A chart pattern is formed within a chart when it is plotted graphically with past price action. In Forex, chart pattern analysis have began to become more popular a tool for traders to spot favorable set-ups. The reason for this is, as the data is graphed out a series of patterns repeat themselves over time. The savvy trader can spot these visual hints and make higher probability trades with these chart patterns as aids.
Before we dive into a discussion on the different chart patterns, let me tell you that there are two different schools of thoughts on chart patterns. Some believe that recognizing chart patterns traders can increase the odds of a successful trade. There are others who say, "past performance is not indicative of future results".
For me, chart patterns are another tool I use to trade. Like all good tools used in Forex, I believe we should use them and then justify and double confirm. It is foolish to give up and turn away from an avenue that might possibly increase your trading success by leaps and bounds. It is equally foolish to use just one indicator as well. Without further adieu here are some common chart patterns that will help you increase your profitability
1. The Elliot wave
The theory of Elliot wave was developed by an accountant in the 1930s. He states that as large percentage market prices unfold in a series of waves. There are 3 up waves and 2 down waves. This is for an up trend. For a downtrend the reverse happens. There are 3 down waves and 2 up waves. The Elliot wave theory is rather helpful if you take a longer term view of the market and is good to help spot trend movements and shifts. If you trade with Fundamental Analysis as your primary indicator, the Elliot wave is a good indicator test to help you ascertain the strength of the trend.
2. Head and shoulders
The chart pattern gets its name for the fact that it resembles a head with two shoulders. Head and shoulders are another set of commonly used chart patterns to assist traders in their trading. There are four elements in head and shoulder, the left shoulder, the head, the right shoulder and the neckline. The neckline acts as a sort of dynamic support level. Depending on the set up of your trading plan, and the general trend, you can take a position to short or go long. The Head and Shoulders pattern in my experience is quite accurate and very useful for a variety of setups.
3. Asymmetrical Triangle
This chart pattern is what I call the break out pattern. It gives the trader an advanced warning signal that a break out might be occurring. Used in conjunction with other technical indicators like MACD and the averages it is accurate for short term trading.
Chart patterns are another tool for traders to utilize and improve their profits with. Chart patterns are visual thus it is not precise. Use it as an estimation and confirm your entry and exit points with other technical indicators. There are many different chart patterns and as many ways to interpret and trade them. Best of luck in your trading.
Dr. Joshua Geralds is a successful Investment Specialist with over twenty years experience increasing the income of people world wide. Visit http://www.pipsalot.com to learn how to make steady profits through safe trading and down load your FREE e-book "Money Management" for a limited time only! |
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