Guide to Trading the Stair Steps Pattern with Trendlines

🔍 What is the Stair Steps Pattern?

The Stair Steps Pattern, as its name suggests, is characterized by a series of price movements that resemble stair steps, ascending in a bullish market. The pattern consists of a series of rises (vertical components) and runs (horizontal components). The rise represents the actual increase in price, while the run represents the sideways movement of the price. The Stair Steps Pattern can continue as long as the market remains bullish and will end when the market reverses into a bearish trend.

📊 Stair Steps Candlestick Pattern

A bullish Stair Steps Pattern consists of a series of higher highs and higher lows. In contrast, a bearish Stair Steps Pattern will feature lower highs and lower lows as the market moves in a bearish direction.

To identify the Stair Steps Pattern on a chart, look for a series of higher highs and higher lows for a bullish pattern, or lower highs and lower lows for a bearish pattern. The pattern begins when the market is consolidating or moving sideways and is followed by a price increase, forming a new high. This new high is then followed by a price drop or sideways movement, leading to the formation of the next step of the pattern. This cycle continues as long as the market remains bullish or bearish.

🎯 Maximizing the Stair Steps Pattern with Trendlines

While the Stair Steps Pattern is a useful tool for position traders and long-term investors, it may not be ideal for scalpers and swing traders due to the lack of clear signals for price drops. To address this issue, traders can use trendlines to identify potential entry and exit points within the pattern.

To create a trendline, simply draw a line that connects the higher highs of a chart. The trendline can help traders predict where the price may stop before reversing direction. Similarly, a trendline connecting the lower lows can be drawn to identify the point where the price may stop dropping and potentially revert to a bullish trend.

The Stair Steps Pattern is assumed to end when the price breaks or breaches the trendline. By using trendlines in conjunction with the Stair Steps Pattern, traders can not only identify ideal entry and exit points but also determine if a trend is likely to reverse or continue.

🔎 Finding the Stair Steps Pattern in Real Charts

As mentioned earlier, a basic way to identify the Stair Steps Pattern is by simply looking at the price movement. It should be composed of a higher high and a lower low for a bullish Stair Steps Pattern, and a lower high and lower low for a bearish Stair Steps Pattern.

In this example, we’ll examine the Stair Steps Pattern on a BTC chart, which features both bullish and bearish patterns.

📈 Bullish Stair Steps Pattern

In a bullish Stair Steps Pattern, the chart displays a series of higher highs and higher lows as the price moves upward. These conditions can be verified by the green lines forming stair steps. Additionally, ideal short-term exit points can be identified by drawing a trendline that connects the higher highs. In this case, the ideal short-term exit would be when the price touches or reaches the trendline. For long-term exits, or when the market is expected to shift toward a bearish trend, the ideal exit point would be when the price breaks or breaches the lower trendline, as shown by the red arrow in the image below.

📉 Bearish Stair Steps Pattern

The other half of the chart shows a bearish Stair Steps Pattern because of the series of lower highs (red arrows) and lower lows as shown in the next image. This example shows that while the market is moving at a downward trend, it is still possible to make long as well as short trades within the medium and short-range scale through the help of trend lines.

The trend reversal is then identified or verified when the price breaks the upper trendline, as shown by the green arrow in the image.

For both bearish and bullish Stair Steps Pattern examples, the ideal short and mid-term entry points for long trades would be when the price bounces from the lower trendline. On the other hand, the ideal short trades would be when the price bounces from the upper trendline.

🏁 Final Thoughts

The Stair Steps pattern is an excellent pattern formation when dealing with long bullish and bearish trends. While position traders can greatly benefit from this pattern, both short and mid-term traders can also capitalize on it by taking advantage of short bounces and pullbacks within the trendlines.

As an additional confirmation for safe and ideal entry and exit points, moving averages can also be used along with support and resistance levels. These indicators and levels can help traders determine where the price is likely to make a bounce or pullback.

Ultimately, the Stair Steps pattern can only be fully utilized when applied at the right time and in the right market. By practicing how to identify this pattern on actual trades, traders will gain experience and confidence. Fortunately, platforms like eToro offer virtual accounts where you can join real-time trades using virtual funds. Simply log in to your eToro virtual account and click on the “Virtual Portfolio” to start trading with virtual funds.