Forex chart pattern trading

Tutorials on Chart Patterns.

What do the chart patterns stand for? How much are they helpful for you? What are the basics you should know? How to use them? How to implement the best method to calculate the price targets?

Continuation Chart Patterns.

Trend continuation patterns are formed during the pause in the current market trends and mainly mark the movement continuation. These patterns indicate that the price action displayed is a pause in the prevailing trend.

They help traders to differentiate pause in the price movement from its complete reversal and show that upon breaking out of the pattern the price trend will continue in the same direction.

Reversal Chart Patterns.

Trend reversal patterns are essential indicators of the trend ending and the start of a new movement. They are formed after the price level has reached its maximum value in the current trend. The main feature of trend reversal patterns is that they provide information both on the possible change in the trend and the probable value of price movement.

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3 Easy Triangle Patterns Every Forex Trader Should Know.

by Gregory McLeod.

Article Summary: With so many currencies to choose from, triangle patterns can help forex traders quickly identify a pair to trade. This article will show you how to use triangles to find a trade setup.

Recognizing chart price patterns is an important aspect of technical analysis that Forex traders should master. These patterns act like a highlighter on the chart showing a potential trade. The triangle pattern is one of the most popular price patterns in Forex because it is easy to recognize, has a good risk to reward setup , and provides clear and concrete price objectives.

Symmetrical , ascending, and descending are the the three types of triangle patterns we will explore today as well as a strategy on how to trade them.

Learn Forex: Symmetrical triangle in a downtrend.

The first type of pattern is the symmetrical triangle pattern. It is formed by two intersecting trendlines of similar slope converging at a point called the apex.

In the above example of a symmetrical triangle you can easily see on the AUDUSD 1-Hour chart the intersection of a rising trendline and a downtrend line at the bottom of a larger trend. Sellers are unable to push prices lower and buyers can’t push price to new highs.

This coiling of price between support and resistance is called a consolidation. Usually, within the first 2/3 of the triangle, a breakout occurs either above trendline resistance or below trendline support as either the sellers or buyers take control.

Once a triangle is identified on the chart, traders will wait for a breakout either above the resistance trendline or below support. After a breakout is confirmed with either a closed candle above resistance or below support a stop is placed approximately 10 pips below the last swing low of the triangle. A limit equal to the height of the triangle is then placed.

Learn Forex: Triangle breakout with risk management.

In the above example, a trader who went long after the clear breakout at 0.9120 with a stop placed at 0.9086 and a limit of 55 pips would have had a profitable trade with a 1.6:1 reward to risk ratio. Though initially, a trader may not know the direction of the move, the triangle pattern alerted traders that a big move was nearby. In my opinion, if the consolidation exceeds 2/3 of the triangle and reaches the apex, price action just goes sideways much like a flat bottle of soda.

The next type of triangle pattern is the ascending triangle. It is easily recognized by a rising trend line intersecting with a flat resistance line. It is often regarded by traders as a bullish pattern characterized by a breaking out above resistance when completed. However, in the ascending triangle pattern, breakouts can take place below resistance. This can especially be the case when the trend prior to the triangle was down.

Learn Forex: Ascending triangle with breakout.

Similarly to the symmetrical triangle pattern, traders enter short on a break below the bottom of the pattern with a stop approximately 10 pips above the top of the high with a profit objective equal to the height of the pattern. However, if price rallied above resistance, a stop would be placed below the highest low within the pattern with an additional cushion of approximately 10 pips.

The last triangle pattern is the d escending t riangle p attern. The descending triangle is characterized by an area of strong support intersecting a downward sloping trend line. When chartist see this pattern as part of a larger downtrend, they look for a continuation of the downtrend. A close break and close below the area of support would be a confirmation of this pattern signaling traders to enter short with a stop above the top of the pattern.

Learn Forex: Descending triangle with breakout.

The triangle pattern represents the forces of buyers unable to push price higher and sellers struggling to push price lower . Usually, the struggle is resolved with a breakout below support as illustrated in the example above.

In sum, triangle patterns are easy to spot, and provide good risk reward opportunities. Traders can quickly know that a big move may be near as well the profit objective and the amount to be put at risk. N ow that you have the knowledge of the three powerful price patterns you are steps closer to becoming more confident trader!

--- Written by Gregory McLeod, Trading Instructor.

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Most Commonly Used Forex Chart Patterns.

