Patterns play a crucial role in identifying potential trading opportunities.
As a beginner, it’s essential to learn how to recognize and leverage these patterns to improve your trading skills.
So today, I want to share with you three simple yet highly effective trading patterns
Use them to help you make better trading decisions and stick to the highest probability trades.
I’m going to outline exactly what to look for and how each pattern should play out…
So, let’s dive in and explore each pattern in detail.
Learn the three patterns a multi-millionaire trader uses daily here.
Pattern 1: The Dip and Rip
As a day trader, one of my favorite patterns is the dip and rip.
This pattern occurs early in the day and offers an opportunity to capitalize on strong stocks.
I like to look for big premarket gainers — but I don’t recommend new traders trade in premarket. Instead, wait for the market to open…
Ideally after 9:45 a.m. Here’s how the dip and rip works:
- Set-Up: The stock initially experiences a spike to a new high before the market opens.
- Dip: Right near the market opens, the stock dips significantly from its peak.
- Rip: After the dip, the stock starts to regain strength and moves back toward its high of the day.
- Entry: Look for the stock to break above the high of the day on high volume, signaling a potential entry point.
- Risk and Reward: Set your risk at a significant level on the chart, and aim for a profit that outweighs your risk. I like to shoot for a 3:1 risk/reward.
This is one of the top patterns I recommend for trading the morning action.
Pattern 2: Late Day
Focusing on the mornings and afternoons can cut out a lot of losing trades midday. Since that’s when there can be lower volume and more choppy price action.
The Late Day pattern is one that occurs in the afternoon. Here’s how it works:
- Spike and Consolidation: The stock experiences a spike earlier in the day and then consolidates around the VWAP (Volume-Weighted Average Price).
- New High of the Day: At around 2 PM, the stock breaks above the morning’s high on high volume, indicating a potential entry opportunity.
- Entry and Risk: Enter the trade as the stock makes a new high of the day, and set your risk level based on the VWAP fail.
- Position Sizing: Sometimes VWAP can be quite a bit lower than the high of the day in some of these volatile movers. So make sure you adjust your position size accordingly based on your max risk.
Pattern 3: Weak Open Red to Green
This pattern is suitable for swing trades and momentum trades.
To find it, look for stocks that had significant gains the day before. Here’s how it works:
- Stock with Previous Spike: Identify a stock with a substantial price spike the previous day.
- Red Open: The stock opens below or at the previous day’s close, indicating a “red” start to the day.
- Green Move: Soon after the open, ideally around 9:45 to 10 AM, the stock turns green, showing the presence of buyers for the second consecutive day.
- Entry and Risk: Enter the trade when the stock goes green on the day, and set your risk level based on a failure for the stock to hold green.
- Manageable Losses: Accept that small losses are a part of day trading, and be prepared to stop out if the trade doesn’t go as planned.
Remember to keep your approach simple and set clear entry and exit points for each trade.
Study and practice these patterns to take your trading skills to the next level!
Also, join me three times per week to get my up-to-date thoughts on the market and the tickers on my radar.
Hope to see you there!
Have a great day everyone. See you back here tomorrow.
Tim Bohen
Lead Trainer, StocksToTrade