Front-running a chart pattern increases the reward:risk of the trade significantly, gives us more options for a profitable exit, and leaves us less exposed to false breakouts compared to the traditional chart pattern trading approach. Trading chart pattern breakouts 1 2 3 chart pattern forex one of the first strategies I learned when I began full-time trading back in 2005. It’s recommended you have trading experience before attempting these methods and have a good sense of market direction and strength. I originally published this article in early 2014.
Traditional technical analysts provided some backlash. Charts patterns don’t always need to traded this way. Which Patterns to Front Run Use this strategy on triangles, ranges, and consolidations. Consolidations may not have a particular shape, but are still a pattern in that they are identified by a lack of volatility relative to the price moves around them. While the pattern occurs less frequently, we can also front run head and shoulders continuation patterns.
Instead of waiting for a breakout, which is the traditional approach to trading chart patterns, if we’re able to read the price action and come up with an expectation for the direction of the eventual breakout, we can greatly reduce risk and increase potential profit by getting a better entry price. The method generally applies to all markets and time frames, as the examples below show. Once the pattern is drawn, the traditional method requires waiting for a breakout. In this case we enter when the price breaks below the lower trendline of the triangle.
This method is fine, but we don’t always need to wait for the breakout. Figure 2 shows another triangle in Apple. The stock was in an uptrend and the price was rallying aggressively prior to the triangle forming. Therefore, we can anticipate the trend will continue and the triangle breakout will be to the upside.