With so many ways to trade currencies, picking common methods can save time, money and effort. By fine tuning common and simple methods a trader can develop a complete trading plan using patterns that regularly occur, and can be easy spotted with a bit of practice. Chart, candlestick and Ichimoku patterns all provide visual clues on when to trade. While these methods could be complex, there are simple methods that take advantage of the most commonly traded elements of these respective patterns. (For more on charts, read Charting Your Way To Better Returns. )

While there are a number of chart patterns of varying complexity, there are two common chart patterns which occur regularly and provide a relatively simple method for trading. These two patterns are the head and shoulders and the triangle.

This pattern is tradable because it provides an entry level, a stop level and a profit target. In Figure 1 there is a daily chart of the EUR/USD and an H&S bottoming pattern that occurred. The entry is provided at 1.24 when the "neckline" of the pattern is broken. The stop can be placed below the right shoulder at 1.2150 (conservative) or it can be placed below the head at 1.1960; the latter exposes the trader to more risk, but it has less chance of being stopped before the profit target is hit. The profit target is determined by taking the height of the formation and then adding it to the breakout point. In this case the profit target is 1.2700-1.1900 (approx) = 0.08 + 1.2400 (this is the breakout point) = 1.31. The profit target is marked by the square at the far right, where the market went after breaking out. (For more on the Head and Shoulder pattern, see Price Patterns Part 2: Head-And-Shoulders Pattern .)

Figure 2 shows a symmetric triangle. It is tradable because the pattern provides an entry, stop and profit target. The entry is when the perimeter of the triangle is penetrated – in this case to the upside making the entry 1.4032. The stop is the low of the pattern at 1.4025. The profit target is determined by adding the height of the pattern to the entry price (1.4032). The height of the pattern is 25 pips, thus making the profit target 1.4057, which was quickly hit and exceeded. (For more on triangles, read Triangles: A Short Study In Continuation Patterns .)

The pattern is highly tradable because the price action indicates a strong reversal since the prior candle has already been completely reversed. The trader can participate in the start of a potential trend while implementing a stop. In Figure 3 we can see a bullish engulfing pattern that results in the emergence of an upward trend. The entry is the open of the first bar after the pattern is formed, in this case 1.4400. The stop is placed below the low of the pattern at 1.4157. There is no distinct profit target for this pattern. (For more on candlestick charting, read The Basic Language Of Candlestick Charting. )

Ichimoku Cloud Bounce.

The "cloud" bounce is a common continuation pattern, yet since the cloud's support/resistance is much more dynamic that traditional horizontal support/resistance lines it provides entries and stops not commonly seen. By using the Ichimoku cloud in trending environments, a trader is often able to capture much of the trend. In an upward or downward trend, such as can be seen in Figure 4, there are several possibilities for multiple entries (pyramid trading) or trailing stop levels. (To learn more about Ichimoku charts, check out An Introduction To Ichimoku Charts In Forex Trading .)

In a decline that began in September, 2010, there were eight potential entries where the rate moved up into the cloud but could not break through the opposite side. Entries could be taken when the price moves back below (out of) the cloud confirming the downtrend is still in play and the retracement has completed. The cloud can also be used a trailing stop, with the outer bound always acting as the stop. In this case, as the rate falls, so does the cloud – the outer band (upper in downtrend, lower in uptrend) of the cloud is where the trailing stop can be placed. This pattern is best used in trend based pairs, which generally include the USD.

Forex Chart Patterns, Improve Your Trading.

Conventional Forex Chart Patterns.

Forex Chart Pattern lmages and Examples.

Forex Chart Pattern, Bull Flag Without Retracement.

This is a hand drawn sketch/illustration of a bull flag chart pattern. The pair is in an uptrend and moves up in the main trading session, then it consolidates sideways, then continues higher, very easy to spot and straightforward. This bull flag pattern occurs frequently in trending markets and strong trending markets, in either direction. Traders can set an audible price alert just above the sideways consolidation price level to intercept the next movement cycle. A bull flag pattern occurs on intra day time frames like the M5 and M15 most frequently, although they can occur on any time frame. This is a bull flag chart pattern example, bear flags also occur for pairs that are in downtrends.

Bull flag chart pattern example is below within the context of an uptrend. The price alarm and breakout point in the direction of the trend should be placed just above the top of the flag for the trend continuation on this high probability trade and bullish chart pattern.

Bear flag chart pattern example is below within the context of a downtrend. The price alarm and breakout point in the direction of the trend should be placed just below the bottom of the flag for the trend continuation on this high probability trade and bearish chart pattern.