Patterns are Key to Understanding the Market

Patterns are Key to Understanding the Market

The combination of price action models and VSA analysis allows the trader to correctly build a trading system 

The best demonstration of the performance of a pattern is its implementation in the “here and now” mode. When events develop exactly as the model dictates, those who doubt its effectiveness become less and less. Especially when it comes to the main currency pair. More than a year ago, we discussed the price action “ Shark ” and 5-0 patterns, talked about the opportunities that they provide, and about trading strategies. The time has come to recall and supplement the knowledge base with the help of accumulated trading experience and other models.

“Shark” and 5-0 are models of harmonious trade, inextricably linked. The base for building the second of them is the first. The movement of quotes to the convergence area identified using the 88.6% and 113% targets in the Shark pattern increases the risk of a rollback in the direction of 23.6%, 38.2% and 50% of the CD wave. Then you should look for signals about the return to the market of players who previously controlled the situation.

From the last ten days of May to the end of July, the “Shark” model of harmonious trading was formed on the daily EUR / USD chart. Although the August growth of the euro seemed to some to be a breakdown of the downtrend, however, traders who were familiar with the previous materials from the pattern knew very well that this was a correction movement. Its completion with the subsequent update of the August low leads to the transformation of the “Shark” in 5-0.

Shark and 5-0 patterns on the daily EUR / USD chart

Sale transactions should be made at the exit of EUR / USD quotes from the range of short-term consolidation of 1.1175-1.1245, as well as at the depletion of the corrective movement. Protective stop orders, according to tradition, are placed at the maximum fluctuations, and targets are set based on the pattern AB = CD. In particular, in the example with the main currency pair, using the targets for 161.8% and 200% for the parent and daughter patterns AB = CD, a convergence area of ​​1.0885-1.093 was formed. Upon reaching it, the risks of a bearish trend reversal increase. 

Strategies for working with patterns “Shark” and 5-0 

Theory without practice is dead. Over the past year, the trader could either fill up cones with the “Shark” and 5-0 models or improve his own trading using the other patterns described on the LiteForex blog. In our case, the appearance of a pin bar and an up-trust on the chart increases the chances of quotes rebound from the convergence area. The second deal to sell the euro involves the depletion of the corrective movement based on the principles described by Larry Williams. We are talking about closing the bar near the maximum with the subsequent manifestation of the weakness of the “bulls”: they did not find the strength to pull quotes much higher.

If someone has not had time to work out the combination of the “Shark” and 5-0 patterns – do not despair! They regularly appear on charts. At any time intervals. In particular, in September, the probability of correction of USD / JPY is high. In the case of a breakthrough of resistance at 106.75, the risks of growth of quotations to the levels of 38.2% and 50% of the CD wave will increase. In the future, the trader should keep an eye out: a rebound from important resistance levels can easily bring the pair back under the control of the bears.  

Shark pattern on USD / JPY chart

Harmonious trading patterns often help me with analytic forecasts. With the help of fundamental analysis, it is possible to determine in which direction the pair is moving, at what stage the market is (trending or consolidating), but only a technique can correctly determine the levels. That is why I always recommend that traders use both types of market analysis in their trading practice.

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