Full-time trader's favorite patterns

we're back with Jeff White for part two of our interview and we're talking with him about some of the technical analysis tools and the ways he looks at charts to find good opportunities each day yesterday in part one we talked about the fact that he's looking for several patterns that he's flipping through charts the night before to whittle them down to kind of a basket of stocks that he's going to watch for that day so Jeff thanks for joining me on the phone again today hi Tim thank you so let's talk then more about how you Whittle these choices down you have each night obviously there you've got a huge Market of choices to choose from if you're looking even just at stocks so talk a little bit more about how you Whittle it down to something manageable that you're going to watch that day okay well uh yesterday we kind of talked about this a little bit and I referred to my preference for a clean chart pattern so beyond that what I'm really going to do is weigh the expected risk and reward of that potential trade and by that what I'm looking at is how far do I expect this pattern to uh project price to if it is confirmed so if price does actually make a move out of this pattern and begin to confirm that pattern how far do I expect it to carry that's going to be based on the market conditions it's pattern itself and uh the chart of that particular stock if there's plenty of room to run and I'm going to just really probably take it you know for example we're talking about that bull flag pattern I can take a measured move and add that onto the breakout area and that's going to be my expected profit if the trade fails meaning price is going to move back down beneath the consolidation area of that flag pattern then I know that that's my expected risk in the trade so I've got an expected reward and risk and I'm really going to weigh that uh for any trade candidate that I'm eyeing for the following day and then that's really going to help me narrow down my list I might find some trades that are kind of a one toone risk to reward ratio maybe for example I'm looking at the chart and I'm seeing a very clean nice bull flag pattern that ordinarily I would take but maybe a short distance above that there are some major key resistance that stock is going to be facing so my true reward in that stock may be very limited due to the fact that there's another level of resistance that stock would have to clear so in that case you know I'm looking at a risk reward that's probably more of a one: one and that's the type of trade that I'm going to ignore I'm going to move on past that I'm going to look for something that's going to give me some multiple uh profit Pro projection or expectation versus what I would expect to lose if the trade fails and I think it's very imperative that every Trader review their setups and their plays and consider what you can lose in a trade that's something that a lot of newer Traders and even some experienced Traders fail to recognize and before they know it they're deep you know in the red on a trade uh simply because they didn't uh count the cost before they entered that trade and so I know that I'm going to be WR plenty and that's okay with me because really my personal trading style is one that's based on having a number of at bats I feel like over time and I know that over time I'm going to have uh plenty of good siiz winning trades and so if I can manage my risk on the trades when I am wrong uh it's going to allow me to be net profitable and that's really what I'm aiming for yeah I like that you bring up the uh batting average because it's good to remind us all that Hall of Fame uh batters in the major leagues fail 6 5% of the time and I think that it's interesting to relate that to trading as well one of the

things you talk about let's go back to that bare flag pattern for just a second obviously it's an uptrend and it consolidates for a few days and then it starts to resume its Trend back up again how much do you want to see that bar or in a daily chart kind of start to resume the trend before you say okay I it's ready I'm ready to get in what a confirmation are you looking for uh I'm looking for very minimal confirmation I basically as soon as price is able to clear uh that trend line or that resistance level uh I'm looking to enter a trade and so uh for you know for example for a $20 stock let's say that $20 that the whole number at 20 is the key level I might place my order for uh a buy entry at 2005 so I'm just basically looking for a very small move through that level and make sure that it's cleared and then I'm looking to enter a trade because uh that's my indication that price is now back on the move that it has punched through that ceiling and it's now ready to resume its upward move are you always placing a stop- loss below if you're wrong and a profit Target above the moment you're into a trade I'm always placing a stop loss below if I'm wrong now on the profit Target it really is going to depend on the trade time frame that I'm taking this play for if we're talking about a swing trade what I really like to do is use bracket orders and so yes I do have both my entry well all of my entry my stop and my profit Target all lumped into one big order as a bracket order so uh for a swing trade for any multi-day move that I'm looking to capture that's what I'm going to do and I kind of utilize a kind of a set it and forget it type of approach with those if it's an intraday play so I'm day trading this stock then it's really going to be based on momentum in the stock so I I'm going to enter the trade I'm going to immediately place my stop loss in case something goes haywire and I need to uh exit that position it really reduces the emotional toll of having to reach up and actually exit that order exit that position if I know that this stock is now turned around so I like having a resting stop loss in place if I'm wrong but in terms of a day trade for profit taking I'm really going to try to ride that trade and see how far that momentum can carry if I get a very sharp move uh right after my entry then I'm going to be taking some of my position off rather quickly the sharper the moves intraday the more prone they tend to be to reversal and so uh if I start to get a gradual move through that level then I can stay with it a little bit longer and maybe get a little bit you know almost like a 45 degree angle type of move on the intraday chart that's going to be a much more sustainable pace of advance and that type of move will allow me to stay with that trade much longer and look to hopefully get a little bit more out of the trade so uh that's really what I'm trying to do so on the intraday trades I don't necessarily have a resting limit order to take profits um I'm really going to be gauging the momentum of the stock and managing my exits manually that way on the profit side all right so that would be the bull flag I'm assuming you have maybe a handful of patterns that you're always looking for they're your favorites can you mention few of the others yes um I really like looking for channel patterns uh or you know kind

of a rectangle type pattern which follows a trend so for example if price has been declining for a few weeks and then it settles into a very lowlevel trading range uh then I'm going to be watching that very closely if price is able to start leaning on that lower support level then I'm going to be looking to initiate a short sale out of that pattern vice versa on the long side so if I see an uptrend followed by you know a pretty tight well- defined trading range and I'm seeing a high rectangle or high base uh then I'm looking to buy a breakout for that um I also trade a lot of wedge and triangle patterns so for example um uh one trade that I took uh just recently that worked out well was uh kind of a rising wedge type of pattern and this is a stock that

had failed a break out it then sold off pretty sharply and the rally off that selloff was very weak and it came on light volume and really kind of began to stall out and so what happened was it looked like a great spot for initiating a short sale out of that wedge pattern and so uh I initiated the trade and then it that one actually worked so you know they will sometimes fail of course and I know that as a Trader and so um it's necessary for me to always have a stop in place but I'm looking for flag patterns I'm looking for pennant patterns which is like a

flag only the consolidation is narrowing rather than uh outlined by two parallel trend lines um also looking for triangle patterns so uh symmetrical triangle patterns ascending and descending

triangle patterns those also are very helpful for me to recognize key levels where price is begin beginning to get kind of squeezed between two prices and if it can move through the right side of that pattern then I'm looking to initiate a trade there Jee I'm glad you talked about the good trade I always have to ask talk about maybe a trade that didn't work out and what you maybe learned okay um I was looking at a trade actually yesterday that I was waiting for a breakdown in this particular stock it was leaning on a support level and it tried to break through that so I initiated a short sale and then price quickly ran back up and stopped me out so uh you know that does happen but my trading style is to keep my stop my stops very tight and I do know that around key levels in stocks whether they're support or resistance a lot of Traders are monitoring the price action there's a big game that can take place so sometimes you'll see kind of head fake moves and I do occasionally get head faked and that's simply part of trading but uh that happened to me yesterday it was a little bit frustrating but the damage was actually pretty minimal all right good I appreciate you sharing that with us I always like the honesty of the good and bad trades that's why I ask both to

tomorrow we're going to talk with Jeff about how he became kind of confident as a Trader and got to that point where he knew he could make a living doing this and then maybe what's missing out there for a lot of Traders and why they can't achieve that same level so we'll talk to Jeff again tomorrow we'll see you then