5 Simple Steps to Play Trends & Patterns

Trends and patterns are one of the most important aspects of trading, but they’re tricky to read… if you don’t have our five simple steps to play trends and patterns!

November 16, 2022
PB Team

Being able to read trends when trading takes experience. Before your RSI, macD, ema’s and sma’s, and the hundreds of other indicators that are here and available for you to use, you need to be able to identify and know how to play “the trend.” There is a reason certain catchphrases, like “The trend is your friend” and “The stronger the trend, the longer the trend,” are basically ubiquitous: Trends in trading are one of the most important aspects of trading.

Chart concept

What is a trend?

A trend is the direction, either upward or downward, that a stock or asset’s value moves over time.

Investopedia

These are zones of support and resistance that will begin to display channels, wedges, flags, and other various patterns that will begin to show themselves with basic fundamental charting. 

When trading a trend channel there are a critical set of steps that you can use to ensure you are not falling into a trap and end up losing your money. 

We have organized how to successfully play trends into a 5 step system that can help you reduce risk, identify traps, and successfully enter trend break plays with confidence.

Let’s take a look at the five simple steps of playing trends and patterns.

Step 1: Impulse

This is where many traders get caught in a trade and end up losing money, any time we have a solid trend we are playing, no matter is its a wedge, flag, trend channel, etc, there is almost always going to be an impulse move before our confirmation of a trend break. If you look at the $RBLX chart below, you can see that we had a very strong and quick impulsive move breaking our trend channel.

Step 2: Retest

When we have a trend that is strong, and we have an impulsive move, that is typically followed by our retest of the trend channel we are in. As you can see in our example below, there was a clear impulsive break below the trend channel, immediately followed by a retest straight back to the channel.

Step 3: Decision & Consolidation

Here is where we pay attention and get ready to enter a trade, after we have an initial break down (impulse) and we come back to the original trend line (retest), NOW is when the stock will make a move back into the channel, wedge, or flag, or it will fall back out of the trend.

When a stock reclaims the trend it was in, then we can feel confident to take our entry, whether it is a trend break or validation.

Step 4: Confirmation

Once we have made the decision of whether a stock is going to break back into a trend, or its going to break out of the trend, this is our confirmation, time to take an entry.

In the chart above, there is an example of both a trend break fail (i.e. moves back into the trend pattern) and a successful trend break (i.e. loss of trend). On the left example, we would take a bullish entry once we have broke back into the trend channel that has proven it is continuing to hold up. But with the example on the right, we would take a bearish confirmation entry on the retest and subsequent downtrend continuation that confirmed that we were losing the trend.

Step 5: Continuation

This is the final step of playing a trend test break. When playing this within the trend, we will continue to play the previously identified points of support and resistance, and if we took a trend break entry we will play the chart as it unfolds.


Remember: Strong trends hold up, so we can be reasonably confident in these steps to trend breaks.



Get Our Trade Alerts In Real Time

Get crypto education, live streams, real time trade alerts, exclusive NFT deals, and more.


YOU MAY ALSO LIKE

Get Our Weekly Watchlist

Get the latest market news, stocks to watch, earning reports, exclusive discounts and more!
PennyBois
PennyBois

PennyBois is a group of experienced traders dedicated to providing hedge fund quality trade alerts without the cost.

Subscribe For News, Stock Alerts, Education & More!

Market News

Stock Alerts

Chart Analysis

Everything You Need For Success In Trading!