A friend of mine from college and I went to watch a band play in Manchester – our old stomping ground – and decided to kick things off early by visiting some old haunts in the afternoon.

Affleck’s Palace, a kind of multi-storey flea market, was much the same as I remember it (although it’s a bit cleaner and better organised these days), and for all your vinyl needs it’s great to see Eastern Bloc records still going strong.

I was sorry to see the skateboard shop (Split Skates) has long-since gone, but we did manage to find a new one… God knows what all the cool kids thought of us two old boys rifling through all the latest skating gear, but we were too busy having a good time to care!

Anyway, as I’m sure you know, looking around shops can be thirsty work. And it wasn’t long before we were propping up the bar in some of the Northern Quarter’s finest watering holes.

The conversation and the drinks were flowing nicely and we got onto the day-to-day challenges we each face in our work these days; he was telling me how his mental health patients never fail to keep him on his toes; I was describing to him how the chaotic nature of the markets can have much the same effect – you just never know for sure what you’re going to get day-to-day.

By the way, I always forget how alien trading can seem to people who have no real interest in the markets…

Even brand new trading students at least have an eagerness to learn and a vague understanding of the basic concepts. So I was having a really hard time describing how futures contracts work, and how you can actually make money by selling assets you don’t own and buying them back later at a lower price.

I could almost see his eyes glazing over in confusion. (And I do admit, it must all sound a bit weird to the uninitiated!)

By about the third attempt at explaining I was getting quite animated, flailing hands were marking out imaginary price levels in the air and price charts were drawn with a fingertip dipped in beer-froth on the polished surface of the bar

I’m sure it all sounded like random nonsense to anyone who’d popped in to for a quick after-work drink and had to endure our rather loud conversation, so apologies to all. (It’s a great new bar to check out if you’re ever in town by the way: Cottonopolis on Dale Street).

But I did finally see a flicker of understanding when I started to talk about pattern recognition and repeating behaviour. I suppose this was right up his street as a medical professional; it’s the kind of stuff he deals with all day long.

So here are my two favourite ‘starter’ price patterns that even complete trading freshmen can get to grips with quickly.

They are especially useful to know because they give you a way to calculate a target price too (by projecting a pre-measured level above or below the current market price).

The big question is, of course, is there really some kind of mathematical order to the market or is it more of a self-fulfilling prophecy – lots of traders all acting on the same piece of analysis?

The jury’s still out on that one. But as long as a method or technique can earn its keep by giving you a profitable edge, it’s worth hanging on to, as far as I’m concerned!

Let’s have a look at those two useful price patterns now…

1) Head and shoulders

The head and shoulders pattern is made up of three peaks (or troughs: they can happen at the top or bottom of price moves).

There’s the left shoulder, the head, and the right shoulder. Between them, they give a ‘neckline’ which you can use as your signal to enter a trade, once the price breaks through it. Take a measurement from the head to the baseline and extend out by the same distance below the pattern, and you’ve got your target price.

Here’s how it looks:


And a real-life example:


If you spot the head & shoulders pattern you have a location to enter a high-probability trade (on the break of the neckline) and it’s also a warning sign that the market could be about to make a strong move. In the above example, if you were holding a trade to the long side, this is your sign it’s time to bail of the trade!

2) Double tops and double bottoms

A double top or bottom is a failed test of a previous high or low. It’s called a failure because price doesn’t move past the previous high/low. It’s another potential reversal pattern. The double top looks like a ‘M’ shape and the bottoms look like a ‘W’.

You can enter a trade when the market confirms the pattern by moving back past the point of the central peak. The height of the peak can be measured and projected out as a price target.

Here’s how they look:


And a real life example:


So there are two reliable and frequently occurring price patterns you could go and hunt for right away, even if you were absolutely brand new to trading.

Remember to cross-reference the different time frames too – you might find a very strong pattern on a long-term time frame, even if you actually trade it on a shorter-term chart.

Be Prepared: Market Moving Data Coming This Week (London Time)

Wednesday 25th November
13:30    USD    Core Durable Goods
15:00    USD    New Home Sales

Thursday 26th November
All Day    USD    Thanksgiving Holiday

Friday 27th November
All Day    USD    Day following thanksgiving (early close for domestic US markets)
09:30    GBP    Gross Domestic Product

Monday 30th November
15:00    USD    Pending Home Sales

Tuesday 1st December
08:55    EUR    German Manufacturing PMI
08:55    EUR    German Unemployment Change
09:30    GBP    Manufacturing PMI
15:00    USD    ISM Manufacturing PMI

It’s a bit of a holiday-shortened week as far as US markets go: Thanksgiving on Thursday and the early close on Friday will see less liquidity than usual.

The ‘Black Friday’ sales on Friday will give the markets some focus, though. Expect the sales figures to be pored over and for markets to react accordingly. Personally, I just can’t see the appeal of queuing for hours in order to have a fight over a cheap toaster. But perhaps that’s just me; it does take all sorts I suppose!

Watch out for those chaotic shopping scenes reported in the news on Friday.

And until next time, happy trading!

P.S. Don’t forget to pay the TN Facebook page a visit here. Hit ‘like’ and leave me a quick comment if you can.