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Day Trading Forex with Price Patterns
By Laurentiu Damir
Copyright © 2012 Laurentiu Damir
All rights reserved. No part of this book may be reproduced or transmitted
in any form or by any means, electronic or mechanical, including
photocopying, recording, or any information storage and retrieval system,
without prior written permission of the Author. Your support of author’s
rights is appreciated.
Table of contents
About the system
Buy or Sell ?
Price Patterns
Flag and Pennant
Rectangle
Triangles
Symmetrical triangle
Ascending triangle
Descending triangle
Price channel
Cup with handle
Wedge
Entry and Exit
Step by Step
About the system
A very clean and extremely profitable day trading system that does not
use technical indicators of any kind, but only concentrates on reading the
price action. It focuses first on the bigger picture to find out which of the
buyers and sellers are more powerful at any given time and then uses
this information for day trading on smaller timeframes with the help of
very strong patterns that price makes. This is all you need; this is all this
system needs in order to deliver a thousand pips per month or more.
Beginner traders often think that for achieving success in the foreign
exchange market, they have to invent something, to be unique, to come
up with some complicated trading techniques that no one else has
thought of before. This is very wrong. Forex is not about uniqueness at
all, it is about a very large group of people buying or selling at the same
time. The more people that buy or sell at a given level of price, the
greater are the chances of success. If you develop a unique strategy and
then start to buy or sell according to it, the levels of price where you
buy/sell will be overlooked by the majority of traders out there, they will
not do the same thing you did because they don’t know your unique
system, and they don’t base trading decisions on it. In conclusion, you
always have to go with the crowd not against it; the more obvious and
well known things are by the people out there, the greater the chances of
success. This is in part what makes this trading system very profitable, it
works with very clear, very popular and easily identifiable price patterns.
Being very popular, most traders watch them closely and trade them
when they finally break. Another important part that makes this system
profitable is trade management techniques, knowing how to set and trail
manually your stop loss levels in order to obtain the maximum from every
trade. All of this being said, let us go deeper into the components of this
trading system.
Buy or Sell ?
Before we start looking for price patterns and learn how to best trade
them, we need first to look at the bigger picture and establish the
direction of out potential trades. We do not just trade in any direction as
soon as a pattern emerges on a small time frame, we go first to a higher
timeframe to see who is in control at that time, the buyer or the seller. We
do this by going to the 4 hours chart zoomed out to the maximum and
finding the most recent big impulsive move. You probably already know
that in the forex market or any other financial market the price of a pair or
stock does not go straight-up or down. Instead, price moves in waves
that consist of strong impulsive moves in one direction followed by
corrective smaller moves in the opposite direction. These waves put
together form a trend. Let us see an example of impulsive and corrective
moves:
In the above example starting from left to right, we have first an uptrend.
Price makes a strong impulsive move followed by a small correction
move then again a strong impulsive move upwards and again a
corrective small move. This repeats four times. If we have strong
corrective small move. This repeats four times. If we have strong
impulsive moves upwards it means that the direction we are looking for is
clearly up as the trend is obviously up. Every time we look at the 4 hours
chart and we see that the most recent impulsive move is up like in the
chart above, we know that our potential trades will only be in the direction
of that impulsive move, meaning we will only look to buy. The logic
behind this is very simple. If the most recent big move is up, that means
buyers are stronger than the sellers at this moment, so it is very likely
that after a small correction move where they take some profits out of the
market, the buyers will start to pick up the pace again and drive the price
further up with another big move. That is indeed what happened in the
chart above and it happened 4 times in a row. After this, at the very top
you can see that instead of a correction small move price made a huge
move down surpassing the start of the last impulsive move up. This
makes this move down an impulsive move as well, it is now the most
recent big move; it has gone below the start of the last move up. This
means the direction of price has changed, we will at this point only look to
sell if a price pattern occurs on smaller timeframe. We then have a very
wide correction move where price just moves in a range, but as long as it
does not go up over the start of that impulsive move down it is a
correction move and the direction is still down. After the correction finally
completes, we have another three impulsive moves down with the first
two of them followed by small corrections. This clearly tells us that
direction/trend is down and we will only be looking to sell. With this
direction in mind we then go to the smaller timeframe chart and wait for a
pattern to form. If the pattern is broken on the upside, we do not trade it
as our direction is down and we only look to sell at this moment. As I said
before, the direction or trend on the bigger timeframe shows us who is in
control, which of the buyers and sellers have more power and conviction
to drive the price to new levels. If the direction is up, that means that the
buyers are in control, they have won the war with the sellers, they are the
majority and they will drive the price up. We go with them, with the
majority because it is much easier to trade profitable this way. Remember
what I said in the beginning, the more people that do the same thing you
do, the more chances of success. We do not trade against the majority.
The same thing applies to the sellers as well. Let us see another example
of how to spot the last impulsive move:

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