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The Pattern Trader Forex Trading Strategy

The Pattern Trader Forex Trading Strategy

Pattern Trader Forex Trading Strategy: A Set-and-Forget Approach

The Pattern Trader forex trading strategy stands out as a 100% price action-based system, ideal for traders seeking a set-and-forget approach. This strategy is particularly advantageous for individuals with limited time to monitor their trades actively.

Inspired by the trading strategies and techniques of Mark Shawzin, the Pattern Trader strategy centers on the daily chart timeframe, offering a convenient routine requiring minimal daily oversight.

Understanding the Forex Pattern Trader Strategy

The core principle of the Pattern Trader strategy revolves around identifying trend reversals followed by a confirmation of the market trend change before seeking an entry signal. It focuses on two key aspects in a specific sequence:

  1. Trend Reversals Using Major Chart Support And Resistance Levels:
    • Look for prominent chart patterns such as double tops, double bottoms, triple bottoms, triple tops, etc.
    • Identify significant support and resistance levels or price channels, both horizontal and diagonal.
  2. Trade Entry Signals (Daily Inside Bar or Chart Pin Bar):
    • After the market reverses, wait for the formation of either a daily inside bar or a pin bar.
    • Utilize these candlesticks as signals to place pending buy stop or sell stop orders.

These daily inside bar/pin bar formations, occurring from 1 to 7 days after the price reversal, serve as crucial entry triggers. The strategy is versatile and can be applied across various currency pairs.

Preferred Timeframes for Pattern Trader Strategy

Strict adherence to the daily timeframe is recommended. Lower timeframes tend to introduce excessive market noise, potentially impacting trade accuracy and effectiveness.

Illustrative Setup Example (Buy Setup) Consider the following instance of the Pattern Trader setup on the USDCHF daily chart:

  • Observe the price rebounding from a significant support zone, with visible triple bottom formation providing confirmation.
  • Following a temporary price retracement, a daily inside bar materialized.
  • The breakout from this daily inside bar witnessed an impressive 390-pip upward movement.

The Pattern Trader Forex Trading Strategy

Forex Pattern Trader Trading Strategy: Sell Setup Illustration

An illustration of the Pattern Trader strategy’s sell setup on the daily trading chart of AUDUSD:

  • Observe the formation of a double top pattern within the forex charts.
  • As the price confirms the reversal, a downward movement is witnessed.
  • Following this movement, the market briefly slows down, forming a daily inside bar.
  • The breakout from the inside bar triggers a substantial downward movement of approximately 300 pips!

The Pattern Trader Forex Trading Strategy

Advantages of The Pattern Trader Forex Trading Strategy

This strategy offers several advantages:

  • Confirmed Trend Reversals: Trades are initiated after confirmation from major chart price reversal zones.
  • Set-and-Forget Strategy: Requires only a few minutes for daily chart analysis, pending order placement, allowing traders to check on trade status later. Ideal for individuals with busy schedules.
  • High Profit Potential: Based on the daily chart, potentially generating hundreds of pips in profit per trade.
  • Reasonable Risk-Reward Ratio (R: R).

Disadvantages of The Forex Pattern Trader Trading Strategy

While advantageous, it’s essential to consider the limitations:

  • Inherent Market Risk: Despite its effectiveness, this strategy does not guarantee success and may incur losses. Market movements remain unpredictable, necessitating risk management and acknowledging that it’s not a fail-safe method.

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