Whether you are forex beginner investor or you have been the industry for a long time, you have probably heard of technical analysis and chart patterns. Today, we will dive in into what these forex charts are and why they are important to forex traders. But before that, let’s find out first what the forex chart patterns are. The forex chart patterns give clues on the potential price of certain currency pairs in the market.
If you wish to reap the maximum profit from the forex market, you must be familiar with all forex chart patterns and how you can use them to succeed in this endeavor. Many traders fail to recognize the importance of these chart patterns in the forex market, and that’s why they end up missing great trading opportunities. However, to clear off the doubts about these chart patterns, below are the benefits which the forex traders get for using the chart patterns:
- The chart patterns help traders to get significant changes in price so that they can reap higher benefits. The professional traders who depend on these charts can use the chart retrenchment moves to implement their trading strategies. Through the charts, they can also identify the strengths and weaknesses of their trading strategies.
- The chart patterns assist traders in getting trend reversals. At times, the market maintains an increasing trend before it breaks and this can make the investors make major mistakes in their trading. The head and shoulder pattern helps the traders to identify the bearish and bullish reversals in the trading and then make wise trading decisions.
The most important forex chart patterns
The forex trading charts are divided into three main categories: The continuation chart patterns, reversal chart patterns, and bilateral chart patterns.
Continuation chart patterns
As the name implies, a continuation pattern signals that the ongoing trend will not stop. They are also known as the consolidation patterns because they reveal how sellers and buyers take quick breaks before they move into the same directions.
The continuation chart patterns include rectangles, wedges, and pennants. The wedges can, however, be sometimes classified under the reversal category if the form in the opposite direction.
Reversal chart patterns
These charts signal that the current trends will change its course. If you see a reversal chart pattern, this means that the price of your currency pairs might soon go down. Conversely, if the reversal chart occurs during a decline in the price trends, it could be signaling that the prices will increase.
Bilateral chart patterns
These patterns are tricky since they mean that the price can either show an upward trend or show a declining trend. To play the patterns, you should consider both the downside and the upward breakout and the place an order at the lower part of the formation and another on top of the formation. You can, however, cancel one of the orders if one of them gets triggered.
Forex chart pattern trading strategies
- Always find out if the market is consolidating or in the trend mode– this is a crucial strategy. Although most of the chart patterns, they are continuation patterns with underlying trends
- Decide the specific chart patterns which you intend to use- are you comfortable with the continuation of the reversal patterns? Figure this out and come up with a clear choice.
- Is there a story behind the forex chart bars? In this strategy, come up with a story behind your best setups. This means that you should get a clear picture for the trade without only concentrating on the chart patterns.
- Trade the chart pattern trading– the chart patterns can only work well if combined with reasonable prices. Which confluence to the trades. The price location can either be a swing low/high pivot point or is a support/resistance level. Remember tos art with a demo trading account if you are still starting out.
- Create non-subjective forex rules for the chart patterns-this should be the last step for your strategy. Write down all your plans and make sure that you follow them.