Here's a pattern that happens all the time and is important for taking advantage of a lot of intraday buying and selling opportunities. You'll notice that when price makes a "U" formation at a turning point there will commonly be a base built within it. Think of it as a cup, where the bottom inside the cup acts as a potential turning point for price. To make the most out of these you would want to scale down to smaller timeframes in order to pinpoint the exact bottom of the cup formation.
It is important to note that many times the "bottom of the bucket" coincides with the base of a spike, effectively "stabilizing" price for the interim and using it as a support or resistance level.
If the base of this cup lines up with historical support or resistance all the better. Many times you will see the "stabby" bars in trends get nulled and price will turn at these bases. It happened today on EUR, for instance.
If you take a look at your charts you're going to find them everywhere. They happen over and over again; I look at them very frequently.
To help clarify some questions I received about this pattern, I made a video, as well, which you can view here: http://www.nobrainertrades.com/2008/10/bucket-pattern.html
Below are some recent examples on EUR and GBP.
3 comments
Sorry for being thick but I cannot tie up the description with the diagrams - might help me if you could draw the relevant "U" with a squiggly line.
AlbertJee
This is something new to me, great
Mr Steve i would like to enquire about the 40pips stop loss method you adopt, is there any calcuation or something els that form up the 40 pips?
@AlbertJee
maybe you can use ATR(14) e.q. if yo trade EUR/USD in H1 (60 MinutesCharts)the ATR(14) Value from the Previous Candle is = 52; you can Times 2 so 52*2 = 104.
That is your Stop Loss 104 pips for EUR/USD.
Regards;
Manus168
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