Forex chart patterns strategy game

If you are new in this trading you will not find head and shoulder pattern easily because is little tricky you must have some practice to find these type of patterns and after that you will be perfect to find some pattern like this. Head and shoulder pattern is like humman head and also like shoulder so you just need to see it clearly and wait for break the nick line to take the trade as well.

Wedge Chart Pattern Wedge is also Important thing to do trade because when you are trading some pairs its like market going up and suddenly going slow up and after that going fastly down and break its Neck line so must be careful to trading these things. Rectangle Chart Pattern Its like rectangle and you can find best things to trade very well Forex stock and commodities has similar pattern like this and mostly trader are doing trading with only this pattern so this is also easy but in start you need more practice.

Bearish and Bullish Pannent This chart pattern like a Flag of pannent it can Appear in Bull or bear market you should find as well. This is also good to work on it but its still up to trader who is using it. Pannent chart pattern also good but not much easy to predict so you must have good knowledge of it. Chart patterns are the connectors between two different market phases. When an uptrend changes into a downtrend, a chart pattern is usually the connection between the trends. In such a case, traders talk about reversal chart patterns.

The chart below shows such an example. We will get to know several reversal patterns and continuation patterns in this article. When a trend temporarily pauses and then resumes its original path, a chart pattern usually describes the pause consolidation. In such a scenario, traders talk about continuation patterns. The screenshot below shows a primary downtrend and a chart pattern connects the two downtrend phases.

Breaking down chart patterns In the next part of this article, we are going to take a look at some of the most commonly known chart patterns but in order to understand them, we need to learn how to break down patterns into their building blocks.

This will help us find and trade all sorts of patterns effectively. Chart patterns outline To make finding the best patterns easier, we start with the pattern outline. Any pattern can be described by using a horizontal level or a trendline. Focusing only on patterns where you can find such an outline will improve your chart pattern skills significantly.

The best chart patterns always show those characteristics. In the screenshot below, we can describe the reversal pattern using a horizontal support level. The level has at least four confirmation points and with each touch, such a level weakens. The continuation pattern below connects the two downtrend phases and the chart pattern outline consists of two horizontal levels.

Trading such a chart pattern is very simple and it will simplify your trading once you limit your trading to such obvious situations. The continuation pattern below comes with a horizontal resistance level at the top and a trendline at the lower end. If the price would have broken above the horizontal level, this could also have turned into a reversal pattern. However, the price broke the trendline which defined the pattern and the downtrend continued.

Chart Patterns context — trending environment The trend context is an important selection and filtering criteria. Many traders make the mistake and look for patterns everywhere which often leads to taking trades in a low probability context. The best trading opportunities exist in trending markets when a market exhibits momentum and tends to move longer distances. The best reversal chart patterns can be found after extended trending phases.

Especially in mean-reverting markets such as Forex. When you look at the previous chart examples in this article you immediately notice that all reversal patterns exist after extended trending phases. The same holds true for continuation patterns. Look for a strong ongoing trend and once you can identify a pattern, then start paying attention to it. Trading into the outline This is one of my favorite concepts when it comes to pattern trading and the way the price trades into a chart pattern level can tell you a lot about what is going on.

In the screenshot below, the price was in an uptrend and then entered a sideways consolidation. The consolidation has a well-defined horizontal outline level and before the breakout happened, the price stuck to the level arrows. This shows that the buyers have left the market and have no power to push the price higher anymore. Previously, the price bounced higher easily off the outline level but just before the breakout, the bulls lost power.

I wrote a whole article about this lower bounce pattern previously. You can also apply this principle to continuation patterns and when you can see this lower bounce pattern during a chart pattern, it often foreshadows a high probability breakout scenario. The idea behind it is that the opposition of market participants has withdrawn and the price is not able to pull away from the pattern outline level at all.

Wave structure confluence Price waves are the building block of all price charts and we talked about general wave structure before click here. Price waves also help us understand the chart patterns on a much deeper level as well. When it comes to reversal chart patterns, we look for exhaustion and signs that a trend has lost strength.

In the screenshot below, the market was in a strong uptrend on the left and the market was effortlessly making higher highs and higher lows. Once the trend kept on going, the price shows signs of exhaustion by failing to break higher.

