The Hidden Patterns 99% Of Traders Never See

I've spent my 30-plus-year career discovering some of the most obscure and lucrative patterns in the world.

Now, you might've heard the term before—or even tried trading patterns yourself.

But almost every trader I meet seems a bit confused about what pattern trading really is.

It's probably a whole different ball game than what you're used to. And a whole lot more profitable.

So today, I want to tell you a little bit more about what I do. Here's what pattern trading is and my favorite pattern trade this summer.

What I Mean When I Say "Pattern Trading"

When most folks hear that I'm a pattern trader, they usually think of chart patterns – the ones with goofy names that remind you of real-world objects.

Like the "cup and handle," which usually signals a continuation of a bullish uptrend.

Or the "head and shoulders." Three sharp peaks, with the middle peak usually higher than the preceding and subsequent peaks. This pattern can signal a bearish downtrend.

Or the "flag." Shaped like a sloping rectangle, a flag can signal a reversal of the current trend when and if the stock breaks out in the opposite direction of the trendlines.

Now, I don't mean to sound dismissive; these kinds of patterns aren't useless. They can help you predict how a given stock may behave at a given point in time. Emphasis on the word "help."

Like any indicator, you can't just trade these patterns whenever you see them. They function best as an additional tool to confirm a potentially profitable setup.

But here's the thing…I'm a pattern trader because I believe it gives me an edge in the markets.

These kinds of chart patterns are observed by millions of traders around the world every single day. You don't need a Bloomberg terminal or expensive charting software to see them.

Anyone can go to Yahoo Finance, pull up a stock chart, spot an "ascending triangle" or a "rounding bottom," and make their move.

That's not what I'd call an edge.

So I want to be clear: when I talk about being a pattern trader, I'm talking about trading patterns that no one else can see.

Patterns are in all walks of life. Where and how people sleep, drive, eat, save, spend – and invest – there's a pattern behind it.

And when it comes to trading, I'm not talking about overall seasonal patterns everyone knows about, like Sell in May and Go Away. I'm talking about patterns that occur in the best 370 stocks in the market every day the markets are open.

We don't know WHY these patterns occur. We just know that they do – repeating year after year at a 90% clip – and that they can be incredibly profitable. But to understand the right way to trade them, you need to know which ones to trade.

Five Primary Trading Styles

There are five primary styles of analysis I use to determine the right security to trade:

1. Seasonal
2. Trend
3. Contrarian
4. Volatility
5. Statistical

The first is the one I want to explore today. Although my method for spotting and scanning this type can be complex, the pattern itself is simple to understand. And it starts with understanding seasonal analysis.

To me, seasonal analysis is the process of researching a security's price patterns to spot consistent, repeatable and predictable behaviors over a period of time. When I say ‘seasonal,' I'm not referring to back-to-school or tax time. I'm also not talking about the holidays or actual seasons, like fall or spring, although there are profitable patterns out there (we'll explore those in the future).

What I'm basically looking for is the best day to buy and sell certain stocks.

To do that, there are three questions that I set out to answer and have used for many years in my trading:

1. Are there specific stocks or exchange-traded funds (ETFs) that have repeatable price patterns?
2. Is there a security that trades in a particular manner every year – regardless of the time of year?
3. Does the security trade higher or lower over specific date ranges or numbered trading days?

To get the best results, I look at the past ten years' worth of data on those securities to see the type of success rates (as a percentage) they've had. I also look at the average price move for each security in which I've spotted a repeatable pattern.

What I've discovered over many years of research is this: There are securities that trade in a consistent price pattern, higher or lower, at various times of the year and multiple times over the year. And, before scans really existed, I took these patterns and charted them on a simple calendar tool – the Money Calendar

The Money Calendar is my proprietary software that I use to find seasonal patterns – these repeatable price moves over specific periods of time. It scans millions of data points to find the stocks and ETFs that have moved higher or lower from the start date (the open price of one date) to the end date (the closing price of a later date).

In the early days, I would manually add stocks to the calendar that I found with the best buy and sell dates. But now, I've got built-in artificial intelligence that constantly scans, adds, and adjusts the best days to buy and sell.

To see the list of qualifying stocks with bullish or bearish patterns, I need only to click on a day. Then, I can see every stock The Money Calendar identified, along with the start and end dates.

Here's an example.

Adobe Inc. ADBE, the software giant considered a leader in Artificial Intelligence, recently popped up on my Money Calendar.

Because for the last 10 years ADBE stock has gone up an average of $49.96 every year over a 58-day time frame, between the end of May and late August:

This means that ADBE stock has gone up, every single year, between May 27 and August 18, for an entire decade.

Do you think it's going to happen again this year? According to the Money Calendar, it's very likely. 

And the best part? My Money Calendar delivers dozens, even hundreds of these patterns every single day.

So, while it's true that you can't predict the stock market itself – you can determine where a stock or exchange-traded fund (ETF) could move tomorrow, next week, next month and beyond like I just showed you with the Money Calendar.

And stay tuned – this isn't the last you'll hear about the Money Calendar.

Matt Maley's "Lottery Ticket" Trade Just Hit Big

Matt Maley called it a tiny speculative bet when he entered. Then, he used his 3-exit strategy to systematically lock in gains as it climbed. Most traders either sell too early or hold too long.
Join Matt's Inner Circle HERE – 7 Days Free

Editorial content from our expert contributors is intended to be information for the general public and not individualized investment advice. Editors/contributors are presenting their individual opinions and strategies, which are neither expressly nor impliedly approved or endorsed by Benzinga.

Photo: Shutterstock