The number of ways to trade currencies is vast, and choosing common methods can save money, time, and effort. Through common and simple methods, traders can develop a complete trading plan that utilizes patterns easily spotted with some practice.
Visual cues such as head and shoulders patterns, candlesticks, and Ichimoku patterns are useful for determining when to trade.
Simple methods can be used with these patterns to take advantage of their most commonly traded elements, although these methods may be more complex.
Despite the numerous chart patterns of varying complexity, several commonly occurring chart patterns are relatively easy to trade with.
Head and shoulders
It is one of the most common patterns on the forex market to see a head and shoulders pattern. This Pattern is reminiscent of human anatomy, as its name suggests.
This occurs when an uptrend occurs, and a financial instrument (for example, a currency) reaches a high, finds resistance there and returns to the trend line (i.e., the neckline), reaches a new high before returning to the trend line, and finally reaches a third high before returning to the trend line.
Rising and falling wedges
You’ll see many forex chart patterns, such as wedges and triangles. A price pattern occurs when price movements become constrained into an ever-narrower range before finally breaking through.
The rising wedge pattern usually precedes downtrends. An upward trend in price consolidation causes these to occur. Consolidation ends after many higher highs and high lows, resulting in the price falling below the trend line.
Double tops and bottoms
An uptrend can produce two highs for a currency, but it may be unable to break out above either one. The Pattern is known as a double top. A good chance exists that prices will start trending downward if the second top fails to crack.
On the other hand, a double bottom may indicate an upward trend is about to emerge. This Pattern occurs when the price can’t break below support at the bottom on two occasions during a downtrend. The price may shoot upward after the second bottom remains intact.
Bull and Bear flags
An indecisive market will produce a bull or bear flag as a continuation pattern. Assume a currency is trending upwards (the flagpole). Price may stall or even decline after a while, but during a period of consolidation (the flag), most of the time, it remains relatively flat.
It is generally the case that once that period is over, the price will continue to climb higher and higher along the same trend as before.
The bearish flag arises when the price trend is downward (the flagpole). It is common for prices to remain relatively flat or even upward a bit during consolidation (the flag). In general, the instrument continues to fall after it has consolidated.
Knowing these patterns can help you make a lot of money since you’ll know when a price is about to shoot up or down with relative confidence.
A candle’s engulfing Pattern is easily spotted when its body engulfs its previous day’s body. An up candle engulfs the actual body of the previous day when an up candle follows a downtrend.
When a down candle engulfs the previous day’s real body that is the sign of a bearish engulfing. A bullish or bearish breakout likely depends on which Pattern emerges when engulfing patterns reverse the previous day’s movement.
The entry and stop levels for multiple trading methods are found by analyzing patterns in price. Head and shoulders patterns are well-known forex chart patterns that provide entry points, stops, and profit targets.
An engulfing candlestick pattern provides insight into a reversal in trend and entry and stops levels for participating in that trend. Traders may develop their trading systems as they progress, combining patterns and methods to create their style.