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Some of the patterns you read about earlier in this guide can work with long and short-trades. Here are a few points to use with regards to certain patterns and how they will relate to your short and long-trades.
Pennants
You should enter a long-trade when a stock begins to break out from the top of a pennant. You can always place a stop-loss at the bottom of the pennant to be safe.
A short-trade should go along the bottom part of the pennant if the stock appears to be going downhill. You need to look at how the pennant is formed so you can get your short-trade completed right as it ends. After all, the pennant is a continuation pattern.
Head and Shoulders
A head and shoulders trade can work with a short sale when the stock is about to go down once the pattern is complete. For this, you must complete the short sale around the neckline. This is the area where the two lows or pullback totals are located on the pattern. Those two lows are the ones that come after the left shoulder and the head are formed. Starting the short-trade after the value reaches the pullback total for the third time is perfect to do. This is right as the right shoulder has been formed.
A long-trade is better when the head and shoulders pattern is in an inverse direction. Watch as the neckline is formed and see how the stock will move up after the right shoulder is formed. Again, you should place the trade only when the right shoulder is fully formed and the declines start to taper off. This is to keep you from waiting too long to actually experience the stock going up in value.
Cup and Handle
A long-trade is perfect when the cup and handle is formed during a downtrend and then reverses to an uptrend. For this, attempt a long-trade when the price starts to move out of the handle. Review the handle lines and see how long it takes for the price to break out.
A short-trade is not recommended in the cup and handle pattern. The pattern could run for a very short period of time, thus making it harder for you to perfectly time a short sale. If you were to make a short-trade, you should try to execute the trade when the value of the stock starts to increase and then stay steady before the cup is formed. One common feature of a cup and handle is the stock rising in value and then trading consistently without much change right before the cup is formed. Look for a stock with at least six candlesticks trading without any real changes before completing a short-trade. The stock should start to fall after a bit. Keep the short sale contract as brief as possible at this juncture.
No matter which of these two trades you enter into, you should look at how well the bottom part of the cup forms. Sometimes the cup might be rather flat in its midsection. Wait for a few candlesticks to form to see how the stock moves up in value. This is around the time you should enter into a long-trade.
Meanwhile, you would have to look at the various cup and handle patterns that might have developed in the history of the stock if you want to make a short-trade here. Look at how long it took for the cup to form. This gives you an idea of how long a short sale contract should last. Start this contract as soon as those small candlesticks start as it is when the stock is about to fall, thus giving you the best potential and lowest risk.
Triangle
The trading rules for the triangle should be the same as that of a pennant. Place a short-trade when the stock is going to break out on the lowest end of the triangle. Avoid entering a long or short-trade during the formation of the triangle if possible. Only enter into it when you see the triangle is about the end. The changes in the highs and lows of the triangle might be short in duration, thus making it harder for you to arrange a short or long-trade.
