The Secret Pattern that Predicts Explosive Moves
By Geoff Bysshe, MarketGauge.com
Why do so many traders struggle to consistently build their account?
There are several potential reasons traders struggle, but many of the reasons are related to the fact that traders are usually trying to assimilate too much information.
Plus, often, the information they’re using is just plain bad!
If you’ve ever felt overwhelmed or confused in your analysis of the market’s trends, then you know what I mean… And you’re not alone.
Information overload is not your fault!
In fact, you may have your trading platform and the trading industry to blame.
Fortunately, the solution to become clear, confident and consistent in your trading does not have to be difficult.
Before we jump into the pattern that you really need to know, I want to give you a quick reminder to check out my ix10 Pattern—It’s a strategy we have been trading for decades with unbelievable success and we have a 90+ percent discount to grab it now for those that downloaded this eBook.
Look at the chart below filled with indicators.
Are your charts filled with indicators?
Does all of this information really make you a better trader? Is it really making you money? The answer is probably “no”.
Trading platforms have made it too easy to load up your charts with information that does more harm than good.
Markets can be complicated, but trading shouldn’t be.
Successful people, and successful traders have the ability to make complicated things simple.
“Complexity is your enemy. Any fool can make something complicated. It is hard to keep things simple.”
- Sir Richard Branson, founder of Virgin Group
One of the most widely respected authorities in the field of developing trading systems is Van Tharp. In his book, ‘Trade Your Way To Financial Freedom’ he says...
“Simple concepts work the best in system design. Simplicity works because it tends to be based on understanding rather than optimization.”
- Van Tharp
Simple trading strategies usually work the best, because they are easier to trade consistently, with fewer mistakes, and less stress related to ‘analysis paralysis’ (information overload).
Success in trading comes from being methodical and keeping it simple.
The best way to achieve both simplicity and a methodical, rules-based approach to trading is to start with a simple pattern that identifies a market condition which leads to an outcome you can expect and trade.
Mastering this one pattern can be as simple as knowing where to draw two lines on a chart!
Yes, it can be this simple (and we’ll show you how).
Here’s what that picture above means.
If I could show you how to look at a chart, and
- Draw 2 lines
- Be a buyer over the top line
- Place a stop loss under the bottom line
- Take profits at the 3rd line
Would that simple process help your trading???
You’ll find trading much easier if you simplify your trading criteria down to just a few rules and just TWO or THREE Price Bars!
Before you call me crazy, let me explain how it can be done.
We’ve been doing it for decades.
Every day, I follow a simple plan that you can also do!
- I find a handful of stocks that are set up for the next day.
- I glance at them during the day to see if they are following my plan.
- I add to my portfolio when I need more trades.
- I occasionally day trade them for higher profits.
This is easy to do, and you can do it too, even as a part-time trader.
Using Simple Patterns Increases Your Trading Discipline, Confidence and Profits
One simple pattern can give you a complete trading plan that allows you to effortlessly increase your trading discipline.
Additionally, identifying which stock with the pattern or setup will work best, can be as easy as knowing the best ‘location’ in the trend to trade. You can also easily determine where to place stops and take profits based on a simple formula that works on most trading systems.
Why This Pattern Works So Well
In the quote for Van Tharp above you learned that, “Simplicity works because it tends to be based on understanding”.
The understanding behind this pattern is this simple market truth…
“Price compression leads to explosive moves”
If you can identify good price compression then you can anticipate and trade the trend that always follow it.
What is Price Compression?
The highlighted boxes show 3-5 day periods of sideways action with well-defined support and resistance. In this example, the price compression is defined by several bars that share similar daily high and/or low prices.
Where you can draw a box by connecting highs, and connecting lows. You have compression.
IMPORTANT… you can have periods that do not have easily defined compression.
These are conditions you want to avoid trading.
NOTICE… When you can identify periods of price compression, they are then followed by significant breakout moves that often lead to substantial trends.
The ebb and flow of market action that moves from choppy or trending to then compressions, and then back to trending is a natural rhythm of the market that you can profit from!
There is an easier way to identify price compression that you can trade with a simple methodical approach.
Your Simple 2 Day Pattern
Here’s a 2 day pattern that identifies price compression that you can use to trade with a few simple trading rules for entries and exits.
Don’t mistake its simplicity as a weakness. It’s powerful.
This pattern is commonly referred to as an “Inside Day”, so you may have heard of it, but the power is in how and when you use it.
This simple pattern or ‘setup’ will help you solve the following trading problems:
- It defines your entry level and exit level, so you know where you will get in and out of the trade before you get in!
- Once your entry is triggered you know how the market should act. It should trend. This means you know when your trade is working!
- Understanding how well your trade is working leads to:
- Easy trade selection
- Less stress
- Catching the “easy” trades
- Easily controlling your risk
This Setup: Trend Continuation Inside Day
Can you see how easy that pattern was to spot, without any special software? Again the “Inside Day” Pattern rules are very easy to follow:
- Super easy to find (no indicators required)
- They are the perfect example of market compression that leads to expansion (big trend moves)
- You know exactly when the big trend move should begin – when the high of the inside day is broken.
How can you tell which “Inside Day” patterns will work the best?
The answer is knowing the best “location” in the trend to trade. What we want is to catch the next move up or down in a major trend. We want the bigger trends to be in our favor – both daily and weekly.
The daily chart setup indicates when and where the major trend is about to continue after a rest or correction.
First, we must define the “Trending Market”.
A simple and effective way to define a trending market is to identify when the market is above the 10 DMA, 50 DMA and 200 DMA for an uptrend.
What about your stop/loss, and where do you take profits? Just keep it as simple as possible, and you’ll be amazed what that does for your trading confidence.
When you trade based on a pattern, the best place to have your stop is where pattern has been broken. This means you can easily determine where to place your stops without any complicated analysis!
- Entry trigger = over the inside day high
- You may roll up to the outside day high if it’s close
- Initial stop = Under the low of the pattern, so under the low of the outside day.
As you’ll see in the examples below this pattern is very powerful in widely traded stocks as well as little known ETF!
In this example below, Facebook (FB), demonstrates how the Inside Day can identify the end of a market pullback. After the Inside Day breakout it marched $12 higher in just 12 days.
In this little known ETF below, Global X Lithium & Battery ETF (LIT), you’ll see that it exploded higher by over 10% in just 4 weeks.
In the example of First Solar (FLSR) below you’ll see how the Inside Day provided a way to enter into a breakout early and with defined risk. Then it exploded 19% higher in just 19 days.
In this brief report, you have now learned a simple pattern that allows you to:
- Identify a specific pattern within a trend
- Your trade is defined by a daily high and a daily low
- You can easily set your stop/loss and profit targets with basic parameters,
Keep it simple, and throw away all of the complicated stuff. You will be far more relaxed and confident in your trades.
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