Senior Analyst Jeffrey Kennedy is the editor of EWI’s trader education service, Elliott Wave Junctures, and is one of our most popular instructors. Jeffrey’s primary analytical method is the Elliott Wave Principle, but he also uses several other technical tools to supplement his analysis.
In this video lesson, Jeffrey shows you how to use one of his favorite bar patterns to identify a trade setup on your charts.
Too often, people take a “ready-fire-aim” approach to trading — which is obviously a backwards way of doing it. A trade setup is different from a trade trigger. Today, we’ll talk about what turns a setup into a trigger.
A trade setup that I’m always on the lookout for is a double close key reversal outside bar combination.
A double close key reversal forms when prices make a new extreme, yet close above or below the prior two closes. The outside bar portion of this formation is self-explanatory: The current bar’s high and low are above and below the previous price bar’s high and low.
It is important to remember that this bar pattern is a setup only — and not a signal to immediately take a trade. For this formation to become tradable, it must prove itself by trading beyond the key reversal bar’s high or low. If the high of the key reversal bar is penetrated, then the low of the key reversal bar may act as an initial protective stop for longs and vice versa for shorts.
By employing these guidelines, your trading style becomes one of ready-aim-aim-aim-fire. Watch my 5-minute video for more:
This article was syndicated by Elliott Wave International and was originally published under the headline How to Find Trading Opportunities in ANY Market Using Bar Patterns. EWI is the world’s largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.