March 22, 2007 at 12:54 pm | | Comments 6

Trading Chart Patterns: Why Cleaner is Better

Gut feel comes with experience, but the only problem is that it’s based on feel. That means that discretionary trades which are based on feel are subject to your moods. So, whether you’ve been on a hot streak, a cold streak, you’re distracted or just plain tired, your trading method itself will vary. We all see results vary from time to time, but our method should only vary when we want it to!

I’m a chart pattern trader, there’s no doubt about it. Almost all of my trades are based on the charts, and for a few good reasons. Some time ago, I outlined the reasons why I use technical analysis, but here are the two biggest reasons why my trades come from chart patterns:

    Well-defined entries. Entries are only a portion of the battle, but it is still a tremendous advantage to have good timing. Clean chart patterns and trend lines give me a razor-sharp level at which a stock will officially be back on the move. Once I’ve identified these levels, all I have to do is execute.
    Well-defined exits. Knowing where to get out is arguably the most important aspect of any given trade. The tighter the chart pattern, the less I am putting at risk and the better I know at which point I’ll need to cut bait.

There’s no incredible magic about how clean or ‘tight’ the pattern itself is in terms of reliability, but there is some real substance in knowing exactly at which point in time you should be IN or OUT of a trade. That is of course derived from the chart pattern itself. A breakdown from a well-defined bull flag or ascending triangle pattern gives me a specific exit plan, and that puts me well ahead of the curve by telling me it’s time to step aside and move to cash, or simply shift those funds into a new setup.

This is the basis of our swing trading at We locate the chart patterns for our members and then explain why the stock is a trade candidate to begin with. Every single trade is provided with a specific entry level, a stop loss, and typically two profit targets so that we can scale out of the trade and take profits into strength (with price projections also being based on the chart patterns).

If you aren’t trading the cleanest patterns in the market, maybe it’s time you should. Check out our free trial today, and put some consistency into your method!

Jeff White
President, The Stock Bandit, Inc.