Forex for a trader
Barf pattern forex

Barf pattern forexForex 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 sketchillustration 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. Forex Chart Patterns. Chart pattern formations can give forex traders an early indication of a trend reversal, trend continuation or breakout. The best chart patterns to trade currencies are listed below. Chart Patterns Index: Forex Triple Top Chart Pattern Chart Patterns | Written by Aboutcurrency Triple Top formations are reversal patterns with bearisch bias, this pattern is not often seen in the forex market. Triple Tops are identified by three consecutive highs of similar (or almost) height with 2 moderate pull backs in between (neckline). Read more. Forex Triple Bottom Chart Pattern Chart Patterns | Written by Aboutcurrency Triple Bottom formations are reversal patterns with bullish bias. Triple Bottoms are identified by three consecutive lows of similar (or almost) height with 2 moderate pull backs up in between (neckline peaks). Read more. Forex Rising Wedge Chart Pattern Chart Patterns | Written by Aboutcurrency At it's most basic level, Rising Wedge formations are bearish continuation patterns and look similar to triangle patterns (ascending triangle, descending triangle, and symmetrical) because of the converging trendlines( support and resistance) and narrowing price ranges(forms a cone). Read more. Forex Rectangle Chart Pattern Chart Patterns | Written by Aboutcurrency A Rectangle or Box is a continuation pattern and describes a price pattern where supply and demand seems evenly balanced for an extended period of time. The currency pair moves in a tight range, finding support at the rectangle's bottom and hitting resistance at the rectangle's top. Read more. Forex Head & Shoulders Chart Pattern Chart Patterns | Written by Aboutcurrency The Head and Shoulders Top marks a "reversal" pattern in an uptrend market and is extremely popular among currency traders.

The pattern consists of 2 Shoulders, 1 Head and the Neckline (support). Read more. Forex Flags & Pennants Chart Pattern Chart Patterns | Written by Aboutcurrency Pennants and Flags are short-term continuation patterns and are among the most reliable of all continuation patterns, they are formed when there is a sharp price movement followed by a consolidation phase (sideways action), thereafter the previous up or down trend is expected to resume. Read more. Forex Falling Wedge Chart Pattern Chart Patterns | Written by Aboutcurrency At it's most basic level, Falling Wedge formations are bullish continuation patterns and look similar to triangle patterns (ascending triangle, descending triangle, and symmetrical) because of the converging trendlines( support and resistance) and narrowing price ranges(forms a cone). Read more. Forex Double Top Chart Pattern Chart Patterns | Written by Aboutcurrency Double Top formations are reversal patterns and often seen to be among the most common (together with double bottom formations) patterns for currency trading. Double Tops are identified by two consecutive peaks of similar (or almost) height with a moderate pull back in between (neckline). . Read more.

Forex Double Bottom Chart Pattern Chart Patterns | Written by Aboutcurrency Double Bottom formations are reversal patterns and often seen to be among the most common (together with double top formations) patterns for currency trading. Double Bottoms are identified by two consecutive lows of similar (or almost) height with a moderate pull back up in between (neckline peak). Read more. Forex Ascending Triangle Chart Pattern Chart Patterns | Written by Aboutcurrency The ascending triangle chart pattern shows two converging trendlines (support levels & resistance levels) and is a bullish formation that usually forms during a currency pair uptrend as a continuation pattern. Read more. Forex Decending Triangle Chart Pattern Chart Patterns | Written by Aboutcurrency This pattern is similar tho the ascending triangle chart pattern but reverse, it shows two converging trendlines (support levels & resistance levels) and is a bearisch formation that usually forms during a currency pair downtrend as a continuation pattern (downtrend will continue). Read more. Forex Symmetrical Triangle Chart Pattern Chart Patterns | Written by Aboutcurrency This pattern shows two converging trendlines (support levels & resistance levels) and is (1) a bearisch formation that usually forms during a currency pair downtrend as a continuation pattern (downtrend will continue) or (2) a bullish formation that usually forms during a currency pair uptrend as a continuation pattern. (uptrend will continue) Read more.

