The step and stairway pattern is created by a series of support and resistance areas. Sometimes these may be a well defined line. At other times, as shown in the diagram, these may be narrow support/resistance bands.

The first feature of the pattern is the way the price breaks above the lower resistance area and moves up to the next resistance area. This is followed by retreat and  rebound activity that uses the lower resistance area as a support area.

The pattern develops when the market moves above the second resistance area and tests the third resistance area. The retreat from this third resistance area uses the second and now lower, resistance area as a support level. In this sense the price climbs a series of steps. However this step pattern does not create a stairway or a trend.

The stairway is created by the points of rebound from each support area immediately prior to a successful breakout of the next resistance level. These lower points are joined with an up sloping trend line. This defines the position of the trend. The market  may move sideways for an extended period inside a step until it hits the trend line. Then traders expect to see a successful breakout above the next resistance level,. This is the pattern that creates the stairway.

The step and stairway pattern underpins a very reliable trend breakout. It is sometimes called a stairway to heaven because the trend reliability is excellent.

A more complex pattern development may include up sloping triangles. These are a chart pattern that forms above a strong up trend. The pattern starts with a sharp rise over several days above the trend line. Over the next few days, or weeks, price move between the trend line and the initial high. This creates an up sloping triangle that uses the main trend line as its sloping base. The next breakout in the pattern usually starts as the triangle pattern is almost completed. It is a sharp rise over a day, or several days. It usually confirms the price projection targets of the first triangle. Again prices drop back from the high, testing the trend line, and the high point of this second move. A new, small up sloping triangle develops. This is the second step in the staircase.

            The height of the next step is projected from the new triangle. Additionally, the combined height of the first two steps is projected upwards to set a major target. In a strong trend there many be 4 or 6 steps, or more that develop to complete   the staircase. After each step the first target is the height on the most recent triangle. The upper target is the combined height of the two most recent triangles.

            The pattern finishes when the step pattern is disrupted by a gap pattern. This is like a missing step in the sequence and signals the top of the pattern. This is an exit signal. Another exit signal is when the step failed to move upwards in a continuation of pattern. This signals traders to take the best exit possible, and this is usually confirmed by closes below the major trend line.

The pattern is discussed in more detail in CHART TRADING.

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