How To Trade Chart Patterns: Part 2

In this article we will focus on the more practical side of Pattern Trading: Entries. You will learn the two attitudes at trading that will determine your Risk:Reward ratio, the frequency of your trades and eventually you overall profitability.

As mentioned in part 1 of 'How To Trade Chart Patterns', all trading decision you will make should be based on Support and Resistance. Buy at Support, Sell at Resistance, it is a common truth in trading. But things are a bit more complicated.

There are two 'attitudes' to trading and to entries in particular: The Aggressive trader and the Conservative trader. We will now describe the two:

The Aggressive Trader - The aggressive does not wait for a breakout of Support or Resistance to enter a position. He takes trades early, right at the Support level (long) or at Resistance for short trades. The advantage of such trading is that the reward is much greater: the aggressive trader enters earlier, before the big move had started, and his entry point is better. The risk:reward ratio of an aggressive trader is much higher than the one of the Conservative trader, because his profit targets are much far from his entry. The disadvantage is that its signal is somewhat weaker than the entry of a conservative trader: he does not wait for confirmation of trend - in the form of breakout - but enters right away.

Example of Aggressive entries:

The Conservative Trader - It is a cautious approach to trading. The Conservative Trader enters only after strong confirmation to the direction of his trade. Not in the traditional way of indicators, but in the Chartistic way - breakout. For each chart pattern, the Classical Trader waits for the breakout of the pattern to enter his trade. The classical will also enter in case of pullback to the trend line that was broken.

The advantage of Conservative Trading is that the signal are much stronger and have better probability of success. The disadvantages are several:

First of all, the risk:reward ratio for a Conservative Trader is considerably smaller than the one of a Aggressive Trader, due to his late entry. Also, when entering at a breakout the place for stop-loss is obscure and also diminishes the risk:reward ratio. The Conservative Trader also enters less trades than the Aggressive one, so higher discipline is required.

Example of Conservative entries:

In the next charts the entry points of an Aggressive and Classic Traders are shown:

*EXAMPLE OF A DIAMOND*

Each trader will eventually choose his attitude at trading. Do not fear to change your attitude if your profits are not of satisfactory. For each Chart Pattern taught, entry rules for both Aggressive and Classical traders will be described to
ensure the profitability of both trading attitude.

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