Traders often look for repeatable patterns on the price charts. Such formations help greatly in technical analysis as they say a lot about possible price behaviour. Some patterns are more commonly used than others. Have you heard about the stair steps pattern? It will be the topic of today’s article.
What is the stair steps pattern?
The stair steps pattern is a formation that develops along with the trend. It looks like stair steps on the price chart, so you should not be surprised by its name. These steps are created by the corrections of the price. The price goes upwards or downwards, but this is not a constant movement. It will occasionally drop during the uptrend and rise during the downtrend. The periods of adjustments will indicate new support and resistance levels. The price will break through them and continue the trend.
The stair steps pattern in conjunction with a trend line
To get some more valuable information about the price in the market you should combine the stair steps pattern with a trend line. Draw a trend line by connecting the lower highs during the downtrend or higher lows in the uptrend. You will soon notice that the trend line touches the points of the breakout from the resistance or the support and the stair steps are formed.
When to open a trading position?
Observe the chart and draw a trend line. Then, mark the support and resistance levels and wait for the appearance of the pattern.
The first thing we look for on the chart is an existing trend. If there is no trend, we do not look for an opportunity to enter a position. If there is a trend, we derive the trend line and associated support and resistance levels from the local peaks and troughs on the chart.
The simplest form of signal to open trade would be for price stairs only. What does this mean? If we have a downtrend, we wait for the support level to break, i.e. break through the local bottom. If this occurs, we wait for a pullback. The previous price support should act as resistance in the future. This is where you can open a short position. If you observe the market on a 1m chart, the duration of the transaction should be between 3 and 5 minutes.
Conversely, if we have an uptrend, after beating a local peak, we wait for a pullback being prepared that the previous resistance will now be support for the price chart. Here we open a long position.
However, the whole methodology works best in combination with a trend line. That is:
We open a long position when the price makes a pullback to the previously pierced resistance level. This pullback should also hit the uptrend line or be very close to it. See the example below on the Aussie (AUDUSD) chart.
A short position is opened when the price pulls back to a previously broken support level. This pullback should also be at or very close to an uptrend line. See the Kiwi (NZDUSD) chart below for an example.
In both of the above situations, the duration of the option should be 3 to 5 times the chart time frame.
Candlestick and chart patterns are a useful way to discover the best entry or exit points for your trading positions. The stair steps pattern develops when the price makes adjustments during the uptrend or the downtrend.
Combine the stair steps pattern with a trendline to recognise the support and resistance levels and then trade entry points.
Do not forget about a free Pocket Option demo account where you can take your time to learn new skills. Go there and look for the stair steps pattern. Draw a trendline, the support and resistance lines and see how you perform trading with them.
Wish you good luck!
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