Working 4 Chart Patterns As Economy Disses Fed

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Simpler Trading Team

Dec 02nd 2022  .  4 min read

The economy thumbed its nose at the Federal Reserve (Fed) and the stock market is feeling the brunt of this inflation fight.

The disrespect to the Fed came in the form of the U.S. nonfarm payroll employment numbers released Friday morning.

Total nonfarm payroll employment increased by 263,000 in November, and the unemployment rate was unchanged at 3.7 percent, the U.S. Bureau of Labor Statistics reported. The jobs increase was well above market expectations and unemployment was on par. Strong jobs numbers were bolstered by a spike in hourly earnings monthly and annually.

As shared in Simpler Insights previously, strong jobs numbers are not what the Fed wants in its efforts to curb inflation with higher benchmark interest rates.

With the ongoing friction between the Fed’s efforts to curb inflation and the economy bullishly moving forward, traders need insight into strategies for playing this wild market.

Options with Sam Shames
Futures with Jack Roberts
Fibonacci & Voodoo with David Starr

Traders work 4 chart patterns during inflation fight

Chandler Horton, Director of Day Trading Strategies at Simpler Trading, put together a deep-dive into stock market conditions and the technical analysis chart patterns he follows.

As a day trader, Chandler focuses on four main chart patterns to navigate this up-and-down market. Here’s what he watches.

  • Double bottom pattern – This is commonly called a “W” pattern that indicates a strong change in trend from a previous downside move. Each bottom point on the “W” is considered a level of support. Traders can recognize a bull flag when price action goes straight up, pulls in a little bit, and then continues higher. Another rebound adds to the bullish pattern where price is moving with potential to the upside.
  • Double top pattern – This is commonly called an “M” pattern and is a strong, bearish reversal when price hits a higher level at distinct, consecutive points – the tops of the “M.” This pattern can be difficult to spot because traders look to confirm the pattern when price falls below price support.
  • Bull flag pattern – This is a momentum pattern on charts within a strong uptrend. The pattern resembles a flag pole with price movement that follows a flag outline. Higher volume pushes price higher to form the pole and then lighter volume consolidates price  near the top of the pole for the appearance of a flag on charts.
  • Bear flag pattern – Like an upside down flag pole, this bearish momentum pattern shows an extension of a current downtrend. Price declines, followed by a short retracement and consolidation of price, and then falls further.

“These patterns are not only formed intraday but also on bigger picture charts,” Chandler said. “The combination of using both intraday and the bigger picture can help add extra confirmation of market conditions to your trading.”

Why does Chandler constantly watch for these four patterns?

“It boils down to understanding price action and understanding the patterns that stocks form over and over and over,” Chandler said. “These are ones that I think are the most sound, the most powerful, and the ones that I’ve at least come to trust and really look for in day trading.”

4 chart patterns help find potential trades

Learning to recognize these patterns, Chandler said, helps traders understand where to be positioned for a potential trade.

Chandler looks for these four patterns across different time frames – from minutes to hours to days – to achieve that “bigger picture” view of price action.

“As we become more experienced and have more chart time, our brain starts to recognize these patterns,” Chandler said. “As patterns start to unfold, this helps anticipate trading scenarios.”

Chandler continues to incorporate these four chart patterns even in a volatile, Fed-influenced market where price action can swing heavily in just minutes.

“The pattern is what gives you edge and allows you to unlock good risk vs. reward,” Chandler said. “Knowing where to enter and what to expect, helps traders to either manage expectations as the setup is working or, again, just get out because what should happen didn’t.”

Follow Chandler and the Simpler Trading team live in the Simpler Day Trading online chatroom.

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