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Carrying out trading operations on the financial markets with marginal financial instruments has a high level of risk and may lead to the loss of invested funds. Before you start trading, please take all conceivable precautions and ensure that you fully recognize all risks and have all relevant knowledge for each trade. None of the trading recommendations provided in this book should be considered a provision of individual consultation for concrete investment decisions. The given recommendations can be used only as an illustration of the described principles. The author is not liable for any profits or losses that may be caused directly or indirectly by using the information presented in this book. The author describes the rules of trade that he has learned from his personal, long-term experience on the currency market. These may not necessarily reflect the views of other experts in this field who have used other trading strategies.
My first book, Trading Code is Open: ST Patterns of the Forex and Futures Exchanges, was published in late April 2017. Over the next month, I received dozens of reviews via e-mail, many of them from traders thanking me for publishing the strategy and, often, asking additional questions.
Trader and writer Jim Brown gave me the following excellent advice: «I believe that when explaining something new to someone, even with some trading experience, you really have to go through it step by step. Sure give a brief overview of the method itself then start from the beginning, running through all of the scenarios one by one with the finer details explaining the whole setup».
Over several years, using and improving the ST Patterns trading system, I developed the ability to use the system to rapidly produce a technical analysis of stock charts. However, what now seems simple to me is often difficult for those who are studying this strategy for the first time.
About a month after the release of the first book, I realized that Jim was right and it was necessary to write a manual that provided step-by-step, detailed explanations of the technical part of the ST Patterns Strategy.
The demonstration of the successful operation of the technical system presented in this book is not meant to encourage readers to trade on the exchanges. The profession of a trader is one of the most difficult specialties. The purpose of this manual is to show the method of graphical analysis with which I have actually worked, which, nonetheless, cannot guarantee the receipt of real profits.
The theoretical rationale for this strategy is described in sufficient detail in the first book, but it will be briefly repeated in this manual: all the charts of liquid exchange instruments mainly consist of Structural Target Patterns or ST Patterns. Opened models, followed one after another, create a market picture. The ability to recognize patterns and act correctly when they appear gives the trader an effective tool for technical analysis.
All the pictures shown here can be viewed more closely on the historical charts or on the Google Drive at: [+ https://drive.google.com/drive/folders/0B3brjTjlH1PIVjF1cHQtbkRodFU+]
Levels of price peaks and recessions
If the prices of the peaks and slumps are broken by a sufficient amount equal to x pips, traders push the price in the direction of the breakthrough, as shown in Figure 1.
Figure 1: Breakthrough of the fractal level by x amount
To determine the local price minimum and maximum, a fractal indicator is used, which denotes local extremes by arrows. The breakthrough value of x is a variable value and can be different for each trading instrument depending on its technical characteristics, for example, volatility. Additionally, this value can vary with one tool over time.
At the moment of the break between the two last oppositely directed fractals, a fractal Corridor is formed, as shown in Figures 1 and 2. The level of the start line coincides with the price of the broken fractal. The Stop line corresponds to the level of the last oppositely directed fractal.
Three candle fractals
This situation is important for short-term trading. Levels occur near the prices of the peaks and the slumps of three candlestick fractals, which also include inner side candles. A similar situation is shown in Figure 2.
Figure 2: Breakthrough of three candle fractals with an inner candle
On the chart, there is a fractal indicator showing the upper and lower levels of the central candles in the group consisting of three candles. The condition for the appearance of the ST Pattern fractal is the presence of one candle to the left and one candle to the right of the central candle. For the upper fractal, the price of the high side candle should not exceed the high level of the central candle. For the lower fractal, the low level of the side candles should not be lower than the low of the central candle.
To analyze the charts, you will need three tools: a level indicator, a fractal indicator, and an ADR indicator (Average Daily Range).
On the top panel in the trading terminal MT4, there is an indicator of Fibonacci levels, which can be configured as shown in Figure 3 below.
Figure 3: Trading level values
Set up this way, the Take Profit will be 400% of the height of the fractal corridor. The height of the fractal corridor itself will be equal to 100%. The level of 210% is important because in this area there can be significant price reversals in the opposite direction.
The fractal indicator and the ADR indicator (Average Daily Range) can be found independently and installed in the MT4 or MT5 trading terminals, or the can be downloaded at: .
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The ST Patterns Trading Manual will provide a detailed hourly technical analysis using EUR/USD pairs for May 2017. Calculations of the results are performed based on the actual results without rounding off. The strategy shows a good technical result for the EUR/USD pair in May—equal to about 300% of the initial deposit, with a risk of 10%. The study of the GBP/USD pair will help readers understand the importance of determining periods of market uncertainty in a timely fashion. The month following the first book’s «Trading Code is Open: ST Patterns of the Forex and Futures Exchanges» publication perfectly demonstrated the possibilities of using the trading system and showed how almost half of the ST Patterns published in this book operate in practice. The analysis, based on accurate calculations, will help traders consolidate the acquired knowledge, and to increase their own skills with Structural Target patterns.