The Official Technical Analysis Playbook

To refresh our understanding of trade setups, we created a playbook of different scenarios where technical analysis would help pinpoint entries and maximize profits. Here are a few theoretical plays we can practice and incorporate in our own trading experience.

Technical Analysis

Play #1 - Head and Shoulders Pattern

In this setup, a higher high succeeded a lower top which was then followed up by another lower top, forming a head and shoulders pattern. Such a pattern suggests that momentum to the upside is weak, and price could move to the downside. A support level allowed for price to bounce up from there. When price tested that support level again, it broke support and fell lower. The stop loss was set right above the two shoulders to give the trade room to move around, otherwise it could get stopped out early.

Play #2 - Retest on Support Level

When price is moving in an uptrend, it is more likely to see bounces from support levels after retracement. In this scenario, movement was slanted upward followed by a steeper climb which then retraced onto support. That level was a previous top, and it now serves as clean support and a good entry for going long. The stop loss was set below another level of support while the take profit placed above a previous high suggesting that the trader believes higher highs will be made.

Play #3 - Fib-based Setup

The Fibonacci retracement tool is another good indicator to use for technical analysis. The 0.618 is often referred to as a key zone. In this trade, price came all the way back from highs to a 61.8% retracement. The fib drawing starts at a bottom and goes up to where price peaks. These can be drawn on any kind of timeframe, short or long term. They can also be for upside or downside trades. The entry was placed at 61.8% with the stop loss set below that zone. The take profit level was at the next significant fib deviation zone.

Play #4 - Breakout

Another momentum-based setup is the breakout pattern. For a breakout to occur, usually a wedge pattern forms as price consolidates. Lower highs and higher lows form creating the wedge pattern's shape on the chart. In order to have a true breakout, price must close above or below the wedge which would indicate momentum to the upside or downside. The stop loss is placed below the wedge while the take profit is set well above the breakout point.

Play #5 - Flag Pattern

A flag pattern setup typically forms after a larger move to the upside. Price almost takes a break from the run up and starts consolidating, creating some sort of a wedge formation while not falling too far from the highs. It's called a flag pattern by the way it looks on the chart: there is a pole (movement upward) and the flag at the top (the wedge). When price nears the end of the wedge, price could break out and continue its move upward. The entry point is on the break point while the stop loss is somewhere below the wedge. The take profit is above the wedge.