Advanced trading strategies and tactics, using Foldback patterns

Did you know that there are some patterns that seem to repeat themselves? Watch our latest video on advanced trading strategies, using the Foldback Patterns

Advanced trading strategies – a little known form of analysis

Hello and welcome to Diary of a Trader. We’re going to go over a little known and really never talked about form of analysis called, “Foldbacks”.

Now, Foldbacks are a technique that Michael S. Jenkins discussed in his book The Complete Stock Market Trading and Forecasting Course and in it, he talked about Mirror Image Foldbacks and that he noticed early in his career that, when he looked at stock charts, he noticed, well, there are some patterns that seem to repeat themselves. And of course, that’s nothing new, but what he noticed was that they would operate on the inverse of the move. So, it would basically retrace the same kind of pattern that was already done. And I know when I first read this book I had never seen anything about this before, I’ve never read anything about this before. It’s not anybody ever really talks about, but he talked with one of the great analysts, George Lindsay. Michael Jenkins and George Lindsay, they got together and they were talking about this, and anyway, without going into a lot of history and further detail, a foldback is, essentially, the repeated past price action retracing. For instance, if we want to look at, if I can find one here, I was just looking at what I thought… Alright, right here, for example. I mean we see this play out quite often, but it’s actually shocking how often these repeat themselves. If we look at this zone right here, so if we have this kind of a pattern set up, followed by a full retracement of that. Notice how the patterns are very similar in their moves. It’s actually pretty shocking. And this can go on and on. And the point that Jenkins was making, was that… And we can see another one right here, where we have top here to the middle and then all the way to the top. These are called Mirror Image Foldbacks. And even the old traded zones are very similar and it is really fascinating how often these play out. And this is just on an hourly chart. This happens on multiple time frames and on multiple different ways to look and it makes forecasting, and/or trading a little bit easier if you can gauge where in a pattern we’re seeing something repeat.

Now, this does take a lot of practice and it is absolutely subjective and nothing is going to repeat 100% of the exact. I mean, it’s not a 100% mirrored image. I mean, humans aren’t like that, and the market is not like that. But certainly, we could take a tool that is in TradingView, that can assist with this and it’s on the one, two, three, four, five, six, seventh toolbar down and we want to go to bar pattern, alright? And so what we’ll do, we’ll just click on bar pattern and then, the trick is you want to start it on an all-time high or an all-time low. So we start the bar pattern. So, I’m going to start from the candlestick after that high, single-click and then I’m going to drag it down to here. And then, what I’m going to do is I’m going to right-click on it and I want to go to Mirrored. And then I will just place that to where I kind of had originally started it. And so, what I’m looking at, right now, is the past price action and it seems to be following this pattern fairly consistently. I mean, this is actually a pretty shocking example of how natural markets are and how they move.

And so, if we’re looking at the hourly chart here, what is our expectation of a move? Well, our expectation of a move is to go a little bit lower and then have some significant bounces to the top. Now, we’re not talking about completing the exact price levels, we’re just talking about completing and trading in the same pattern, alright? Like, if we have a drive up, the first peak was here, and then… Actually, I’m going to reset this here. So we’re trading, and I see that there is some type of market high at this level here, and that showed up not too far after, there is another swing high here, it showed up not too long after, another high right there. And so, we’re just looking to see, are there going to be any swing highs or lows match that keep showing up as we go? And yes, in fact, there are swing highs and lows that show themselves.

And so, this is just a very interesting way to look at how to trade any market while using these Foldbacks and you can use them on multiple time frames. And I want to show you something that is pretty neat. If we go to a weekly chart, and this is the Dollar/Yen. Do you see this chart? It looks pretty much like a mirrored Foldback. We have slight deviations in the time and looks like there’s somewhat of a gap here, but the point is was there a swing high near this time? Yes. Swing High, swing high, swing high, swing high. Was there a swing high here? A little one. Was there a larger swing at the top around this zone? Yes. Was there a swing low down here, or rather, I’m looking at a swing low down here in the future. Did that happen? Yes. And so, we can see that the market does like to trade very, very close to this structure. And if we zoom in and we look at the current price action compared to what we have going on now, it looks like we’re supposed to be at some type of swing high, which we did, then a swing low and then we are supposed to be at some type of swing high around here. So we are supposed to be looking at some higher swings than the previous here, to show up.

And that is an example of Foldbacks. Foldbacks, they are a lot of fun to use on really any instrument. If we look at the pound, and we look at… Let’s go ahead and take a look at the hourly if we already see some type of Foldback pattern happening, then we can kind of anticipate where we want to draw a Foldback. So, from the Pound/Dollar pair, we would start on the next bar after the high. And so, we would start here, and I would drag it down all the way to the all-time low. Well, not the all-time low, but the low in our… I messed that up, I’m sorry. Just to show the example of this. And so, there’s our bar, let’s go to the mirrored image of it, and let’s put that on top of our current price action. And so, what I’m looking for, I might have to stretch it out a bit, so I can get a better… Yes. This does seem to be following the structure pretty nicely. And so, what this is telling me is that the pound is supposed to have a further high going forward here.

This is a great tool to use because markets do travel in the same patterns, just like humans do, and we tend to reflect the behavior of the past, frequently, and this is just a visual representation of that behavior, and I think it’s a fantastic tool to help you determine where a direction may be going in your current trading. Hope you found this video interesting. Thank you for watching. I look forward to talking with you on our future videos. Bye-bye.