What is the h-Pattern?

An h-pattern is a term used in technical analysis to describe a specific price pattern that is formed when an asset's price movement forms the shape of the letter "h" (lowercase “H”).

The h-pattern is formed when an asset's price falls steeply, reaches a support, then rises again (this time lower than the previous high). A deadly bull trap.

Considered a bullish reversal pattern, it is can be used to identify potential trend reversals or changes in market sentiment.

It is often caused by a large number of short positions being taken, leading to increased selling pressure and further downward momentum. This can be a challenging market environment for short-term traders, as the downward momentum can be difficult to predict and the market can become volatile.

How to trade the h-pattern?

Trading an h-pattern can be done in a few different ways, depending on your strategy and goals.

1. Buy at Support: One of the most common ways to trade with an h-pattern is to buy the asset when it reaches the support level. This strategy is based on the idea that the asset's price is likely to continue rising after reaching the support level.
2. Sell at Resistance: Another way to trade with an h-pattern is to sell the asset when it reaches the resistance level. This strategy is based on the idea that the asset's price is likely to continue falling after reaching the resistance level.
3. Breakout Trade: If the asset's price breaks through the resistance level and continues to rise, it may be a signal to buy the asset. Similarly, if the asset's price breaks through the support level and continues to fall, it may be a signal to sell the asset.
4. Wait for Confirmation: It is important to wait for confirmation before making a trade based on an h-pattern. For example, wait for the price to close above the resistance level before buying or wait for the price to close below the support level before selling.
5. Set a trailing stop: There are no guarantees when trading but since price is expected to rise after reaching the support level, it could be a good idea to place a trailing stop starting at that level.

Combining with the Trend Intensity Index (TII)

The h-pattern can also be combined with other trading indicators to reinforce buying / selling decisions. One such example is using the h-pattern with the Trend Intensity Index (TII).

Strategy Example:

1. Identify the h-pattern: Look for a market that has established a clear h-pattern, with two highs and two lows forming the "h" shape.
2. Calculate the TII: Use the Trend Intensity Index formula to measure the strength of the trend for the h-pattern.
3. Set TII thresholds: Decide on specific TII thresholds that you will use to determine whether the trend is strong or weak. For example, you could consider a trend to be strong if the TII value is above 70, and weak if it's below 30.
4. Enter a long position: If the TII indicates a strong trend and you have identified an h-pattern, enter a long position in the direction of the trend.
5. Exit the trade: Set a profit target and a stop loss level to manage your risk. Exit the trade when either the profit target is hit or the stop loss level is reached.
6. Enter a short position: If the TII indicates a weak trend and you have identified an h-pattern, consider entering a short position in the opposite direction of the trend.
7. Exit the trade: Set a profit target and a stop loss level to manage your risk. Exit the trade when either the profit target is hit or the stop loss level is reached.

Conclusion

As with any trading strategy, it's crucial that you backtest and validate your assumptions before making any actual trades.

And of course, patterns are just another tool in your technical analysis toolbox. Success is not guarenteed and the h-pattern should be combined with other technical analysis techniques.