Bullish & Bearish Divergence Pattern Chart Patterns | Written by Aboutcurrency Divergence is a term which often comes back in forex technical analysis, it occurs when the price of the underlying currency pair and the indicator move in opposite directions. A bullish divergence can predict future upturns, while a bearish divergence can predict future downturns . Read more. Forex Chart Patterns Cheat Sheet. Like we promised, here’s a neat little cheat sheet to help you remember all those forex chart patterns and what they are signaling. We’ve listed the basic forex chart patterns, when they are formed, what type of signal they give, and what the next likely price move may be. Check it out! You never know when you’re gonna need to cheat, hah! Bookmark this thing yo! And as you probably noticed, we didn’t include the triangle formations (symmetrical, ascending, and descending) in this cheat sheet. Confusing I know, but that’s where practice and experience comes in! Like we mentioned, it’s tough to tell where the forex market will breakout or reverse. So what’s important is that you prepare well and have your entryexit orders ready so that you can be part of the action either way! 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. Head and shoulders, candlestick and Ichimoku forex 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.") TUTORIAL: Analyzing Chart Patterns. 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. Head and Shoulders (H&S) The H&S pattern can be a topping formation after an uptrend, or a bottoming formation after a downtrend. A topping pattern is a price high, followed by retracement, a higher price high, retracement and then a lower low. The bottoming pattern is a low (the "shoulder"), a retracement followed by a lower low (the "head") and a retracement then a higher low (the second "shoulder") (see Figure 1). The pattern is complete when the trendline ("neckline"), which connects the two highs (bottoming pattern) or two lows (topping pattern) of the formation, is broken. 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 EURUSD 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 Shoulders pattern, see "Price Patterns Part 2: Head-and-Shoulders Pattern.") Triangles are very common, especially on short-term time frames. Triangles occur when prices converge with the highs and lows narrowing into a tighter and tighter price area. They can be symmetric, ascending or descending, though for trading purposes there is minimal difference. 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.") Candlestick charts provide more information than line, OHLC or area charts. For this reason, candlestick patterns are a useful tool for gauging price movements on all time frames. While there are many candlestick patterns, there is one which is particularly useful in forex trading. An engulfing pattern is an excellent trading opportunity because it can be easily spotted and the price action indicates a strong and immediate change in direction. In a downtrend, an up candle real body will completely engulf the prior down candle real body (bullish engulfing). In an uptrend a down candle real body will completely engulf the prior up candle real body (bearish engulfing). 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 signals 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. Ichimoku is a technical indicator that overlays the price data on the chart. While patterns are not as easy to pick out in the actual Ichimoku drawing, when we combine the Ichimoku cloud with price action we see a pattern of common occurrences. The Ichimoku cloud is former support and resistance levels combined to create a dynamic support and resistance area. Simply put, if price action is above the cloud it is bullish and the cloud acts as support. If price action is below the cloud, it is bearish and the cloud acts as resistance. The "cloud" bounce is a common continuation pattern, yet since the cloud's supportresistance is much more dynamic that traditional horizontal supportresistance 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. There are multiple trading methods all using patterns in price to find entries and stop levels. Forex chart patterns, which include the head and shoulders as well as triangles, provide entries, stops and profit targets in a pattern that can be easily seen. The engulfing candlestick pattern provides insight into trend reversal and potential participation in that trend with a defined entry and stop level. The Ichimoku cloud bounce provides for participation in long trends by using multiple entries and a progressive stop. As a trader progresses, he or she may wish combine patterns and methods to create a unique and customizable personal trading system. (For more, check out "How to Become a Successful Forex Trader.") How to Trade Triangle Chart Patterns. Just like there are three little pigs, there are three types of triangle chart formations: symmetrical, descending and ascending.

Symmetrical Triangle. A symmetrical triangle is a chart formation where the slope of the price’s highs and the slope of the price’s lows converge together to a point where it looks like a triangle. This means that neither the buyers nor the sellers are pushing the price far enough to make a clear trend. If this were a battle between the buyers and sellers, then this would be a draw. This is also a type of consolidation. In the chart above, we can see that neither the buyers nor the sellers could push the price in their direction. When this happens we get lower highs and higher lows. We don’t know what direction the breakout will be, but we do know that the market will most likely break out. Eventually, one side of the market will give in. So how can we take advantage of this? We can place entry orders above the slope of the lower highs and below the slope of the higher lows. Since we already know that the price is going to break out, we can just hitch a ride in whatever direction the market moves. In this example, if we placed an entry order above the slope of the lower highs, we would’ve been taken along for a nice ride up. If you had placed another entry order below the slope of the higher lows, then you would cancel it as soon as the first order was hit. This type of triangle chart pattern occurs when there is a resistance level and a slope of higher lows.

What happens during this time is that there is a certain level that the buyers cannot seem to exceed. However, they are gradually starting to push the price up as evident by the higher lows. In the chart above, you can see that the buyers are starting to gain strength because they are making higher lows. They keep putting pressure on that resistance level and as a result, a breakout is bound to happen. Many charting books will tell you that in most cases, the buyers will win this battle and the price will break out past the resistance. However, it has been our experience that this is not always the case. Sometimes the resistance level is too strong, and there is simply not enough buying power to push it through. Most of the time, the price will, in fact, go up. The point we are trying to make is that you should not be obsessed with which direction the price goes, but you should be ready for movement in EITHER direction. In this case, we would set an entry order above the resistance line and below the slope of the higher lows. In this scenario, the buyers lost the battle and the price proceeded to dive!

