🕰️ The Art of Long-Term Trading
Table of content
- 🕰️ The Art of Long-Term Trading
- 1️⃣ Double Top/Double Bottom Patterns
- 2️⃣ Pig’s Hoof Pattern
- 3️⃣ Head and Shoulders & Inverse Head and Shoulders Patterns
- 4️⃣ Cup and Handle Pattern
- 📈 Pros and Cons of Long-Term Trading
- 👍 Advantages
- 👎 Disadvantages
- 📚 Tips for Successful Long-Term Trading on eToro
- 🎯 In Conclusion
- Trading Technical Analysis: • Learn more📝
- Trading Basics:
- Candlestick Patterns:
- Contrarian Trading and Pattern Recognition:
- Trading Patterns and Strategies:
- Market Sentiment and Volatility:
- Technical Analysis:
- Trading Patterns:
- Trading Features & Strategies:
- Indicators & Analysis:
- Market Conditions & Trading:
- Disclaimer And General Risk Warning applicable and relevant to all platforms listed
- Author & Expert Trader - Financial Analyst:
When it comes to long-term trading, the key is to identify specific candlestick patterns that signal significant price movements or trend changes. These patterns are ideal for traders who want to capitalize on longer trends spanning months or even years. So, without further ado, let’s dive into the top 5 candlestick patterns for successful long-term trading on eToro:
1️⃣ Double Top/Double Bottom Patterns
The double top and double bottom patterns are reversal patterns signaling a change in trend. They often appear at the end of a strong trend, with the double top resembling an ‘M’ shape and the double bottom resembling a ‘W’ shape. To trade these patterns, wait for the price to break through the neckline, which is drawn by connecting significant price points at the middle of the pattern.
Below are examples of the double top and double bottom pattern with trendlines and necklines for ideal entry points during trading.
Above is an example of the double top pattern for the asset NSDQ100 on eToro. The formation of the pattern occurred within a month of the trading range (from April 7 to May 7). The upper trendline (green line) serves as the common level or point for price peaks. The neckline (red line) is the common trendline that connects the middle point with the significant lows. At the same time, the neckline serves as the breakout level for the chart. Ideal entry for short trades would be when the price breaks through the neckline.
This next illustration is for the double bottom pattern for the stock ZM which formed within a range or period of 4 months (October to February). Just like the double top pattern, the double bottom pattern formed at the end of a strong trend – for this case, it’s a downtrend. As soon as the pattern formed, the pattern reversed toward an upward trend. The ideal entry point for long trades in this example would be when the price broke through the neckline (green line).
2️⃣ Pig’s Hoof Pattern
The Pig’s Hoof pattern is similar to the double top and double bottom patterns, but it requires the RSI (Relative Strength Index) indicator as a confirmation of the trend direction. The pattern features two peaks touching a common trendline and a neckline, which serves as the breakout level. The RSI indicator helps to determine if the trend will move upward or downward.
Below is the example provided for the double bottom pattern with an RSI indicator to complete the requirements of a Pig’s Hoof Pattern. The formation occurred within a range or period of 4 months (October to February).
In the illustration, the troughs of the double bottom pattern are projected towards the lines on the RSI indicator. To determine the direction of the trend on the RSI indicator, simply draw a line connecting the target points (black arrows). If the line moves toward an upward direction, the trend is expected to move upward. On the other hand, if the drawn line moves toward a downward direction, the trend is expected to move downward.
3️⃣ Head and Shoulders & Inverse Head and Shoulders Patterns
Head and Shoulders and Inverse Head and Shoulders patterns are reversal patterns that signal a change in trend. The Head and Shoulders pattern has three peaks, with the center peak (head) being higher than the side peaks (shoulders). The Inverse Head and Shoulders pattern is simply the inverted version of this pattern. To trade these patterns, wait for the price to break through the neckline drawn by connecting the bases of the head and extending the line towards the ends of the shoulder bases.
The image above shows an example for the head and shoulders pattern and inverse head and shoulders pattern – the counterpart of the head and shoulders pattern. The head and shoulders pattern formed within a range of 3 months from August to November of 2019, while the inverse head and shoulders formed within a range of 2 months from December to January.