The circled areas show how the market established a triple top and was never again able to make a new higher high. Of course, this is not enough to just go short yet, but it is an important piece to the puzzle. And if you look closely, before the price broke the chart outline support level, there was even a lower bounce, adding more context and help us build confidence in the setup. The screenshot below also shows signs of exhaustion at the circled area and although the price tried to break higher, it struggled and just barely made a higher high.

If you see that the price fails to make a significantly higher high, we can observe the lack of buying support. Just after the failed trend-continuation attempt to move higher, the price completely collapsed and then started the new downtrend when the price broke the support level of the pattern. When it comes to continuation patterns, we look for wave structure during the consolidation as well. In the example below, the price actually tried to move lower and I circled the area where the price tried to move lower.

But the price was immediately pushed higher back into the pink resistance level. Then, the market made a lower bounce right into the pink resistance level, indicating that the buyers are back and do not allow the price to move lower again. Those are clear signs that the buyers are still in control and the breakout above the pink resistance level confirms the continuation of the uptrend.

Pattern trigger point It is very tempting to jump into the market early because traders fear that the market will take off without them. Over the long-term, however, waiting for a confirmed breakout increases the chances for success. Rule 1 for chart pattern trading is: only enter when the breakout candle has fully closed outside the pattern. No mid-candle decisions!

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Now you have around 20 different chart pattern examples. But which are the best chart patterns to trade? We will discuss this in the next section of the guide. Our Top Forex Chart Patterns Now that we have shared the chart patterns basics, we would like to let you know which are the best chart patterns for intraday trading. Then we will give you a detailed explanation of the structure and the respective rules for each one.

However, we like to treat these as one as they have a similar structure and work in exactly the same way. The bull Flag pattern starts with a bullish trend called a Flag Pole, which suddenly turns into a correction inside a bearish or a horizontal channel.

Then if the price breaks the upper level of the channel, we confirm the authenticity of the Flag pattern, and we have sufficient reason to believe that the price will start a new bullish impulse. For this reason, you can buy the Forex pair on the assumption that the price is about to increase. Place your Stop Loss order below the lowest point of the Flag. The first one stays above the breakout on a distance equal to the size of the Flag. If the price completes the first target, then you can pursue the second target that stays above the breakout on a distance equal to the Flag Pole.

In addition, the two pink arrows show the size of the Flag and the Flag Pole, applied starting from the moment of the Flag breakout. The Stop Loss order of this trade stays below the lowest point of the Flag as shown on the image.

A bullish Pennant will start with a bullish price move the Pennant Pole , which will gradually turn into a consolidation with a triangular structure the Pennant. Notice that the consolidation is likely to have ascending bottoms and descending tops. Moreover, if the price breaks the upper level of the Pennant, you can pursue two targets the same way as with the Flag.

The first target equals the size of the Pennant and the second target equals the size of the Pole. At the same time, your Stop Loss order should go below the lowest point of the Pennant. The image gives an example of a bull Pennant chart pattern. The only difference is that the bottoms of the Pennant pattern are ascending, while the Flag creates descending bottoms that develop in a symmetrical way compared to the tops. This is the reason why we put the Flag and Pennant chart patterns indicator under the same heading.

How to the Double Top and Bottom Chart Pattern The Double Top is a reversal chart pattern that comes as a consolidation after a bullish trend, creates a couple of tops approximately in the same resistance area and starts a fresh bearish move. Conversely, the Double Bottom is a reversal chart pattern that comes after a bearish trend, creates a couple of bottoms in the same support area, and starts a fresh bullish move.

We will discuss the bullish version of the pattern, the Double Top chart pattern, to approach the figure closely. To enter a Double Top trade, you would need to see the price breaking through the level of the bottom that is located between the two tops of the pattern.

When the price breaks the bottom between the two tops, you can short the Forex pair, pursuing a minimum price move equal to the vertical size of the pattern measured starting from the level of the two tops to the bottom between the two tops. Your Stop Loss order should be located approximately in the middle of the pattern.

