[Soultrader]

Pattern Failure Setup:

This is a neat little setup that I use to take advantage of common technical analysis patterns. Alot of new traders will discover price patterns and think they have discovered the holy grail. This setup takes advantage of crowd misunderstanding.

For example, in a head-n-shoulders pattern new traders love shorting the break of the neckline or at the right shoulder. However, in a pattern failure setup I will place a buy stop right above the right shoulder. New traders love trading this pattern but they do not realize that the shorter the time frame, the less valid the pattern.

If I do get filled, prices usually rally because of the triggered stops that are placed by traders above the right shoulder and the head.