Which Chart Pattern Is Your “Bread and Butter?”

How would you describe to an audience of your peers which is your preferred chart pattern? Take a minute and think how you'd explain what really "makes you tick" as a trader. Are you focused solely on price action trading your best trading strategy and your "bread and butter" chart pattern? Or are there times when you stray from them in order to chase some hot, new chart pattern or set-u?

I honestly believe that every trader, from time to time, can only benefit by going back to basics. It helps to remind yourself what you do best, and becoming re-committed to doing just that. So before I share with you the chart pattern that powers my trading, make sure you take time to consider what kind of trader you are. 

Why You Need a "Go-to" Chart Pattern…

We have talked before at length about the all-too-common misconception that successful traders use all kinds of different methods. In particular that they nimbly switch from one chart pattern to another depending on market conditions. Some do, but plenty of others simply stick with what they know (and what already works). This enables many traders to use a single chart pattern. Often it is the first one they ever learnt, for success and prosperity for the balance of their trading careers.

Two reasons why you should stick to one preferred chart pattern

So you know what you are looking for…and so you know it when you see it. Think about coming into the markets each day with a distinct purpose. Trading with more confidence and clarity will mean never having to switch strategies on the fly. You can do that when it is one chart pattern, and not several, that you are looking for. Also when it is your go-to chart pattern, you know it inside and out. You will never have to guess whether that is really a doji, a cup-and-handle formation, or one of the many intricate Gann or Elliott wave patterns that we are actually hearing more and more about nowadays.

You do not need to be a "jack of all trades." Even marathons or around-the-world journeys begin with a first step. It is the same way when learning to trade. You simply have to start somewhere. Resist the temptation to conquer all patterns and set-ups.  and instead learn—and work to master—one chart pattern with a proven track record for performance.

…And Which One Is Ours

On account of the efficiency, versatility, and of course, favorable results, the pin bar happens to be the "bread and butter" chart pattern. It is no good to say that there are not other good indicators out there, but this is ours, and it consistently signals high-probability trading opportunities in any market conditions. There's just one caveat: A pin bar alone isn't good enough; it has to occur as part of a rejection of a key support or resistance level, and if it does, it usually means "all systems go" for a trade that has the odds stacked firmly in our favor.

Here is how the pin bar reversal strategy works

• A bullish pin bar reversal occurring at or near a key support level on any time frame typically suggests that price is likely to head higher from that point.
• A bearish pin bar reversal occurring at or near key chart resistance on any time frame, usually indicates a high-probability short-entry opportunity is imminent.
• Valid support or resistance on the charts would include horizontal levels, trend lines, moving averages, Fibonacci retracements, and weekly or monthly pivot points.

A pin bar reversal trading strategy is proven in both trending and range-bound markets. We can even use the components of the candlestick chart pattern. Specifically, the wicks and bar itself, to determine the entry price and placement of our stop-loss. Here is how that might work:

Just one final reminder, and perhaps a word of caution that pin bars by themselves are rather common. They only signal a high-quality trading opportunity when occurring as part of a rejection of a key technical level. So remember to be selective when trading this chart pattern. Do not take pin bars that occur in the middle of a range. Indeed also learn to avoid ones that do not clearly reject a unique, independent price level.

Also read: More about the Pin Bar Reversal Trading Strategy

Conclusion

For all the talk about developing an entire "arsenal" of methods for profitably trading the markets, people tend to lose sight of the fact that even a broad arsenal has only one primary weapon! For traders, that's that one, favored chart pattern that they can turn to anytime. And as you see, for us, that's the pin bar reversal…so what's your "go-to" chart pattern, and perhaps more importantly, are you using it enough?

Take this time to reflect on what (and how) you're trading, and if it's indeed time for you to simplify or maybe even go back to basics, do so by re-emphasizing your commitment to trading that one, most reliable chart pattern—the one that's your true "bread and butter!"