Profiting with Chart Patterns book

Definitions, Structures,

& Examples
We have covered the tools that will be used to analyze our patterns. Now let’s look at 
each of the seven patterns individually. We will discuss how they are defined, 
structures that support them and review specific examples in the market. With most 
examples, we are going to use the Eights tool to manage our trades after confirming 
them. 
Pattern Classifications
Here are the seven patterns that I have found to be most predictive in the market. I 
actually wrote a little book a number of years ago called 
7 Chart Patterns that 
Consistently Make Money
. When traders read it, they often comment on how simple, 
yet powerful, these patterns are. The seven patterns we will discuss are as follows:
•
Support and Resistance
•
Trend Line Break and Reversal
•
Saucer Formations
•
Fibonacci Retracements
•
Price Gaps
•
Volume Climax and Trend 
•
Consolidations
There are a lot of books out there that talk about chart patterns of all kinds—from 
channels to head and shoulder patterns, double tops, double bottoms, and so on. But, 
if you carefully look at these other patterns, they are all derivatives of these first 
seven. A head and shoulder pattern is really a break of the trend line or support level. 
A double top is a bounce off a resistance level. A double bottom is a bounce off a 
support level. So, all patterns can be broken down into these seven patterns.

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Chapter 
3 Definitions, 
Structures, 
& 
Examples
Profiting with Chart Patterns
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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.

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Chapter 3 Definitions, Structures, & Examples
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 Nirvana Systems Inc.
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Profiting with Chart Patterns