Five Basic Patterns

Five Basic Patterns with Trade M t St t iManagement Strategies

Copyright © 2009Linda Raschke and LBRGroup Inc.

LBRGroup.com

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© 1996 – 2009 LBRGroup / Linda Raschke.All Rights Reserved.

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Copyright (c) LBRGroup 1996-2009. All Rights Reserved. 2

Basic Patterns:Basic Patterns:Corrective A-B-CSimple bull or bear flag (retracement in a Simple bull or bear flag (retracement in a

trend)Failed A-B-C (trend reversal)Failed A B C (trend reversal)Momentum Divergences in range Breakout from converging trendlinesBreakout from converging trendlines

Copyright (c) LBRGroup 1996-2009. All Rights Reserved.

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STRUCTUREStructure dictates the context for a trade setup or chart formation. Elements of structure consists of:1 Sid li ( l k “ l ” 1. Sideways lines (also known as “value areas”, “trading ranges”, or accumulation/distribution)2 Length of a swing indicates momentum or 2. Length of a swing – indicates momentum or lack of momentum.3 Previous swing highs or lows – sets up 3. Previous swing highs or lows sets up structure for retest functions. These most visible chart points indicate where previous buyers or p p ysellers came in.LASTLY: is there volume or is it a noise


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environment!

TRADE f tiTRADE functions:Entry Method: Limit orders, market orders, buy/sell stops…or a combination of limit order with stop entry also p p yknown as OCO (One Cancels the Other)Initial stop placement: fixed stop amount such as dollar function or ATR function Chart reference point such as function or ATR function, Chart reference point such as absolutely swing high or low or a few ticks beyond. (not going into time stops for this presentation).g g )Exit Strategy: Small target (.5 – 1 ATR), large target, Trailing stop, scale out function. Large target or trailing stop function should be used when there is expectation of stop function should be used when there is expectation of Big Win. We will go over the patterns that lead to Big Win.


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Bunds….active rhythmic market with volume. Chart formations are “pleasing”. Breakout from converging trendlines and Power Buy (A-B-C)


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Canadian Dollar: illiquid noise market


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Sideways line - Lower high - Simple bear flag The first flag after break from sideways line – play for bigger target. All other simple flags – small target only.


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The power of the sideways line followed by new momentum lows. The first short op may have gotten stopped out but there was no lower high in place yet.

A certain % of trades will always get stopped out due to human error, market y g ppnoise, or lack of follow-through.


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Bear flags late in the swing: small target ONLY.


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Corrective A-B C or “Power Sell” in a downtrending market. Note momentum move after break from sideways line. Play for new lows.


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Corrective A B C or “Power Sell”. The first is at the end of a swing. The second comes after a fresh break from a sideways line. y


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“Failed” A-B-C or trend reversal point. Trail a stop.


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Momentum Divergences in a Trading Range


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Momentum divergences are best for entry into corrective swings not for fading the main trend swings, not for fading the main trend.


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Breakout from converging trendlines (wedge): Trail Stop


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Upside breakout from sideways line: Get the trade on. Trail stop.


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SP E mini 800 tick chart – “structure”


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SP E mini 800 tick chart – resolution!


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Buy Anti vs. Buy Div……both play for fixed small target only. both must use tight absolute stop.


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U-turn follows “Failure Test”. Overall structure is downtrend. (note a b c up is corrective)…Trade management – absolute stop at high, scale out.


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Daily EC: Failure test followed by U-turn. Aggressive traders enter on lower high, conservative traders enter on sell stop. Scale out to take profits. Stop at absolute high


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Trade Management is an ACTIVE process. Pull your stops down when the trade starts to work….take your bid to the market if the price is falling short.


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No perfect way to trail a stop. Tighten to just above the high above the previous swing high.


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5 Basic Patterns:5 Basic Patterns:

Corrective A-B-C: enter after you see your stop point, Play for big win (more then 1 ATR) or new highs or lows, if in trending market. If in range, scale out for small win.

Simple bull or bear flag (retracement in a trend): Enter Simple bull or bear flag (retracement in a trend): Enter with limit order or market order, play for small win (.5 to 1 ATR)

F il d A B C (t d l) E t b ll t Failed A-B-C (trend reversal): Enter on buy or sell stop, play for big win or trail stop.

Momentum Divergences in range: Enter with limit order or market order after market turns, scale out.

Breakout from converging trendlines. Enter with buy or sell stop or market order trail stop or play for big win


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sell stop or market order, trail stop or play for big win.

Damon Pavlatos FuturePath TradingSummary of what I learned over the last 30 years as a Trader and from

working with other Professional Traders

• Common mistakes made by even the besty• How to manage risk• Keeping your focus on the real marketKeeping your focus on the real market• Making a plan or strategy and executing it• How to maintain the edge as a traderHow to maintain the edge as a trader


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This is a basic Trading Page that consists of a trade matrix on the left and on the right stacked horizontally starting from the top there is a quote box, open orders, executed

orders market depth and P&L windows orders, market depth and P&L windows.


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Multiple trade matrix's. The lower right onw shows open OCO orders.

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OCO’S showing on the charts and on the Matrix simultaneously

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When to use bracket orders



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Trailing stops



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