Roadmap to Trading — From Beginner to Expert (Part 2 — Patterns)
Introduction
Welcome to part 2 of the trading roadmap. If you’ve missed part one, find it here. In this part we’ll take a look at different patterns that can be useful when analyzing charts. You can combine this with everything you’ve learnt in part one. If you’re unsure how to use this roadmap, please check the “How to Use” section in part 1.
Prerequisites: Reflect on Part 1
Before we start part 2, it might be a good idea to reflect on what you’ve learnt in part 1. Open your text document, in which you saved your vision and goals, and write down your answers to the following questions:
- What did I learn in Part 1?
- What did I find most difficult in Part 1?
- What did I find the easiest in Part 1?
This might be helpful to identify possible weak and strong points in your trading knowledge. We’ll do this for each unit, and you can keep track of your answers. If you see a topic coming up a few times, it might be a good idea to learn more about that topic to understand it better.
The Roadmap — Unit 2: Identifying Patterns
There are several types of patterns that we can take a look at. The most obvious was already introduced a bit in part 1: Candlestick Patterns. Before we start, it’s good to learn some basic principles of charting. These are some very well known techniques that are applied before anything else. We’ll cover these first, and then move on to the more in-depth parts of patterns.
Basic
(When you don’t understand some of the terms used on Investopedia, and it’s blue, you can click it for a definition).
Beginner
Binance: The Basics of Support and Resistance Explained
Binance: Trend Lines Explained
Youtube: Trend Lines & Channels
Investopedia: What is a pullback?
Investopedia: What is a breakout?
Advanced
Investopedia: Introduction to Technical Analysis Price Patterns
Candlestick Patterns
Beginner
Binance: A Beginners Guide to Candlestick Charts
Binance: 12 Popular Candlestick Patterns Used In Technical Analysis
Youtube: Ultimate Candlestick Trading Course
Youtube: Candlestick Patterns Cheat Sheet
Advanced
Investopedia: The 5 Most Powerful Candlestick Patterns
Classic Patterns
Most of these principals are based on Schabackers impression of them, he has published books that you can look into if you’re interested.
A few rules (as described by Peter Brandt) to follow for greater success when using classic patterns are:
1. The more isolated a pattern is vertically, the greater its reliability.
2. The overwhelming vast majority of patterns will fail.
3. Patterns on intraday graphs are even more susceptible to failure.
4. Patterns on weekly charts are the most reliable.
5. Horizontal patterns are far more reliable than diagonal patterns.
Beginner
Binance: A Beginners Guide to Classical Chart Patterns
Youtube: Understanding Chart Patterns for Online Trading
Binance: The Basics of Support and Resistance Explained
Binance: Bollinger Bands Explained (optional)
Youtube: Head and Shoulders Pattern
Youtube: Understanding Triangle Chart Patterns
Youtube: How to Trade the Double Top Pattern (this also applies to double bottom, except reverse. Price is expected to go up after double bottom).
Youtube: Trading M-Tops and W-Bottoms
Youtube: How to Trade Flags and Pennant Patterns
Youtube: Diamond Tops & Diamond Bottoms
Youtube: Trading the Cup and Handle Pattern
Advanced
Youtube: My 3 Favorite Chart Patterns
Youtube: How to Trade the Complex Pullback
Harmonic Patterns
I do not use harmonic patterns, because they try to predict the future, and I don’t believe in that. I don’t know much about them, but I will post a few resources below if you’re interested in learning more about them. But please don’t let my own personal bias stop you from trading the way you want to. If you find this way of trading interesting, do your own research.
Beginner
Homework
After completing this section, here’s some homework you can do to improve your trading skills:
- Starting looking at charts. First, determine the overall trend. Is it in an uptrend, or a downtrend? Use trend lines on the 1-day chart.
- After you’ve established the overall trend, try to find patterns on 1-day charts. Look at both candle sticks and classic patterns. Is there anything interesting you can spot? How long did it take for these patterns to form?
- What was the result? Example, if you found a descending triangle during a downtrend, did the trend continue like is often expected? Document your findings and move on to the next pattern.
- Repeat for any number of times, and try it out with different pairs and different time frames. Do you see a decrease in accuracy when you switch to a 1-hour time frame, par example? An increase when you switch to a weekly time frame?
- Try to find patterns that are currently still being played out, write down what you think will happen based on what you know, and keep an eye on them for a the next few days. Once you get your answer, evaluate your predictions and if they were correct or incorrect.
Up Next
Congratulations on completing this section! The next section will be about “Indicators” and includes topics like Trend Indicators, Momentum Indicators, Oscillators, and Volume.
The next section will be released in a few days. The link will appear here when it’s ready. It will also be announced on my Twitter.
Feedback
If you have any feedback on this article, let me know. You can reply to this article with your feedback, or send me a message on Twitter.
