Hunt Pattern Jewels With Long Island (Works Wonders)

Hunt Pattern Jewels With Long Island (Works Wonders)

Imagine you are a pirate hunting a hidden treasure on an island. To find the treasure, you will need a map and a guide. The same applies to trading with the long island pattern, a classic continuation pattern.

You will need the pattern map (and me as your guide) to show you how to hunt down market opportunities. So, follow me and we’ll get started.

Pejman Zwin

Content

The 1650s to 1730s are widely considered the golden age of piracy. Some thought stealing was the only path to money, which couldn’t be further from the truth. Few knew about hidden riches, and even fewer tried to find them. You needed the right information in order to locate the treasure you were looking for.

The same story applies to modern traders. As Francis Bacon said, “knowledge is power.’’ As you probably have noticed, I want to talk about the long Island pattern, a pattern with huge money-making potential. Just be careful not to confuse this pattern with the island pattern, which is a reversal pattern.

Hunt Pattern Jewels With Long Island (Works Wonders)

As you can see on the map, two waterways separate the island from the rest of the land, creating a long island in the middle. Many might think that the hidden gems are somewhere on the island. However, the treasure is on the land after the island. Since I learned about this fact, I have had several wins of my own in the market.

My biggest win with the long island pattern so far was in 2021; I landed a solid $5000 profit, which made me realize how powerful this pattern truly is in the chart.

Bullish Long Island Pattern

Bullish Long Island Pattern

Long island is a continuation pattern, which means that it doesn’t change the direction of the charts. Let’s first take a look at a bullish long island pattern, where there is an upward trend before the island, and prices are expected to continue moving higher after the island.

You can find this pattern in stocks and sometimes (but rarely) in commodity markets, where you can easily see the gaps. However, you won’t see these in the forex or cryptocurrency markets. The bullish long island pattern usually forms in the middle of an upward trend in the mentioned markets. But how does it form exactly?

When the price is in a strong upward trend, shared interest and purchase of buyers cause the graph to break and create a runaway gap. Runaway gaps are also called continuation gaps. After the gap, market volume decreases, and a series of minor ups and downs form above the gap, creating a beautiful consolidation zone called The Long Island.

Then, the second upward gap comes with an increase in volume. The price is likely to uptrend again after that volume rise. Opening a long position just after the second gap and closing it later can prove to be very profitable, provided you’re able to spot the pattern.

Bullish Long Island pattern

Trade on Bullish Long Island pattern

Before we can reach the treasure, we first have to find the correct positioning.  After the consolidation phase, you’ll get two confirmations: the first will be the trading volume increase, and the second will be the runaway gap breaking the chart.

Watch the first candle at the later end of the second gap. If it is a continuation candlestick pattern (for instance, a marubozu pattern), you set your entry price above it. Measure the price difference between the island’s highest and lowest point and add it to our entry price; that would be our take profit point.

Make sure to pay close attention to candlestick patterns on lower time frames. With continuation patterns seen on candles, you solidify your position. Bruce Kovner has some important advice to keep in mind: “I know where I’m getting out before I get in.”

You should set your stop loss at the first end of the second gap. That means the first candle after the second gap marks the entry price, and the stop loss is the first end of the gap.

spot the pattern

You can also move the stop loss slightly below the entry candle’s lowest price to increase your risk-to-reward ratio. I had dollar signs in my eyes when I noticed the bullish long island pattern in the Tesla stock (TSLA/USD) chart in the 45-minute time frame.

After the second gap, you can see that I opened my long position above the first candle at 87.40 USD. I set my stop loss below the lowest price of the entry candle at 84.20 USD. The highest minus lowest island price was added to my entry, and I placed my take profit at 94 USD.

There was a gentle growth at first, and then a bigger one later hit my take profit and made my day. That was how I found the treasure chest. I got a sweet $3000 profit for my efforts.

profit for my efforts

But remember, what goes up comes down. Charts can’t go up forever. Sometimes you can also see high-potential patterns in downward trends.

Further reading

Bearish Long Island Pattern

Bearish Long Island Pattern

Both bullish and bearish long islands are continuation patterns and don’t change the graph’s direction.

Since opening short positions on the stock market is not possible; you can use this pattern to foresee the continuation of a downward trend and avoid unnecessary losses.

This pattern forms when most of the market decides to sell its assets. A rise in market volume results in a downward gap. Like the bullish island, a period of consolidation with lower volumes after the first gap comes.

You can see several ups and down on the bearish island. Another downward gap forms with a hike in volume, which is usually followed by another downward trend. Investors who don’t see this pattern might suffer heavy losses afterward.

Heavy losses afterward

If you own the stock, the end of the second gap is a critical signal to exit the market. Money management is the key to success in trading, so always take it into serious consideration. This pattern can be extremely dangerous for stock market investors, but it is equally profitable if seen in the commodity markets.

With regards to the commodity market, I will say I have yet to open a short position on this pattern. Share with me if you see one. In the following section, I will teach you how to open profitable short positions if the opportunity presents itself.

How to trade on a Bearish Long Island Pattern

How to trade on a Bearish Long Island Pattern

Now you have the treasure map. With my help as your guide, you can easily find it. First, wait to receive the two important confirmations: the first is the second runaway gap, and the second is a rise in trading volume validating the pattern’s effectiveness.

