Chapter
3 Definitions,
Structures,
&
Examples
Profiting with Chart Patterns
3-2
nirvanasystems.com
Pattern Structures
We are going to be talking about pattern structures as we go through the seven
patterns. Pattern structure tells us when to get in and when to get out of the trade based
on the pattern. Each of the patterns that we are going to look at has a defined target.
Most of them also have an optimal entry zone defined.
Figure 3-1.
Structures Tell Us When to Get In and When
to Get Out of a Trade
This chart is a support and resistance level example. I have my Eighths scale drawn
and you can see that the ideal entry would be at the 1/8 line, and your target (the
amount you are trying to make off the chart) is at the 4/8 line. What if the trade is
signaled higher? This gets back to Reward:Risk. If you enter at the 1/8 line and you
get out at the 4/8 line, the Reward:Risk is 3:1. You expect to make the move from 1
to 4, and you risk from 1 to 0. So, that is a 3:1 ratio. This is what we are trying to
maintain if we can. A pattern structure picture will be defined for each of the seven
patterns as we go through these essential elements and how to use them.