The pink lines and the two arrows on the chart measure and apply the size of the pattern starting from the moment of the breakout. To clarify, we use a small top after the creation of the second big top to position the Stop Loss order. Notice that the Double Bottom chart pattern works exactly the same way but in the opposite direction. Similarly, the Head and Shoulders is another famous reversal pattern in Forex trading.

It comes as a consolidation after a bullish trend creating three tops. The first and third tops are approximately at the same level. However, the second top is higher and stays as a Head between two Shoulders. This is where the name of the pattern comes from. The line connecting these two bottoms is called a Neck Line.

When the price creates the second shoulder and breaks the Neck Line in a bearish direction, this confirms the authenticity of the pattern. When the Neck Line breaks, you can pursue the bearish potential of the pattern that is likely to send the price action downward on a distance equal to the size of the pattern — the vertical distance between the Head and the Neck Line applied starting from the moment of the breakout. Your Stop Loss order in a Head and Shoulders trade should go above the second shoulder of the pattern.

Neutral Chart Patterns Natural chart patterns are chart patterns that can occur in ranging and trending markets. However, they signal the imminence of a big move in the market. You are good to go if you understand the most commonly used patterns in the market without overwhelming yourself with information overload.

Your failure may be due to several factors that are beyond your control. You may have to step up your game and work on understanding the market better. You should also learn how to read charts and find effective ways to make the best trading decisions based on the information at your disposal from the patterns. Once you understand how the patterns are formed and the underlying conditions, you can use the provided information to determine whether to trade a particular instrument or not.

Thus, the price action that succeeds the formation of a chart pattern determines the validity or otherwise of any presented position holding or trading opportunity. Each chart pattern is guided by some defined rules. For instance, the formation of a head and shoulders pattern in an uptrend a pip amount is the expected down movement.

The pip amount is equivalent to the existing distance between the top of the head and the neckline. If you have all these pieces of information beforehand, you can accurately evaluate the validity or not of a trading opportunity. Set price targets for conditional orders In Forex trading, special forex order types are called conditional orders.

These orders require that traders meet some special parameters before they are executed. Some of the common orders are stop orders, limit orders, and stop-limit orders. Conditional orders come with defined price targets. They assist traders to open oppositions, manage trading risks, and secure profits. Since they have specific targets and are rule-based, they are the best analysis type for trading conditional orders where the targets are specific price levels.

Use price action to open positions Although there are different forms of price action analysis, trading chart patterns are undoubtedly the best forms of this analysis. With the aid of chart patterns, traders can track trends and map out resistance and support zones that will influence their trading positively. While some technical analysis forex indicators are renowned for lagging, chart patterns are not lagging but give traders a head start and a chance to time efficiently and effectively time market opportunities.

Thus, traders can place buy and sell orders as soon as they can and at the best price points. They also make it easy for traders to determine unexpected changes in market conditions and confirm such changes. This is a big plus for traders because their ability to identify changes in market conditions in time will help them to limit their losses or lock in their profits.

The knowledge will also help them to enter trade positions that are consistent with emerging trends early enough. Note that changes in market conditions can have a negative impact on the market because it increases market risk. However, with the aid of chart patterns, you can turn the risk around to a great opportunity. With the help of the patterns, you can trade like a pro and make great returns on your investment.

However, to maximize the benefits such patterns offer, confirm the signals with candlestick patterns. More so, candlestick patterns may help you choose the best exit trade and early entry trade opportunities. Switch to Line Charts The first step towards using chart patterns is identifying them.

While identifying chart patterns may not be too challenging, doing so early can be tricky. The line charts will simplify and smoothen the price action, making it easier for you to confirm chart pattern confirmation early.

The early identification will support proper and profitable trading. Rather, use the chart patterns with credible technical indicators. The combination of most technical analysis indicators with chart pattern analysis will help you to confirm solid signals that are well traded in the market. A technical indicator such as ADX can help traders confirm that there is enough momentum to support the directional move of a price that breaks out of a symmetrical triangle.

Once the sufficiency of the momentum is confirmed, traders can incorporate the information into their trading plans. Trade chart patterns with conditional orders Timing is crucial to trading chart patterns. With the help of conditional orders such as limit orders and stop orders, you can find the most effective way to leverage the trading opportunities the chart patterns create and offer.