You can see that the drop was approximately the same distance as the height of the triangle formation. If we set our short order below the bottom of the triangle, we could’ve caught some pips off that dive. As you probably guessed, descending triangles are the exact opposite of ascending triangles (we knew you were smart!). In descending triangle chart patterns, there is a string of lower highs which forms the upper line. The lower line is a support level in which the price cannot seem to break. In the chart above, you can see that the price is gradually making lower highs which tell us that the sellers are starting to gain some ground against the buyers. However, in some cases, the support line will be too strong, and the price will bounce off of it and make a strong move up. The good news is that we don’t care where the price goes. We just know that it’s about to go somewhere. In this case, we would place entry orders above the upper line (the lower highs) and below the support line. In this case, the price ended up breaking above the top of the triangle pattern. After the upside breakout, it proceeded to surge higher, by around the same vertical distance as the height of the triangle. Placing an entry order above the top of the triangle and going for a target as high as the height of the formation would’ve yielded nice profits. 2 Bar Reversal Pattern. Explanation of 2 Bar Reversal Pattern, 2BarReversal Pattern meaning. What Is 2 Bar Reversal Pattern in Forex?

2 Bar Reversal Pattern Definition. 2 Bar Reversal Pattern – Price Action candlestick pattern that can be found on any TF (time frame). ( ? What is Price Action? ) 2-Bar-Reversal pattern – contain 2 candles. For a “bearish 2 Bar reversal” the 1st bar must go up. The 2nd candlestick must then open and snap back lower. In the above example, you can see “2 Bar Reversal Pattern” on chart. Trading the 2-bar reversal price action trade set up. The 2 bar reversal price action set up is an uncommon trade set up mostly due to the fact that it is misunderstood. Price action traders also tend to confuse the two bar reversal set up with other individual candlestick patterns. However, despite the confusion, the 2 bar reversal set up in price action trading is a very solid trade set up that is indicative of a reversal. The reversal that the 2 bar set up presents can either be a reversal to the main trend, or merely a corrective move or retracements to the main trend. In this article, we’ll explore what is the 2 bar reversal price action trade set up, why it is formed and how to trade this price action set up, both within a trading system as well as in isolation. What is the 2 bar reversal price action set up? This price action trade set up comprises of two bars. The two bars, in order to qualify this pattern must be significantly large and preferably have small upper and lower wicks. When a bearish bar followed by a bullish bar appears at the bottom, the 2 bar reversal is indicative of a bullish price action that is imminent.

Likewise, when a bullish bar followed by a bearish bar is formed at the top, it is indicative of a bearish momentum coming into play in the markets. The 2 bar reversal price action set up can be formed in any time frame of the charts. What makes this significant is the fact that they are nothing but the two price bars of a higher time frame. For example, a 2 bar formation in H1 charts is nothing but a single candlestick on a 2-hour chart. Or a 2 bar formation on the H4 chart, is a single candlestick or bar on the 8-hour chart and so on. Because the 2 bar reversal price action set up comprises of two opposite sentiments, when viewed through the higher timeframe, they most often signify a pin bar. The chart below shows a 2- bar reversal on the H1 charts: When we switch to the 2-hour chart, we notice that the price action of the 2 candles from H1 chart converts to a pinbar type of formation on the 2-hour charts: What does the 2 bar reversal PA pattern indicate? The appearance of the 2 bar reversal price action set up primarily indicates a fight between bulls and bears , or buyers and sellers. Often signified by large bearish and bullish bars, when they occur next to each other, the 2 bar reversal pattern often signifies a rejection of lower or higher prices by the markets where the preceding price action candle shows the market sentiment. Therefore, when a bearish and a bullish bars appear in the 2 bar reversal method, the sentiment is in the direction of the bullish candlestick pattern and thus indicative of a bullish market sentiment. Likewise, the appearance of bullish and bearish bars appears within the 2 bar reversal method, it indicates bearish market sentiment. Quite often the 2 bar reversal methods can also include the second candle to be an engulfing pattern price action candle. Such patterns are even stronger and valid. ( Read more about eng ulfing candlestick pattern Download eng ulfing candlestick indicator ) Trading the 2 bar reversal Price Action pattern in isolation.

