Pipe Pattern

"Pipe" patterns form at market tops or market bottoms due to price exhaustion. Usually the first "Pipe" is a spike in prices and then followed by another spike by at least a similar length in the opposite direction. As the name suggests, the "Pipe pattern" looks like two parallel lines which form at the market extremes. "Pipe" patterns must be very distinct compared to the rest of the bars and must be visually obvious in the chart. "Pipe" patterns can also form during the intra-day rallies or intra-day sell-offs, but they are more reliable in daily and weekly charts. Daily "Pipe" patterns are illustrated by two bars showing opposite sentiment spanned by a significant time. Pipe pattern trades are entered in the opposite direction of a current trend. "Pipe" patterns are rare, and are one of the best patterns to trade.

Trade: Although, the "Pipe" pattern is a very successful pattern, it must have a clear confirmation prior to trades. For a "Pipe top" pattern, prices must trade below the low of the "lowest low" of the two pipes to enter a "short" trade. For a "Pipe bottom" pattern, prices must trade above the "highest high" of the two pipes to enter a "long" trade.

Stop: For a "Pipe bottom" pattern, place a "stop" order below the "lowest low" of the pattern. For a "Pipe top" pattern, place a "stop" order above the "highest high" of the pattern.

Target: The "Pipe" pattern provides an excellent opportunity to trade for low risk and high reward. The first target for a "Pipe bottom" pattern is the length of the larger of the two Pipes. The second target is the twice the length of the largest Pipe above the trade entry. Similarly, for a "Pipe top" pattern, the first target is the length of the largest of the two Pipes, and second target is the twice the length of the largest of the two Pipes below the trade entry.

Pipe Tops

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