CONTINUATION PATTERNS: Ralph Nelson (who created the Theory) discovered that there are 4 types of patterns that the resolution of them tend to be in the same direction of the previous impulse once the correction is finished and we have a breakout.
Today we will learn about patterns, which are a type of triangle. Patterns are made by 5 waves (abcde); you can draw that using the tools you have on trading view on "Patterns."
In general terms, you will be able to draw two converging lines, and the price will start compressing there. It's important to know which is the previous impulse of the pattern to draw the Fibo Extension using that previous impulse. The Fibo Extension will allow you to define targets and are extremely useful when you are at ATH because you can't rely on previous technical movements to define supports or resistances.
HOW TO TRADE THEM?
Entry-level: Always above/below B depending on the direction you are trading. In this case with AMZN , our confirmation level is above B
Stop Level: Always above/below A depending on the direction, you are trading. The easiest way to define your stop level is by setting it above/below the whole structure.
Break-Even level: If the price starts going in the expected direction, you can move your stop loss to your entry-level, once the price reaches the First Fibo Extension
Target: Use the last Fibo extension level. Your minimum risk rewards ratio should always be 1.5, never less than that.
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