Risk Management with Chart Patterns

Risk management with chart patterns in Forex and Stock market is the practice of using price formations to identify potential trading opportunities and manage your exposure to market fluctuations. Chart patterns can help you to identify the trend continuation, trend reversal, or market volatility, depending on their shape and direction. By recognizing these chart patterns, you can plan your entry and exit points, set stop loss and take profit levels, and adjust your position size. This is the high level of the technical analysis practiced by many successful trader.

Just like any trading strategy, we need some discipline to trade the chart patterns like harmonic pattern and X3 Chart Patterns such as the risk management. In this article, we introduce practical order and risk management techniques using the Pattern Completion Zone. With the Pattern Completion Zone, the final point D of the harmonic pattern can be treated as a trading zone instead of a single price level. The advantage of trading zone over a single price level is countless because we can use many order management techniques around the trading zone. Firstly, we start with market order. Market order is the fastest order type you can execute. With market order, you can buy and sell at the current ask and bid price respectively. The difference between ask and bid price is called spread. In our order and risk management, we prefer to send market order while the price is within the pattern completion zone. When the price is within the pattern completion zone, it is easy to maintain the desired reward/risk.

The convenient place to measure the take profit and stop loss target is to start from median open price, i.e. upper limit for the point D for the case of buy. It is convenient to express the take profit and stop loss in the ratio against the height of interval box. Take profit ratio 3 is equivalent to the three times the height of the interval box. If your interval box size is 50 pips, then take profit ratio 3 means that your take profit target is 150 pips away from the median open price. Likewise, stop loss ratio 1 means that your stop loss target is 50 pips away from the median open price. Such take profit and stop loss measurement get rid of any trouble of finding out the average market movement from the trading instruments. For example, the 30 or 50 pips are sensible stop loss size for EURUSD and several major forex symbols. However, the 30 or 50 pips are not sensible stop loss size for many other forex symbols, commodity and many stock prices.

Risk management is the most important success factor for your trading. For any trading strategy, you can not grow your capital without risk management. When you trade with Chart Patterns like Harmonic Pattern and Elliott Wave pattern and X3 Price Pattern, this is not an exception. X3 Chart Pattern Scanner is using the risk management concept with Pattern Completion Interval for your trading. Please make sure that you understand the role of Pattern Completion Interval and how it can help for your trading.

In X3 Chart Pattern Scanner, your stop loss and take profit is controlled for individual patterns. It is controlled per pattern. This is the main difference from Harmonic Pattern Plus and Harmonic Pattern Scenario Planner. Since X3 Chart Pattern Scanner has different categories of patterns like Elliott Wave patterns, Harmonic patterns and X3 Price Patterns, you can apply different money management scheme if you wish.

To change your stop loss and take profit, scroll down in your input. Stop Loss = 1 means that it is size of 1 x Pattern Completion Interval Box. Take Profit = 2.5 means that it is size of 2.5 x Pattern Completion Interval.

X3 Chart Pattern Scanner provides all the historical patterns, helping you to tune your strategy. Hence, please test your strategy and change your stop loss and take profit according to your historical observation from your chart. We have already shown you how to test your strategy with X3 Chart Pattern Scanner in another article here.


Here is link the X3 Chart Pattern Scanner




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