When trading this price action pattern isolation, the holding period is for no longer than one candlestick or bar. It can be more, provided the market gives us further price action clues. The chart above shows how a short position was taken based on the 2-bar reversal price action set up. After spotting the price action trade set up, a sell order was placed at the low of the 2 nd bar with stops at the high of the previous bar The trade could have been exited after the next bar which was bearish and dropped a significant number of pips Or, the trade could have been kept opened but risks managed to break even while price continued to drop towards a previously known support level. In the next chart, we show an example of a long trade set up. Here, the 2-bar reversal trade set up can also be regarded as a bullish engulfing candle, thus giving it a higher probability. The long example of the 2-bar reversal price action pattern here offers a great riskreward trade when targeting previous resistance levels. Trading the 2 bar reversal within a trend. The 2 bar reversal can also be traded within a trend, especially at retracements . The appearance of a 2 – bar reversal pattern, a bearish candlestick followed by a bullish candlestick can be seen as a signal of the end of the retracement, especially when this price action pattern occurs at a previously identified support zone. In the above example, we notice a 2 bar reversal pattern formation which also happens to be an engulfing candlestick pattern. The appearance of this pattern near a previously known resistance turned support level is a clear indication that the retracement is complete and that buyers are in control. Taking a long position at the high of the bullish reversal bar, targeting the previous high yet again gives trades a very low risk, high probability trade set up. Trading the 2 bar reversal price action set up – in Summary. To summarize, trading the 2 bar reversal price action set up: They are indicative of rejection of the previous sentiment as the market immediately turns the opposite way The 2-bar reversal patterns are most valid when they appear at the top or bottom of the trends In most cases, the 2 bar reversal patterns indicate a short term change in trend 2 bar reversal patterns are nothing but a single candlestick or bar of the one immediate higher timeframe. For example one hour and two hour charts, or 4 hours and 8 hours charts When the 2 bar reversal pattern also shows an engulfing bullish or bearish pattern, it signals a very strong sentiment in the market The 2 bar reversal pattern requires a bit of practice as it can be easily confused for other price action patterns. Harmonic Pattern BAT. Trading the Harmonic Bat Gartley Pattern. The Harmonic Bat is a variation to the Gartley pattern which was developed by Scott Carney .

It is considered to be one of the more accurate patterns exhibiting a higher success rate than any other harmonic patterns. The bat pattern might look similar to a Gartley 222 Butterfly pattern but differs only minutely in terms of the Fibonacci ratios between the swingpivot points. The Harmonic Pattern Bat is made up of 5 swing points, X, A, B, C and D and come in Bullish and Bearish bat variations. The Harmonic Bat pattern has the following characteristics which can be used to identify the Bat pattern. AB leg can retrace between 38.2% – 50% of XA leg BC leg can retrace between 38.2% – 88.6% of AB leg CD leg can retrace up to 88.6% of XA leg CD leg can also be an extension of between 1.618% – 2.618% of AB leg. The chart below shows an example of the harmonic bullish and bearish Bat patterns . The main difference between the Harmonic Bat and the Gartley 222 Pattern is the points or swing leg of AB. In terms of the target levels, the first target is set to 61.8% of CD, followed by 1.272% of CD and finally the projection of XA from D, the entry point. Bearish Bat Pattern Trade Example. The chart above illustrates an example of a bearish harmonic bat pattern which was executed perfectly. After identifying the XA leg, we notice AB retracing 48.8% of XA, well within the 38.2% – 50% retracement level BC leg then declines to retrace 52.2% of AB (within the limits of 88.6% of AB leg) CD then rallies to retrace 89.5%, which overshot the ideal reversal level of 88.6%, while staying within the range of 2.618% extension of AB leg. After price rallied to point D, it promptly reversed. A short position would then be executed with stops near the high of X. The first target 1 comes in at 61.8% of CD, followed by target 2 at 1.272% of CD and finally target 3, which is the projected XA distance from the PRZ level at D. Bullish Bat Pattern Trade Example.

The above chart shows an example of a bullish bat pattern . Here, we notice that AB retraced 53.7% (almost close to 50%) of XA leg BC then rallies to retrace 65.6% of the XA leg, within the limits of 88.6% CD then retraces 60.5% of XA and an extension of 119.2% of AB leg (although not completely qualifying the final leg). In any case, price reversed near point D to reach all the three objectives of target 1 which is 61.8% of CD, target 2, the 127.2% extension of CD and finally target 3, the XA projected distance from the PRZ level at D. From the above, we do notice that the Gartley 222 and the Bat patterns are almost similar with some minute differences as pointed out in the table. Traders shouldn’t really bother themselves as to the type of harmonic pattern that is being formed as the stop loss and target levels are the same as trading the Gartley 222 pattern. The Only 3 Forex Chart Patterns You Need to Know (and Why I Trade Them) There are a million ways to make money in the Forex market. The key to success in this business is not finding one that works, it’s finding one that works for you . While I started out in 2007 trading nothing but pin bars and inside bars, my “style” today is quite different. Put simply, the way I trade today is much more robust than it was in 2007. Today, I still trade pin bars and inside bars, however over the years I have expanded my trading plan to also include a few choice technical patterns. Why trade these Forex chart patterns in addition to candlestick formations? Think of it like this. Before a developer begins building a mall, big-name shopping stores are signed on in order to provide the best experience possible to shoppers. These are called “anchor stores”. In a similar manner, the three chart patterns below can become the “anchors” to your trading plan. These are the formations that you can rely on to generate profits on a consistent basis. Exclusive Bonus: Download the Forex chart patterns PDF that will show you exactly how I trade the 3 chart patterns below. Of course they are not the only price structures out there, however, they are the ones that I have come to enjoy trading the most over the years.

