Trading the price action setups that display, statistically, the best success rates is a strategy many new traders should be following. It’s extremely profitable. We’re talking about setups that follow it’s pattern 80%(!!!) of the time.
This post was inspired by the great work of samuraitradingacademy.com and their article that displays the 7 best price action patterns backed by thorough back testing of each pattern. They went back through 10 years of data and over 200,000 chart/price action patterns to bring you the highest success rate setups you could find on any chart.
We’ll be displaying five of the seven patterns as the first five all have over a 73% success rate. As well as helping you figure out how to find these setups.
Head and Shoulders Pattern – 83% Success Rate
The head and shoulders (and inverse head and shoulders) pattern is by far the most powerful price action setup you could come across with the pattern playing out as expected 83% of the time. Take a look at the example below. This is what you will see out of a forming head and shoulders pattern.
The head and shoulders pattern consists of two swing highs with a higher high between them. Making what looks like a head and two shoulders, hence the name. Included is also a neckline. When this neckline is broken is when the pattern has been completed and the trend has been established.
This pattern will almost never look perfect and it does not have to be exact. The neckline can be slanted but you DO want both shoulders to generally be in line with each other. Any shoulder 5% higher or lower than the other shoulder would call for some skepticism to the pattern.
Bullish/Bearish Rectangle Patterns – 79% Success Rate
The bullish and bearish rectangle patterns are two of the best and easiest ways to trade. They are both continuation patterns within an up or down trend and are extremely easy to spot and chart.
This is unlike the head and shoulders pattern that can be a bit tricky to see for beginners. Take a look at the example below.
Bullish and bearish rectangle patterns will come in the middle of an up or down trend. They are small instances of consolidation after a decent sized move up or down.
They are typically failed double and triple top/bottom patterns. Those patterns, which you will see next, are reversal patterns. While bullish and bearish rectangles are continuation patterns.
Triple Top/Triple Bottom Pattern – 78% Success Rate
You may be familiar with the double top and double bottom patterns, which you’ll see next, as they are a bit more common. This is the exact same, but with one extra top or bottom. It signals a strong trend reversal in the opposite direction of the current trend.
When identifying a triple top or bottom, it’s important to wait for a clear breakout to the opposite direction of the trend to confirm it’s pattern. If the stock continues to range after the third top or bottom, the pattern may actually be a continuation pattern instead (the rectangle pattern we just discussed above).
Double Top/Double Bottom Pattern – 76.5% Success Rate
The double top and double bottom are almost just as strong as the triple top and bottom patterns. As we said earlier, this pattern is seen a lot more and it’s a very strong trend reversal pattern. Here’s an example below that shows what a double top may look like.
Similar to the triple top/bottom pattern, waiting for a breakout in the opposite direction is key to this pattern being completed. As you can see in the example above, we actually get two double tops in one example. The first one is a completed double top, with the bottom range being broken with a bearish engulfing candle.
The second double top is highlighted red and is still completing the pattern after successfully rejecting and making the double top.
Ascending/Descending Channel Pattern – 73% Success Rate
Ascending and descending channel patterns are an easy-to-spot continuation pattern with a powerful 73% success rate. You’ll see an example of an descending channel pattern below.
The ascending and descending channel pattern is just like the rectangle patterns and is traded the same way. The only difference is the rectangle comes in a falling or rising direction. A descending pattern is typically considered bearish, while an ascending triangle is usually bullish.
This pattern is technically a continuation pattern, but we’ve seen more often than not that this pattern also loves to serve as a breakout pattern, as displayed in the example above. As always, wait for the break out of the pattern and use price action to determine the entry of your trade.
How to Find These Price Action Setups
Actively finding these price actions setups can be difficult without the help of using a stock screener. There’s many completely free stock screeners that allow you to actually search and screen for stocks based on their technical patters.
The one we recommend most would be WeBull’s screener on their desktop app. It’s completely free and allows you to filter and save filters for technical patterns and more. For instance, looking at the image below you can see the saved screeners on a users account.
Taking a closer look, you’ll see the parameters set for the bullish head and shoulder pattern (highlighted in grey on the left side bar). You can see the RSI is set to a be within a specific range as well as the volume. This filters all the stocks that fit the profile for you to trade.
Instead of spending hours plugging stocks into your charts and looking for these patterns, let the screeners find them for you in seconds. You can download WeBull’s app and use their screener here.
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