By Rob Colville on October 30, 2015 in
Imagine you were at a cocktail party with other traders, sharing stories and talking about your trading. In just a sentence or two, how would you describe yourself to an audience of your peers to explain what you’re about, the strategy you favor, and which is your preferred chart pattern?
Take a minute and think how you’d explain what really “makes you tick” as a trader, and then consider this: Are you focused solely on trading your best 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-up, test out some outside indicator(s), or even try your hand at other markets or time frames?
I honestly believe that every trader, from time to time, can only benefit by going back to basics, reminding themselves what they do best, and becoming re-committed to doing just that, no more and no less. 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, and which chart pattern is your “bread and butter?”
We’ve talked before at length about the all-too-common misconception that successful traders use all kinds of different methods, and 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), and that enables many traders to use a single chart pattern—perhaps the first one they ever learned—for success and prosperity for the balance of their trading careers.
Here are two more reasons why traders should identify—and then stick to—just one preferred chart pattern:
So you know what you’re 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, and never having to switch strategies on the fly. You can do that when it’s one chart pattern, and not several, that you’re looking for. Plus, when it’s your go-to chart pattern, you know it inside and out, and you’ll never have to guess whether that’s really a doji, a cup-and-handle formation, or one of the many intricate Gann or Elliott wave patterns that we’re actually hearing more and more about nowadays.
And because you don’t need to be a “jack of all trades.” Even marathons or around-the-world journeys begin with a first step, and it’s 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.
On account of the efficiency, versatility, and of course, favorable results, the pin bar happens to be the “bread and butter” chart pattern within the Lazy Trader methodology. It’s not to say that there aren’t 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’s how the pin bar reversal strategy works:
A pin bar reversal trading strategy is proven in both trending and range-bound markets, and we can even use the components of the candlestick chart pattern—the wicks and bar itself—to determine the entry price and placement of our stop-loss. Here’s how that might work:
Just one final reminder, and perhaps a word of caution that pin bars by themselves are rather common, and 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, and don’t take pin bars that occur in the middle of a range, or any that don’t clearly reject a unique, independent price level.
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!”