So without further ado, let’s get started! The Head and Shoulders (and Inverse) This is not only my favorite reversal pattern, but it is also my favorite pattern, period. That includes its inverse, which has similar mannerisms. For those who have followed me for a while now, you may recall that my favorite pattern to trade used to be the wedge. However, the last year of trading has produced a new winner in my book. The head and shoulders is the least common of the three formations we will discuss today. While there may be similar price structures that occur more frequently, a valid and therefore tradable head and shoulders reversal doesn’t come around very often. Put simply, it works. But more than that, it can be quite easy to spot and extremely profitable when you know what to look for and how to trade it. The pattern can offer a precise entry given the fact that the neckline is generally based on several highs or lows. This fact alone takes a lot of the guesswork out of determining when the pattern has confirmed. Another huge benefit, like the other two technical formations below, is that we have a measured objective from which to identify a possible target. Staying out of Trouble.

This is something that you may not know (unless of course you’re one of my members). In order to be considered valid, the two shoulders of the pattern must overlap at some point. Situations where the shoulders don’t overlap are most common when the pattern unfolds at a steep angle. While a break of the trend line (if one exists) may trigger a change in trend, it does not fit the criteria to be called, or traded as, a head and shoulders pattern. Notice how no part of the first shoulder in the illustration above overlaps the second shoulder. This disqualifies the price structure from being traded as a head and shoulders pattern. Another common mistake among Forex traders is to use a measured objective as a “one-stop shop”. In other words, they simply measure out the distance in pips and then set a pending order to book profits at that level. While that may occasionally work out in your favor, a much better approach is to determine whether or not that objective lines up with a pre-existing key level. If it does, perfect, however a more common scenario is one where the market will come in contact with a key level prior to reaching the objective. If this is the case, you’re far better off taking profit at the key level rather than hoping for an extended move to the objective. Remember that technical analysis is not a perfect science and there are no guarantees, so there’s no sense to risk losing an unrealized gain of 500 pips in order to make an extra 50 pips in profit. Last but not least, the head and shoulders is best traded on the 4-hour chart or higher. However, I have found that the best price structures tend to form on the daily time frame.

A formation on the 1-hour chart or lower should always be ignored, regardless of how well-defined the structure may be. As the name implies, the wedge is a technical pattern in which price moves into a narrowing formation, also called a triangle. Unlike the head and shoulders we just discussed, the wedge is most often viewed as a continuation pattern. This means that once broken, price tends to move in the direction of the preceding trend. That said, it’s important not to get caught up in trying to predict a future direction while the pattern is still intact. Only once support or resistance is broken should you begin to identify possible targets. The wedge was one of the first Forex chart patterns I began trading shortly after I entered the market in 2007. By 2010, I had not only become proficient in trading them, but I had also developed the intuition necessary to identify the most profitable formations – something that can only be had after years of practice. The really great wedge patterns don’t come around all that often. By “really great”, I’m referring to the ones that form on the daily chart. While you can trade these on the 4-hour time frame, in my experience the most lucrative trade setups form on the daily time frame. Wedges tend to play out relatively quickly compared to something like the head and shoulders pattern. However, they also allow for an advantageous risk to reward ratio, especially the larger structures that form on the daily chart. This combination allows you to secure a nice profit in a relatively short period of time. So although they don’t come around all that often, wedges should certainly be something that you watch for during extended periods of consolidation. Staying out of Trouble.

There are three common mistakes I see traders making when it comes to trading the wedge. The first and perhaps most prevalent is trying to force support and resistance levels to fit. In fact, this is a common issue I see across all of trading, not just wedges. As I always say, if a level is not extremely obvious, it should be ignored. The three points in the illustration above are clearly not inline with the upper and lower levels of consolidation, which invalidates the formation in terms of “tradability”. The second mistake I see among traders is attempting to trade a wedge on a lower time frame. While these formations may occur more often, they won’t be nearly as reliable or effective as the price structures that form on the daily time frame. Last but not least is the issue of timing. As you may well know, timing is a key factor if you wish to succeed in the world of Forex. And when it comes to wedge patterns, timing is everything. More often than not, when this pattern breaks, the market will retest the broken level as new support or resistance.

This retest offers the perfect opportunity for an entry, however it does take patience to achieve. Be careful of entering on the first closed candle outside of the pattern as you will likely get a retrace of some sort. This will not only give you a more favorable entry, but it will also help you avoid making an emotional decision about exiting the position in the event you entered prematurely. The Bull and Bear Flag. The bull or bear flag is another name for a channel. However, by adding “bull” or “bear” to the designation, we’re giving it a directional bias. So as you might expect, it is most often traded as a continuation pattern. Like the head and shoulders, flags often form after an extended move up or down and represent a period of consolidation. It’s essentially an indecision point in the market, where the bulls and bears are battling to see who will win control. I feel confident in saying that you could literally trade nothing but bull and bear flags and make very good money in the Forex market.