Once you receive the two confirmations, wait for the first candle to close and open your short position below it. Seeing a continuation candlestick pattern indicates the pattern’s effectiveness, whether in the current time frame or lower ones. As for stop loss, the first approach is to set it at the end of the long island, the prior end of the second gap.

The second approach to set stop loss is to put it above the highest price of the entry candle. This will slightly increase your risk-to-reward ratio. Finally, the take profit in this pattern equals the distance between the island’s highest and lowest removed from your entry point.

The price moves even lower in some cases; you might take some profit when your take-profit price is hit, then risk the rest and wait for higher prices and profit.

noticed the pattern

Take a look at the chart below. It is the Meta Platforms stock (META/USD) in the 1-hour timeframe. I dodged a loss when I noticed the pattern. A 6% drop at the end caught my eye – lucky me!

the 1-hour timeframe

As shown before, in my experience, everything started with a strong downward trend. I saw the first gap form and then the island. Before my eyes, the second gap marked the end of our continuation pattern. I thought to myself, If the first candlestick after the second gap, at 336 USD, is a continuation candle, it further proves that the price will follow downward.

You can see from 336 USD per stock, the price fell to 316 USD. Those who entered the market at the wrong place at the wrong time lost thousands to the market’s trend… But I exited the mentioned thousands and kept it in my pocket, knowing the price would fall.

With the money at hand, I saw the price entering a 20-dollar channel between 336 and 316. Paying close attention to the bearish long island pattern made me enter the market at a much lower price.

I, and others who bought the stock at a much lower price, watched the chart go to another uptrend which was nothing less than hitting the jackpot. I sold the stock a while later with a charming profit, knowing I’d made a smart decision.

So far, we have learned valuable lessons in our journey, like how to profit from the market and avoid losses. But as important as these lessons are, it is to know who contributed to finding these patterns the most.

Further reading

Research by Scientists on the Long Island Pattern

Research by Scientists on the Long Island Pattern

Many professional traders know Thomas N. Bulkowski as a leading chart pattern expert. He found chart elements that could increase a pattern’s validity and indicators that could confirm whether the pattern is effective or not.

In addition, he researched the pattern’s maximum performance and how profitable they can be at their best. Let’s take a deeper look at his work. Based on Thomas N. Bulkowski’s research on the long island continuation pattern, there are traits boosting the pattern’s effectiveness:

  • In almost all cases, the taller the island gets, the better it performs.
  • Tall and wide islands work better in a bullish long island pattern.
  • As for the bearish long island pattern, tall and thin islands perform the best.
  • The minimum price change of pattern gaps must be at least $1.

He also stated that in the bullish long island, the price moves up a maximum of 31% from the second gap’s prior end before a 20% retracement.

price moves up

For the bearish long island pattern, the price declines 22% at max before a 20% retracement.

bearish long island pattern

He also worked out a formula to calculate the take-profit price target. For the bullish long island, he noted:

Closing price before the second gap + {(The highest price of long island – Lowest price of long island)/2}

And for the bearish pattern:

Closing price before the second gap – {(The highest price of long island – Lowest price of long island)/2}

However, this begs the question: wouldn’t that narrow down the profit too much? Based on my own experiences, the pattern can be much more profitable if we don’t divide the island’s highest to lowest price. I would love to hear more from you on that matter.

Further reading
FAQS

FAQS

When does the bullish long island occur?

With most of the market sharing an interest in a stock’s future, high buy pressures cause the up-trending chart to break and form two gaps and an island, hence forming the bullish long island pattern.

When does the bearish long island pattern occur?

A strong downward trend starts when the seller’s will to exit the stock exceeds the buyer’s. The price falls with such intensity that causes the chart to break and form two gaps and an island, hence forming the bearish long island pattern.

Where in the chart does the long island pattern form?

The long island pattern formation occurs in the middle of a strong upward or downward trend.

How much can I make with the long island pattern at best?

It depends on whether the pattern is bullish or bearish. Based on Thomas N. Bulkowski’s research, a maximum of 30% for a bullish pattern and 22% for a bearish pattern can be expected.

In which markets can the long island pattern be seen? 

You can find this pattern in stocks or commodity markets, where you can easily see the gaps. You won’t see these in the forex or crypto markets.

Conclusion

Regardless of the chart’s direction, using the map and my guidance, you can find the hidden treasure using continuation patterns such as our lovely long island.  This article taught us about finding a long island pattern in the middle of an upward or downward trend. We learned that we see such patterns only in stocks and commodity markets.

Although I gave you the map and my guidance, practice is necessary for learning chart patterns. Andre Agassi said, “If you don’t practice, you don’t deserve to win.’’ Make sure to properly manage your capital and place accurate stop losses to shield yourself against exceptions. Never let greed strip your profit; close your position when the take-profit point is reached.

If you have missed an opportunity, don’t worry. As Richard Branson says, “Business opportunities are like buses. There’s always another one coming.” Just look for another opportunity where you can hop on the bus of successful traders and make a fortune.  Thank you so much for being with me on this journey.

Further reading