Graphical patterns for your trading

Below is a day chart of the Gazprom stock futures (GZ).

Chart patterns are marked with numbers

5 – pipe bottom

1, 2 and 3 – head-and-shoulders top

4 – broadening wedge

It could be either a reversal or continuation pattern depending on the breakout direction. Its shape resembles a loudspeaker and could slope upward or downward. It takes the 6th and 10th places in the rating in the bull and bear markets respectively. We connect lower and upper candlestick shadows with the trend lines. When building the pattern, it is preferable to see at least 5 touches from each side. Partial rise or fall and a failure to touch the opposite line warn about the trend change.

In this case, the flag pattern is a sample of continuation of the bearing trend. The price decrease started in the middle of April and the flag pattern was formed at the level of support of the February range. It involved the buyers, who expected a growth from support, into longs, but they were wrong. This failure of the buyers added a bearish potential to the downsloping trend, which lasted until the middle of August.

The double top is a pattern of a short-term reversal. Bulkowski specifies 4 types of double tops depending on the peak shapes and their symmetry. An example of a double top in the RTS index futures (RI) day chart. There is one more falling wedge marked with number 1.

Below is a symmetric triangle in the RTS index futures (RIZ9) chart, which was broken upwards at 17:30. A symmetrical triangle is a continuation pattern. Let us compare trading possibilities with a set of different instruments.

We can see the following features of a possible trend change in the cluster chart:

• number 3 marks drying out of the buying volume in the candlestick high at the day high;
• the negative bar delta marked with number 3 emerged at the day high;
• decrease of the level of the maximum volume in the bar marked with number 3 if compared with the previous bar.

We can see a successive reduction of the maximum volume level of each of the subsequent bars and an arrow marks the beginning of this movement. The buyers try to hold the price and even push it upwards at 16:00 and a positive delta emerges, however, the volume is less than in the previous bars. The bounce effort does not find continuation. The peak of aggressive sells falls at 16:45. We observe the biggest volume and explicitly expressed negative delta. However, buyers appear in the subsequent bars marked with number 4. The aggressive behavior of the sellers did not find its continuation. And we again face the features of a short-term trend change – a positive delta on the day low, increase of the maximum volume level in the bar and drying out of sells in the candlestick low.

Advantages

• There is no need in modern software;
• You can calculate take profit and stop loss levels approximately, just measuring the pattern.

Disadvantages

• Subjectivism. Some patterns look contradictory even for experienced traders;

• The patterns often fail on small timeframes. The movement potential is higher in the day charts.

Chart patterns exist for a long time and have their followers, who confirm efficiency of following the chart patterns by their careers. One of such competent followers is Peter Brandt, the author of the “Diary of a Professional Commodity Trader” bestseller. His Twitter account has a quarter of a million of subscribers and his favorite pattern is head-and-shoulders, from which we started this article.

We do not know whether Peter uses the cluster analysis. But you can easily do it by yourself. Try ATAS free of charge in order to increase your chances from trading by chart patterns, as it is shown in a simple example above.

Perhaps, someone as well-known as Thomas Bulkowski is, would write in the year 2058: “the technical analysis always worked perfectly, but the cluster one allows seeing what happens in momentum”.