This, of course, assumes that you have become a proficient price action trader. Why do I think so? There are a few reasons, but mostly due to the fact that these formations occur quite often. This is true even if you are trading the higher time frames. Of course when I say “quite often”, I’m referring to a few times per month, at most. That said, you only need one profitable trade each month to make good money as a Forex trader. If that one good trade comes in the form of a bullish or bearish flag pattern, it is likely to have an extremely favorable risk to reward ratio attached to it. This is another reason why I love having this price structure included in my trading plan. The measured objective in this case often allows for several hundred pips on most currency pairs. Combine that with a precise entry and a well-placed stop loss that is 50 to 100 pips away, and you have a recipe for a profit potential of 3R or better just about every time. Staying out of Trouble. Like the other patterns above, there are a few things you should watch out for when trading this formation. The first is perhaps the most obvious – never cut off the highs or lows in order to make the channel fit. If it isn’t obvious before you even draw the channel tool on your chart, it isn’t likely something you’ll want to trade. The illustration below shows price action that you would want to ignore completely.

Notice how the two points above don’t match up with support and resistance. Calculating the measured objective also tends to give traders fits. Just remember that the measurement should include the consolidating price action. The correct measurement in the illustration above covers the entire “flag pole”, not just the price action leading up to the consolidation. Using chart patterns to trade the Forex market isn’t for everyone. However, if you enjoy using raw price action to identify opportunities, the three formations above would make a great addition to your trading plan. You don’t have to know and trade every price structure available in order to make consistent gains as a Forex trader. Doing so will only slow the learning process and also send you chasing trades in every which direction. Becoming a successful trader is about finding an approach to the markets that fits your style, defining your trading plan and then refining those rules as you gain experience. So if you enjoy trading technical patterns, as I do, be sure to give some consideration to the three we just covered; they truly are all you need to become consistently profitable. Are you ready to start using the chart patterns above? If so, you definitely want to download the free Forex chart patterns PDF that I just created. It contains all three price structures you studied above and includes the characteristics I look for as well as entry rules and stop loss strategies. Click the link below and enter your email to get instant access to the cheat sheet.

I’m a fan of these patterns too, thanks to your teaching. These three patterns are easy to spot, simple to trade and highly effective. Kiwi, absolutely! They really are the only three patterns you need to become profitable. Hi Justin, thank you for your great and consistent work. Can this flag be valid? Doesn’t look to be, just confirming. Having read a previous post re: this pair and the h&s pattern that now seems to be realized, this q aims to define the invalidation point of the certain - appears to be - bullish flag. I wouldn’t call that a flag. The touches off of support and resistance aren’t very well defined.

Awesome post Justin. What I like about these patterns is that once they form on the charts they are for the most part consistent and predictable. You’re not going to win 100% of the time with them, but as I said they are consistent and do perform well. My favorite one is the pennant. I love the way it bounces or rockets in its intended direction. It is a pattern that I myself is comfortable with and even teach it to my clients. Stick with what works for you and you’ll get consistent results. I hope you all have a magnificent day on PURPOSE! Tareeq, you got it! There is no approach to trading that will work 100% of the time. It’s about finding something that fits your style, developing an edge that stacks the odds in your favor and always maintaining a favorable risk to reward ratio. It doesn’t happen overnight but it does work given the right amount of time, effort and patience. Real world trading looks very different to nicely drawn illustrations.

Maybe if you offered trade examples from actual trading within a third-party verified account you could be taken seriously. The thing is this: my five year old niece does drawings similar to those in this article. But she’s no trader. I would’ve expected something different from a guy who calls himself a professional trader and who has ads in Forbes and Washington Post (that’s how I landed here). Hi JLTrader, perhaps you should have a look around the site before making such a drastic judgement call. The reason I used these drawings in this lesson is simply because it’s easier to explain the patterns. If you want “real-world trading” examples, have a look at the following links: These are but a few of the real-world examples I publish every week. Have a good one. They work. Over 80% success on trades taken on these patterns. When people are buying signals they are buying tips on these patterns. It’s a shame considering that a five year old can trade these patterns and make money especially on longer (4H and greater-especially 1D time frames). Justin, I am regular reader of your blog, I want to know that the patterns you explained is only for forex or can be applied in any instrument like commodities or stocks. Anil, these patterns can be effective in any market so long as there is sufficient liquidity. Good job ! Thanks for the lesson.

I’ll surely try them out. You’re welcome, Hendrix. Let me know if you have any questions. I’m interested of this pattern of trading and I’m trying it, thank you for this nice and clear explanation. Thank you for this nice and clear explanation. Hi, Justin, Thank You for all done. It’s realy help me learn price action. Great work. Thank you very much….you make it easier for us. If the price action doesn’t retest the broken level, at how many pips would one consider the break not a fake? Great price pattern . Thanks for the lesson. Great price pattern. Thanks for the lesson. wow! good explanation.

