In my nearly 30 years of trading, there’s one thing I’ve learned…
We are all creatures of habit.
We all live our lives to some set of procedures, and we’ve all got daily routines we try to follow as much as possible.
Whether it’s the time we get up, the time we fix coffee, the time we shower, the time we eat breakfast – even what we eat — there’s always a specific order to what we do.
These decisions are reflected in the stock market.
After all, it’s us, the people (not the markets) who make the decisions to buy and sell.
The trick is knowing how people will trade before they even do.
That’s why trading patterns is the proven way to outperform the market.
And it’s actually really easy to do.
Let me show you…
The Two Technical Patterns You Can Always Depend On
There are 11 definitions for the word “pattern,” according to Merriam-Webster. But of them all, the one that pertains the most to trading the financial markets is this: “a reliable sample of traits, acts, tendencies, or other observable characteristics of a person, group, or institution.”
But I’m going to further define this by adding other observable characteristics that appear on stock charts…
The way I see it is that anything you can find on a stock chart is the direct result of decisions made by people. In this context, “people” can refer to individuals, groups of investors, groups of traders, an LLC, or an institution. The price at which a stock opens, trades intraday highs as well as intraday lows, and closes is all done by people.
Now we likely developed our own patterns through beliefs and principles instilled upon us by our parents and grandparents. Some of ours are more extreme than others, but to some degree, you can ascertain certain how you’ll react to any given scenario based on your principles and the way you’ve conducted your life.
And this idea carries over to the trading world – especially when it comes to technical analysis…
“Stock price patterns” are the price movements on a chart that happen over and over again, either by direction (higher, lower, or sideways) or slope (larger or smaller). These movements occur over a specific and repeatable time frame. There are two types that you can pretty much bet your life savings on…
1. Technical Patterns
One common technical pattern that occurs (and we talk about frequently) is when a stock trades between the support and resistance levels as it moves sideways. The support and resistance levels are the prices at which the stock consistently trades (versus ascending or descending, where the price changes).
In the stock chart below on the PowerShares QQQ ETF (QQQ), you can ascertain the support level as 114 and the resistance level as 118 (you can assess one less occurrence if you make the resistance price 119):
This is a sideways, technical pattern called “channeling.” Stocks following this pattern are also referred to as “range-bound stocks.”
You can easily spot this type of pattern by looking at any stock chart over a specific period of time (of your choice). Once you identify the support and resistance levels, then you can buy stocks at the lowest prices and sell stocks at the highest prices.
2. Seasonal Pattern
The other pattern you can depend on in the markets is one that takes place over series of consecutive months, or seasons, every year – regardless of what’s going on externally (like election years).
An example of a seasonal pattern is one in which members of my Money Calendar Alert trading service have already had the opportunity to bank huge profits… we’re talking 163% gains here. This seasonal pattern shows the exact price moves that crude oil makes during very specific times of the year and whether those movements are bullish or bearish during those respective time frames.
Here’s an example of how that price movement looks.
These patterns, whether intraday or longer term, all have rules in the way trades are executed. And people determine the way trades are executed by the simple fact that everyone has a specific trading pattern and trading type (we’ll get to that another time).
But primarily, what makes a true pattern a pattern is the fact you can both chart it and see repeatable price moves based on a set of specific criteria. One other beautiful thing about patterns is when you can isolate the criteria the stock usually meets, and it does so consistently, you can back test that data to prove if it is a viable pattern to hang your hat on or one to dismiss.
The stock that has a history of a reliable sample of traits, acts, tendencies, or other observable characteristics is the one that has a repeatable and tradeable pattern.
To your trading success,
Tom Gentile
P.S. I’ll be revealing specific details – and trades – for the next big seasonal pattern exclusively to Money Calendar Alert members soon. To find out how you can join, simply click here.
