Patterns Within Patterns

Patterns within Patterns

Patterns in Patterns really is just a development of our ‘Pattern Play Strategy’ however, it can be used in other scenarios so definitely take note of it and as always, backtest it until you fully understand the topic enough to apply it into your trading. 

In theory it is exactly what it says ‘in the title’ we are looking for a pattern to form inside a pattern to provide us with another confluence to take a trade. This could be a reversal pattern within a reversal pattern or a continuation pattern within a continuation pattern. As long as the two confluences align and point towards the same end goal of price action then this becomes a very valid confluence to add to your trading setups. 

Lets run through a few examples:

Patterns withing Patterns 1

So here is a really basic example using the Tradingview Trendline tool; as you can see we have a larger Ascending Channel  Pattern, a reversal pattern. From the Pattern Play Strategy we now understand that we would be looking to execute on the 3rd touch of the channel as long as the other confluences agree such as the HTF and Market structure (such as a double bottom or double top). We must make it clear that by using Patterns within Patterns will not change this; we will still be looking for those confluences in order to take the trade. Do not go taking these setups on their own!

To add another confluences to our Pattern Play Trades what you often see is a Pattern within the larger Pattern. So in this example we have the larger Ascending Channel completing it’s 3rd touch but we also have a smaller Ascending Channel (often seen more clearly by dropping down a timeframe) within the pattern that it is completing its 3rd touch. When these two patterns combine you often seen high rejection and some lovely moves. Of course these work when taking a buy position too, you would simply be looking for two or more reversals patterns meeting at a point where there are multiple confluences for a reversal.

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Here is an example of EURCHF on the 4h chart. 

Price action correctively falls down to complete the third touch of a larger Falling Wedge Reversal pattern. On the HTF there is also a Key Level (1.05000) within this region from which price action has rejected multiple times (in order to keep our charts clean and to not overcomplicate things we have removed this for now). What we want to focus on is that final piece of price action before exploding to the upside. As you can see we have a larger Falling Wedge that contains a smaller Falling Wedge inside. Both patterns complete their 3rd touches when meeting resulting in this trade exploding to the upside. This is how powerful patterns can be IF used correctly within the right area. 

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And finally here is an example of a Sell position where price action has completed a Larger Ascending Channel in conjunction with the completion of a smaller rising wedge on the way up. To enter this type of position you would simply zoom down to the 1hr timeframe to see where the 1hr candle rejected and enter using a sell stop, a couple pips below the 1h bearish candle close. From this example you can see that price action eventually completed the 90% – a lovely trade to the downside.