Chart Patterns In Forex
Chart Patterns: What Are They?
This section is an introduction to technical analysis and where we will discuss common chart patterns that can lead to significant reversals and breakouts in the markets which when spotted and traded can, in turn, make huge profits.
Just like candlestick patterns, chart patterns are easy to spot and can prepare you for an explosive trade.
We can use chart patterns as indications of market structure breakouts and combine it with our knowledge on previous price action – e.g) support and resistance levels etc.
By spotting these patterns, or catching them in the process of forming, we are able to prepare a future trade based on the emerging pattern.
WE MUST NOT TRADE A PATTERN UNTIL IT HAS FULLY FORMED.
Remember, as traders we are NOT predicting the future here… As much as it may appear so, we are instead looking for areas where the money is and jumping on that cash train.
Remember: The Golden rule of chart patterns is to WAIT until the chart has formed, then ACT.
In fact: You must NOT trade until anything has been validated, not just a chart pattern.
If the pattern hasn’t formed, you have no VALID confirmation of the pattern and can, therefore, LOSE money just because you jumped the gun.
As a professional trader, your role isn’t to be the first one to put a trade on but to be the person taking on the least amount of risk for the highest possible returns.
If the chart patterns are not formed, simply wait until the MARKET CONFIRMS the pattern.
What we have gone through so far will tilt the odds in your favor and give you a trading EDGE.
What we are about to go through is to increase opportunities in the market place to trade using your edge.
Like trading indicators, chart patterns are a self-fulfilling prophecy because everyone looks out for the patterns to trade from.
The advantage you have is that you have the knowledge already on how to execute trade’s with the highest accuracy, and now you are going to be taught how to enter chart patterns just as well.
You already have the base knowledge we taught earlier, now we can show you how to accurately draw these chart patterns and become a better trader.
The chart patterns that you should focus on, that have the highest profitability chance are:
- Double Tops
- Double Bottoms
- Head & Shoulders
- Wedge Patterns
- Pennant Patterns
- Flag Patterns
Once you have mastered the above patterns, you will be unstoppable as your tools and experience grow each day with practice (live or demo) you will gain confidence in your abilities to identify and execute them.
Combining these patterns with the technical analysis previously will open up great and consistent opportunities to trade each day, giving you a higher chance to profit on a daily basis (however, you can still lose money!).
Over the next few lessons, you will learn the absolute gold standard in highlighting these patterns and executing them with the highest accuracy, whilst predicting their moves precisely.
Combined with risk management taught in the previous pages – you will have a full idea of how to find highly-probable trading opportunities by yourself.
One quick tip before we go further:
The higher the timeframe, the more powerful a chart pattern can be.
This is simply because there is much more price data built into higher timeframes than lower.
Therefore, if you see a chart pattern form in a higher timeframe – but do not want to trade that specifically – you can use it as an indicator to pick a short term trading bias.
If you like trading 15 minute charts and you risk very little but see a head and shoulders pattern form on the 4 hour timeframe – but you don’t want to trade it because you’d need to put more money down in margin then you can do this:
You can use this information to trade in the direction of the head and shoulder pattern on the 15 minute chart.
So if the pattern indicates it will go lower in price, you can find opportunities within the 15 minute timeframe and only look for sell opportunities – knowing that the more powerful 4 hour timeframe chart indicates the market will move lower.
Give it a try.