Patterns within Patterns

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Video Transcript:

Hello, traders. Welcome to the 7th Module of the Advanced Technical Analysis Course: Harmonic Patterns. In this lesson we’re going to teach you how to trade patterns within patterns, and how to spot patterns within patterns. And, most importantly, why while you are waiting for a bigger pattern to complete, you can still trade smaller patterns that appear on your charts.

Now, first of all, when you are trading higher timeframes or you are waiting for big patterns to complete, smaller patterns can emerge for you to profit from. And most traders will avoid these smaller patterns because they are focusing in the bigger patterns, but if you can profit from both of them it is very logical for you not to trade. Just because you are waiting for a completion of a bigger pattern, it doesn’t mean you can’t trade one leg of it if a smaller pattern appears.

An example of this can be if you are waiting for the completion of the CD leg on a bullish cart, and a triangle appears in the middle. You can go short on the triangle breakout with these calculated targets before price hits the buy zone at the D point. And in this case, we will be going short on a bullish Gartley, but you will be going short on the CD leg of it, which is a down wave.

Or let’s say you are calculating the C point on a possible bullish Butterfly and a head and shoulders appear. You can go short at the breakout of the neckline with your calculated targets before the CD leg is complete, and you can go long on the Gartley completion. And if you go short on the CD leg you will be going short on a down wave which is absolutely profitable. Now, remember that when you are trading patterns within patterns you don’t know if the bigger pattern will complete, or if you are actually inside a bigger pattern. This is why when you always have a very clear pattern on your chart, and a clear breakout, and a clear setup you should trade because clear setups like that one don’t appear as often as we wish.

Patterns within patterns

So let’s go through an example. Let’s say that we are watching our charts, and here’s where we are. This is price action when we open our NT4 platform, and what we see here is a big leg up, then a correction, then a continuation, but we didn’t break with this high. So we might be in a harmonic pattern. The first thing we’re going to do is we’re going to pull our Fibonacci retracement levels, and we’re going to trace it. We’re going to draw the Fibonacci retracement level from this point to this point to calculate the depth of this retracement, and we’re going to calculate or draw the Fibonacci retracement levels from this high to this low to calculate the depth of this wave.

And as you can see, we have hit the .618 and the .886, so we might be in a bullish Gartley. So when we see that we are actually hitting the ratios for a bullish Gartley, we draw another Fibonacci level, which will be the .786 because this is the D point of the XA retracement, and we also draw the extension of the AB move because it also has to converge with this retracement for us to get a D point. So we have an X, A, a B, and a possible C here, and a possible D all the way down here. So this is what we have, and we haven’t made a single trade just yet. And as you can see here, price bounces off the .886, but comes back to test it again.

The thing about this is that we might have a double top at the .886, which we can trade if the neckline breaks, or when the neckline breaks, if we are in fact in a bullish Gartley because the CD leg is a down wave, and if we are creating a double top we should wait for the neckline to break and it will give us a calculated target around the D buy zone. And in this case, as you can see here, we had a double top, which is a normal chart pattern, and when we wait for the neckline to break we have a short setup, and we can take profit on our D zone which is the buy zone.

Now, at this point we have only traded a double top. We don’t know if we are in a bullish Gartley just yet. But when we come to the buy zone here at the D spot and rejected it, we can also go long on a completion of the Gartley. And as you can see here, we profited from the completion of the Gartley and we profited from the double top that formed at the C point on the .886. So, this is what we mean when we talk patterns within patterns. Even though you are waiting for a completion of a bigger pattern, if a smaller pattern appears on one of its legs and it’s logical for you to trade it, just like in this case it’s logical to trade our double top because on a double top you go short and the CD keg of a Gartley is a down wave, you should trade it.


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Adam is an experienced financial trader who writes about Forex trading, binary options, technical analysis and more.

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