In your article, you said both Wedge and Flag are most viewed as “Continuation” pattern. For what I have known, continuation or not should take the combination of 1)The trend type before the Wedge or Flag and 2) The formation type of Wedge or Flag into consideration. Say for example, if the previous trend is “up” and the flag is “ascending”, this flag pattern is most viewed as a “Reversal” pattern. Same applied to Wedge. If you agree with that , I will be very happy to see you updated this great article to make it more complete. Anyway, this is a great pattern article for beginners. Keep you good work! Thanks very much…I can’t waiting to get fantastic skills please help me to know forex trick..From East Africa (Tanzania) Disclaimer: Any Advice or information on this website is General Advice Only - It does not take into account your personal circumstances, please do not trade or invest based solely on this information. By Viewing any material or using the information within this site you agree that this is general education material and you will not hold any person or entity responsible for loss or damages resulting from the content or general advice provided here by Daily Price Action, its employees, directors or fellow members.

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After logging in you can close it and return to this page. 3 Best Chart Patterns for Intraday Trading in Forex. One of the most important ingredients for the successful Forex trading is the chart patterns technical analysis. Recognizing figures on the graph is an essential part of the Forex strategy of every trader. It is vital that you learn chart patterns and their meaning. Therefore, I have decided to spare some time to show you how to trade chart patterns like the pros. In this article, I will reveal to you the three best chart patterns for intraday trading and the rules you need to follow when approaching them. Understanding Chart Patterns in Technical Analysis. Chart patterns are a crucial part of the Forex technical analysis. Patterns are born out of price fluctuations, and they each represent chart figures with their own meanings.

Each chart pattern indicator has a specific trading potential. This is why Forex traders spot chart patterns for day trading – to profit from the expected price moves. In fact, chart patterns represent price hesitation. When you have a trend on the chart, it is very likely to be paused for a while before the price action undertakes a new move. In most of the cases this pause is conducted by a chart pattern, where the price action is either moving sideways, or not very persuasive with its move. This is a brief sketch of how a chart pattern indicator could look like on the chart. In the example above we have a trend that turns into a consolidation, and then the trend gets resumed again. Types of Chart Patterns in Forex. There are three types of chart pattern figures in Forex based on their potential: neutral, continuation, and reversal chart patterns. I will share with you a Forex chart patterns cheat sheet for each of the three types.

Continuation Chart Patterns. Continuation chart patterns are the ones that are expected to continue the current price trend, causing a fresh new impulse in the same direction. Example: If you have a bullish trend, and the price action creates a continuation chart pattern, there is a big chance that the bullish trend continues. Some of the most popular continuation chart patterns are Flag, Pennant, and Wedges. This chart patterns cheat sheet shows six of the most common continuation chart patterns in Forex trading. Each of these six formations has the potential to activate a new impulse in the direction of the previous trend. Reversal Chart Patterns. Reversal patterns are opposite to continuation patterns. They usually reverse the current price trend, causing a fresh move in the opposite direction. Example: If you have a bullish trend and the price action creates a trend reversal chart pattern, there is a big chance that the previous bullish trend gets reversed. This is likely to cause a fresh bearish move on the chart.

Some of the most popular reversal chart patterns are Double Tops and Bottoms, Head and Shoulders, Wedges, Expanding Triangles, Triple Tops and Bottoms, etc. Notice that the Rising and the Falling Wedge could act as reversal and continuation patterns in different situations. This depends on the previous trend. Just remember that the Rising Wedge has bearish potential and the Falling Wedge has bullish potential, no matter what the previous trend is. Neutral Chart Patterns. The neutral chart patterns are the one that induce a price move, but the direction is unknown. In the process of the pattern confirmation, traders realize the pattern’s potential and tackle the situation with the respective trade. Example: The Forex pair is trending in the bullish direction. Suddenly, a neutral chart pattern appears on the chart. What would you do in this case? You should wait to see in which direction the pattern will break. This will hint you about the potential of the pattern. The most popular neutral chart patterns are the Ascending Triangle, Descending Triangle, Symmetrical Triangle, and Symmetrical Expanding Triangle. These are the most common neutral chart patterns that have the potential to push the price in either bullish or bearish direction. Now you have 20 different chart pattern examples.

But which are the best chart patterns to trade? This wWill discuss in the next point of the article. 3 Best Chart Patterns to Trade in Forex. Now that I gave you a brief visual guide to chart patterns, I will tell you which three of these are the best chart patterns for intraday trading. Then I will give you a detailed explanation about the structure and the adjoining rules of each one of the best chart patterns. Flags and Pennants Chart Patterns. The Flag and the Pennant are two separate chart patterns that have price continuation functions. However, I like to treat these as one since they have similar structure and work exactly the same way. The Flag chart pattern has a continuation potential on the Forex chart. 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 Flag pattern has two targets on the chart. 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.

