This report illustrates my 4 preferred charts patterns to identify before a breakout.

It's important to note before reading further that due to the fractal nature of the market, you can identify these patterns form within a larger pattern - such as a big accumulation structure. Fractal means patterns form within patterns.

The schematic below shows the idealised points of entry (green circles) when applying the Wyckoff methodology. The 2 upper green circles represent breakouts from an accumulation structure. In essence, I'm trying to identify 1 of the 4 optimal chart patterns to form before these idealised points of entry and in the context of a Stage 2 uptrend.

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Volatility Contraction Pattern / Wyckoff Wave

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Cup with Handle

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High Tight Flag

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Darvas Box

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With each of the 4 chart patterns above there are several keys things to identify before taking an entry:

  • Reduction in price volatility;
  • Lessening of volume before the entry (preferably half the 30 day average);
  • Low risk technical area of support preferably less than 7% from the pivot point.


The above 3 points are important to help you reduce risk and better identify supply has been absorbed (less selling coming to the market).

Remember too, never trust a breakout without a large increase in relative volume.

We can go a step further by understanding the optimal Japanese candlestick and candlestick patterns we want to see at the breakout. Japanese candlesticks contain a wealth of information regarding supply and demand.

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The first 3 candlestick patterns are ideal to see at a breakout. The 4th pattern is more common to see at a spring.

Hope you've found that educational.

JC

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