For both cases in the image, both the heads were always more significant than the shoulders. The black dashed lines indicate the peaks of the shoulders while the blue line serves as the neckline that dictates the breakout level. To draw the neckline for the head and shoulders pattern, simply draw a line connecting the base (or legs) of the head, and extend the line towards the ends of the shoulder bases.
Ideal entry and exit points would be when the price breaks through the neckline. Also, the trendlines do not necessarily need to be parallel with each other, or horizontal – as shown from the example.
4️⃣ Cup and Handle Pattern
The Cup and Handle pattern is both a continuation and reversal pattern, depending on its location. It features a price fluctuation resembling a cup, followed by a momentary price drop forming the handle. The breakout occurs when the price breaks through the trendline after the handle has been formed. The handle should always be smaller than the cup, and the cup should form a ‘U’ shape.
For this example of the cup and handle for AAPL, the formation of the pattern happened during a momentary downtrend within a range of seven months (from November to June). As soon as the pattern is completed, the trend continued toward an uptrend.
In this illustration, it is noticeable that the significant points happened at the trend line or neckline which is established by connecting the peaks of the cup and handle. An ideal breakout point in this regard would be when the price breaks through the neckline.
This next illustration is an example of the reverse cup and handles pattern for COTTON – trading within a range of 3 months (from December to March). For this case, the pattern formed at the top of an uptrend market. Just like the cup and handle pattern, a trend line or neckline is also required to determine ideal entry and exit points on the pattern. In this illustration, the ideal entry point for long trades would be when the price breaks through the trend line.
One important note to remember when dealing with the cup and handle as well as the reverse cup handle pattern is to make sure it completes the form and the price breaks through the trend line. Making a decision to enter a trade as soon as the handle is formed can cause losses and mistakes since the price can move toward the direction of the handle. It is always best to wait until price breaks through the neckline as a basic practice for breakouts.
📈 Pros and Cons of Long-Term Trading
- Longer time frame for decision-making.
- Lower impact of short-term market noise.
- Reduced frequency of trades, leading to lower transaction costs.
- Potential for larger profits due to larger price movements.
- Less stress and time commitment compared to short-term trading.
- Requires more patience and discipline.
- Capital may be tied up for extended periods.
- Higher exposure to market risks and economic changes.
- Missed short-term trading opportunities.
- Longer time to recover from losses.
📚 Tips for Successful Long-Term Trading on eToro
- Learn the Patterns: Familiarize yourself with the top candlestick patterns mentioned above and understand how they signal potential price movements.
- Practice Makes Perfect: Use eToro’s virtual account to practice trading these patterns without risking real capital. This will help you build experience and refine your skills.
- Be Patient: Remember that long-term trading involves waiting for the right opportunities. Don’t rush into trades just because the market seems to be moving.
- Manage Risk: Set stop-loss orders to protect your capital and be prepared to accept losses when the market moves against you. Don’t risk more than you can afford to lose.
- Stay Informed: Keep yourself updated on global economic events and news that may impact the markets you are trading in. This will help you make more informed trading decisions.
- Keep a Trading Journal: Document your trades, successes, and failures to analyze your performance and improve your trading strategy.
🎯 In Conclusion
Mastering the art of long-term trading on eToro can be a rewarding endeavor. By familiarizing yourself with the top 5 candlestick patterns and practicing your skills on a virtual account, you can develop the expertise needed to successfully trade the financial markets. Remember, patience, discipline, and risk management are essential components of any successful long-term trading strategy.
Trading Technical Analysis: • Learn more📝
Contrarian Trading and Pattern Recognition:
Trading Patterns and Strategies:
Market Sentiment and Volatility:
- Bearish Engulfing Pattern
- Bullish Engulfing Candle Stick Pattern
- Morning Star and Evening Star
- Morning Star Pattern
- Railway Tracks Candlestick Pattern
- Shooting Star Candlestick Pattern
- How to Use Triangle Pattern
- How to Trade Three White Soldiers Candlestick Pattern
- Rainbow Pattern
- Understanding Flag Patterns
- How to Trade Bullish Engulfing Pattern
Trading Features & Strategies:
Indicators & Analysis:
Disclaimer And General Risk Warning applicable and relevant to all platforms listed
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