

So i think its a valid pattern, and i think the pullback will last until @ 103.380 probably.

I entered it too, i just forgot to check the USD/JPY today but now i entered the trade too, lets see what will happen

You realise on mt4 your not seeing actual volume, its just tick volume, ie the count of the price moving!