Profiting from simple classical chart patterns

Each Sunday I will post a few classical chart patterns that appeared here and there on the 30 minute charts during the week (from Sunday to Friday).

The goal of this thread is to show that traders could profit from these very simple chart formations and to remind them that trading does not have to be complicated. Please feel free to post your own charts but kindly keep the chit chat to a minimum.

Let's get started.

Here is a magnificent head and shoulders formation that appeared on the GBP/CHF. Notice the nice pullback to the neckline (a good low risk entry point for a short position).

Here is another head and shoulders, this time it appeared on the EUR/CAD. It's a very small formation but head and shoulders of this type are usually powerful. Notice the pullback to the neckline.

Here we have a nice breakout from a channel on the CAD/JPY.

Another breakout from a channel on the NZD/JPY. This one is powerful. I call it the "get-out-of-my-way-now" breakout

Another superb head and shoulders pattern on the EUR/NZD, complete with its pullback to the neckline. Price then moved more than 400 pips the right way.

interesting subscribed, hope we can see charts before and after the fact, and not only after profit taking

Thanks for stopping by MellyFx.

Ok, sure, I will try to post a few classical chart pattern formations in real time, as soon as I spot them, even though I am already busy posting live calls in another thread.

Speaking of week, here is something interesting to note: more than 50% of the time, the high or the low of the week is somewhere between the Sunday open and Tuesday night (up to 11:59 PM, NY time).

If not, Wednesday will usually quickly reverse whatever up/down trend has been formed after the Sunday open. Wednesday completely reverses existing trends more often than any other day of the week.

Look at this phony head and shoulders formation in progress on the AUD/CAD (30 minutes) it's probably going to fail.

Why?

For 2 reasons:

1: There is no real follow-through after what appears to be a breakout (black oval). The price is just hugging the neckline and we don't see any candle (let alone 2 or 3) completely below that line just after the pullback.

2: After the "breakout" the price went up and touched and exceeded the high of one the two right shoulders (green oval). This is never a good sign, genuine head and shoulders formations rarely pullback that far after the breakout.

The trader must "qualify" any head and shoulders formation in progress (and any classical chart pattern for that matter) before pulling the trigger.

And yes, this does require some charting experience, otherwise it would be too easy.

A few more comments about head and shoulders formations.

Used properly, they are very reliable.

They offer an excellent risk/reward ratio. You could be wrong 50% of the time or more and still make good money in the long run.

They are easy to spot and recognize.

The market will almost immediately tell you if you are right or wrong and you know exactly where the stop should be (high or low of the right shoulder in most cases).

And finally, even if your stop is hit, you should usually be able to get your money back (in part or in full) by doing a close and reverse trade, if certain conditions are met.

Later on I will share with you a few tips on how to search for high probability head and shoulders trades that will put all the odds in your favor.

Good topic.
Another common pattern is the triangle. below is one that just broke out

Subscribed.
Thanks for sharing your trading style which will definitely be helpful for newbies like me. I'll grateful if you also tell us why you traded or going to trade a specific pattern. As there is a plenty of material available on internet but those are just theories not practical experience from professional traders.
This will help us in trading. Thanks again for thread.

Hi ProfitSeeker,

Yep, good call, although that triangle was not very convincing (the breakout occurred near the apex of the triangle).

Notice the huge pullback to the upper down-trendline (red oval). In any case, that trade was good for at least 50 pip profit (hope you did put some in your pocket).

I don't particularly like triangles, they are pretty messy to deal with. However, ascending triangles (in an uptrend) and descending triangles (in a downtrend) are usually the most reliable.

I'll try, Aazishhunain.

You are quite welcome.

EPN You are right on your comments. I did trade this on another platform, but to help those just learning, I have learned not to trade patterns in isolation. I normally trade off M15 charts which I show below. In this trade, I also used a 2 period smoothed MA shifted back 26 bars crossing price (lime line) that I adapted from Ichimoku indie (the 2 arrows and line show the crossing and the current bar). Also the Momentum indie crossed above 100.

Potential flag formation on the NZD/CAD (5min). The breakout is usually to the upside.

Absolutely.

The odds are even better if the chart pattern the trader is looking at is ALSO confirmed by other indicators or even other chart patterns, like a MACD or a breakout of a major trendline, for example.

By the way, did you guys notice the nice channel (and the typical breakout after that) on that same NZD/CAD (5min) chart?

Unfortunately, it's impossible to watch 28 currency pairs on 3 time frames (5, 10 and 15 min) at the same time just to see if there is any interesting chart pattern in progress, at least for me.

In my opinion, these neat little channel formations alone are worth gold.

Plus they appear quite frequently almost every day, if you care to look for them...

The expected upside breakout did not happen (it could happen later, though).

Now here is an extremely important thing to remember about breakouts, ANY breakout :
WAIT FOR THE EXPECTED BREAKOUT TO ACTUALLY HAPPEN IN FRONT OF YOUR EYES, WAIT FOR THE PULLBACK (OR AT LEAST SOME PULLBACK) AND THEN, AND ONLY THEN, BUY OR SELL!

Yes you will miss a few moves (50% of breakouts or so never pullback to the breakout line) but you will also eliminate almost 100% of losing trades (keep in mind that most breakouts are false and the pros usually fade them).

And even if you do lose, the stop is so close to your entry point that the loss should be negligible.

On the other hand, you only need to catch a few good breakouts to make money.

So far the channel on the NZD/CAD (5 min) is still holding tight. Notice the big price rejection at support level (red oval).