Check out this Flag chart pattern example to see how it works in real trading situations: This is an example of a bullish Flag chart pattern on the 15-minute chart of the USDCHF for February 17, 2017. 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. The Pennant chart pattern has almost the same structure as the Flag. 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. 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 bearish Flag chart pattern works exactly the same way but in the opposite direction. This time we approach the 5-minute chart of the USDJPY for January 6, 2017. The image gives an example of a bull Pennant chart pattern. As you see, Flags and Pennants technical analysis works exactly the same way. 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 I put the Flag and Pennant chart patterns indicator under the same heading. Double Top and Double Bottom Chart Pattern.

The Double Top is a reversal chart pattern that comes as a consolidation after a bullish trend, creates couple 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 couple 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 5-minute chart of the GBPUSD for January 13, 2017, shows an example of a Double Top pattern technical analysis. 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. After the breakout entry signal on the chart, you need to short the GBPUSD Forex pair placing a stop loss order inside the pattern. In our case I 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. Head and Shoulders Chart Pattern. 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 the 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 Head of the pattern has a couple bottoms from both of its sides. 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. Above you can see a real Head and Shoulders chart pattern on the H1 chart of the GBPUSD for August 19-30, 2016. The inclined pink line is the Neck Line of the figure. The two arrows measure and apply the size of the Head and Shoulders starting from the moment of the breakout through the Neck Line. The red circle shows the head and shoulders chart pattern breakout. You need to hold a bearish trade until the price completes the size of the pattern in a bearish direction. At the same time, your Stop Loss order should go above the second shoulder as shown on the chart. As the other patterns we discussed, the Head and Shoulders chart pattern has its opposite version – the Inverse Head and Shoulders pattern. It acts absolutely the same way, but everything is upside down.

Chart Patterns Indicator MT4. After all my years dealing with financial markets, I found a very useful tool: a chart pattern recognition indicator. Even better, it is built in within the default version of the MT4 trading platform. The indicator is called ZigZag. What it does is to represent the general price action with straight lines by neglecting smaller price fluctuations and putting emphasize on the real-deal price moves. This way you can vary easy visualize a real pattern on the chart. Let me show you my chart pattern recognition algorithm in action: Above you can see the 5-minute chart of the EURUSD for February 7, 2017. The chart includes the ZigZag indicator expressed by the straight red lines on the chart. In the middle of the chart, we see that the ZigZag lines are creating descending tops and descending bottoms, which is a symptom of a Falling Wedge chart pattern. See that the highs and the lows of the pattern stand out in a very pleasant way thanks to the ZigZag indicator.

You can hardly miss the pattern on the chart. In the red circle we see the breakout through the upper level of the pattern – the confirmation. Then we can trade for the two targets of the pattern. The first one equals the size of the wedge – marked with the smaller pink arrow. The bigger pink arrow measures the size of the Pole. Both should be applied starting from the moment of the breakout. Notice that you should protect your trade with a Stop Loss order that needs to go below the lowest bottom of the Falling Wedge pattern, as shown in the image. As you see, the price action completes both targets. The chart patterns technical analysis is a crucial part of the Forex price action trading. Chart patterns represent price hesitation (consolidation) that comes after a trend. After the consolidation is completed, the price action usually creates a big move. There are many chart patterns in Forex trading and each of them has different meaning and its own There are three types of chart patterns in technical analysis based on their potential. Continuation Chart Patterns: Flag, Pennant, Wedges, etc. Reversal Chart Patterns: Double Tops and Bottoms, Head and Shoulders, Wedges, Expanding Triangles, Triple Tops and Bottoms, etc. Neutral Chart Patterns: Ascending Triangle, Descending Triangle, Symmetrical Triangle, Symmetrical Expanding Triangle, etc. The three best chart patterns for intraday trading are: Flags and Pennants Open a trade when the price breaks out of the FlagPennant in the direction of the previous trend.

Put a Stop Loss order at the other side of the pattern. Stay in the trade for a price move equal to the size of the FlagPennant. If this target is reached and the price keeps trending in your favor, stay in the trade for additional price move equal to the size of the Pole applied starting from the moment of the breakout. Double Top and Double Bottom Open your trade when the price breaks the Trigger Line of the pattern. Put a Stop Loss order inside the pattern, somewhere near the mid. point. Stay in the trade for a minimum price move equal to the size of the pattern. Head and Shoulders Open a trade when the price breaks the Neck Line of the pattern. Put a Stop Loss order beyond the second shoulder. Stay in the trade for a minimum price move equal to the size of the pattern. GET STARTED WITH THE FOREX TRADING ACADEMY. Damyan is a fresh MSc International Management from the International University of Monaco. During his bachelor and master programs, Damyan has been working in the area of financial markets as a Market Analyst and Forex Writer. He is the author of thousands of educational and analytical articles for traders.

When being in bachelor school, he represented his university in the National Forex Trading Competition for students in Bulgaria and got the first place among 500 other traders. He was awarded a cup and a certificate at an official ceremony in his university.



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