Hey hey: what's up my friends so in today's episode i want to talk about. When should you not trade chart patterns so chart patterns? Right here refers to thing like things like no head and shoulders pattern. The cup and handle the ascending triangle - descending triangle, pen and symmetrical triangle - you get my point so when should you not trade chart pattern? So the first thing first, is that you shouldn't attempt right to trade. Every single chart patterns out there because, to be honest, some of them to be honest, i find that they are useless.

For example, a chart pattern like the diamond chart pattern. I find it first and foremost, i don't understand what it means right in the context of price action trading at number two, even if i do know what it means right, i face difficulty defining my entry point and my stop-loss level. So again, right avoid trading chart patterns that don't make sense to you or are pretty much. You know meaningless and i'll talk about this later on and to tell you which chart patterns, you should focus on instead number two don't treat every chart pattern as equal right because they are not.

You can have two identical looking chart pattern, but the probability of you know one working out could be higher than the other. Give me. Let me give you an example. Let's say you have a blue flag pattern.

It forms right after the price you know broke out of you know: multi-year highs, it just form a blue flag pattern and on the pullback right, the range of the candles is relatively small and, of course clearly, you know this market has strong momentum and it's a Long-Term uptrend, now you compare this bull flag pattern with another bull flag pattern, but this time around the market is in a downtrend. Let me ask you which bull flag pattern has a higher chance of working out. Well, it's a no-brainer right, the one in an uptrend, the one that broke out to multi-year highs that blue flag pattern has a much higher probability of continuing to move in its direction. So this is what i mean by not every chart pattern is equal.

You've got to look at the context of the market, and you know we'll talk about that later on as well, and the third thing right that you want to avoid right is to avoid trading reversal, chart patterns that form too quickly. So, for example, a reversal chart pattern could be something like the head and shoulders pattern: the inverse head and shoulders pattern. You want to be aware, right of you, know, trading them right when the when the uh pattern right is formed too quickly. So, for example, if you take a head and shoulders pattern right that took 20 bars to form compared with another head and shoulders pattern that took, let's say, 100 bars to form which of these two pattern is more significant and which of these two pattern, right is Uh likely to, i would say, lead to a reversal, so, in my opinion, right, the one that took longer to form right is more significant, because the neckline of the head and shoulders pattern is more significant.

More traders will pay attention to that level and if it breaks right, it becomes more of a self-fulfilling prophecy, where the the breakdown is slightly to occur. Of course, other contexts also matters as well, but you know, given all else are equals all else are equal. I would rather take a reversal chart pattern that took a longer time to form because it's more significant and move right, it's likely to be uh longer as well. Okay.

So that's a third thing to bear in mind: uh when you trade reversal, chart patterns right, be aware of those right that form very quickly like no 15 candles, 20 candles be aware of it. So at this point you might be wondering okay reina, so you know i have learned. You know what not to do when trading chart pattern. So how do i you know trade chart patterns right uh correctly, so here are a few tips to share with you number one.

You want to filter down right. The chart patterns that you trade. So as mentioned earlier, you don't want to be trading. Every single chart pattern because a lot of them are pretty much useless or difficult to trade, so focus on those chart patterns right with horizontal boundaries.

So what i mean by this is that the chart pattern right is defined right using a horizontal line or area on your chart. This could be something like the ascending triangle pattern. The descending triangle pattern, the head and shoulders pattern with the neckline being you know horizontal. These are the type of chart patterns you want to focus on, because these patterns right it's much easier to to time your entry when it breaks when the price breaks out of a horizontal area level, it's much easier to define it, because once it breaks out of Resistance, it means it has breakout, there's no discretion, there's no subjectivity over here and also when you manage your risk right.

You'll stop. So i can just go below the breakout point. So it's easy to manage your risk compared to chart patterns where it involves. Let's say diagonal lines like symmetrical triangle: this one is a bit more tricky because the way you draw those patterns is subjective, and this means that your entry point and your stop loss right might be subjective as well because depend it really depends on how you draw Those chart patterns so given a choice.

I very much prefer to focus on trading chart patterns with horizontal boundaries, and i tend to avoid those with you know diagonal lines and stuff like that, because it's much harder to kind of nail down the entry and exits okay. So that's the first thing. Second thing right: if you trade chart patterns, especially trend continuation, chart patterns - like you know, the blue flag, or maybe even the ascending triangle, chart pattern. Even let's talk about the both like the blue flag.

You want to trade it in the direction of the trend right. This increase the odds of the trade working out, as i mentioned earlier, so as much as possible trade sharp patterns in the direction of the trend, and it doesn't just have to be trend. Continuation chart patterns, it can even be reversal chart patterns. If you want to trade, let's say an inverse head and shoulders pattern that has formed in an uptrend.

That's fine as well right! It's perfectly fine! If you look at the or rather if you read the price action of the market, there's a bullish sign right, you have a bullish. Bullish reversal, chart pattern in a long-term uptrend. That's a good sign so as much as possible trade in a direction of the long-term trend and number three. If you want to trade reversal, chart patterns, like you know, let's say head and shoulders pattern inverse head and shoulders pattern, double top triple bottom, etc.

Give those chart patterns time to form the market doesn't just reverse on a dime. Yes, it does happen from time to time, but more often than not when the market makes a reversal, it needs time right to digest the uptrend or the trending move to go into a consolidation before it breaks down. So when you want to trade reversal chart patterns, my guidelines know to give it at least 80 candles to form right. So you can see the boundaries on the chart.

They are much of obvious. So when you want to time your entry, when you want to place a stop loss right, it's much easier to actually uh locate it and define it on the chart after the reversal chart patterns has, you know, take time to form, and finally, one last tip, i Have for you is that if you want to trade reversal chart patterns, you also want to identify what i call a volatility contraction pattern, or this is actually a term right from minor of uni. But the concept is it's a it's basically looking for a decrease in volatility right before you, trade, the breakout. So, for example, if you trade, let's say you want to trade, a head and shoulders pattern right market is in an uptrend.

It forms a big head and shoulders pattern that took 100 candles to fall, so you can imagine the head and shoulders pattern right at the the right shoulder. Okay, if you sell the breakdown of the neckline right, the closest stop-loss that is going to be is above the right shoulder or above the head. It's going to be pretty wide. So what i want to see instead is a volatility contraction pattern at the right shoulder area.

So basically, let's say the right shoulder is this high? I want the volatility contraction pattern to be something nice and tight near the right near the right shoulder. So this way when i, if i do, sell the breakdown of the head and shoulders pattern, my stop-loss, so i can just go above the volatility contraction pattern above the highs of it. So my stop-loss is tighter in the sense. So, basically, what i'm trying to say that if you don't trade, you know, breakouts breakout, chart patterns, make sure, there's a consolidation, a tight consolidation right prior to the breakup, because if there's a tight consolidation prior to the breakout, you can reference that type consolidation.

For example. If you want to trade, the breakup higher, you can reference to the type consolidation right, the lows of it to set your stop loss, that's what i'm trying to say! Okay! So let's do a quick recap! Number one! Don't trade every chart pattern out there, because some of them are just meaningless and difficult to trade. Number two. You shouldn't be looking to treat all chart patterns as equal, because the context of the market matters as well and number three uh avoid trading reversal.

Chart patterns, especially the ones that you know, form too quickly. Okay, so with that said right, i wish you good luck. Good trading! I will talk to you soon. You.