Pattern Breakouts - Introduction to These Fine Forex Trading Opportunities

By Chris Dudley

Pattern breakouts represent excellent opportunities to trade. Why trade a slow range when you can get in at the beginning of a dramatic and surprising movement while the rest of the market catches up? The early bird catches the worm, as they say. Find out more in this article.

Common Patterns

There are many pattern breakouts that you will become familiar with as you experience them but the basic ones to look out for are consolidations, triangles and flags.

Sideways Consolidation

This is when the price just moves in a range. In small time periods, the price will bump up and down happily but never seem to get out of this range.

When the range is reached and instead of the price moving back it actually takes two steps forwards instead, then you have a breakout and usually a dramatic price change will result.

I highly recommend trying to get in early on the action and placing a very tight stop just in case you are wrong on this occasion.

This way you will be best prepared to take advantage of upside whilst minimising your risks to the downside.

Triangles

Triangles are very similar to sideways consolidations. The only difference is that the price appears to converge. Instead of two parallel lines showing the limits of the range, you'll have a triangle and it will look like the oscillations are getting tighter.

Of course, the price will never reach the tip of the triangle and become constant so the great thing about a triangle is that it usually spells an inevitable breakout!

Flags

Picture a price that is trending down. Now imagine that it traces back briefly. It might be a reversal or it could only be a temporary blip.

If it is only a temporary blip, then you know that when it starts to downtrend again, it will do it with violence and catch out those who guessed wrong.

This is a flag. It's called a flag because if you take two parallel lines to denote the range of the temporary false-reversal then it looks like a flag.

Imagine putting in a sell signal at the peak of the flag. You'll definitely get a good price because there will always be traders who think that the trend is up. But instead you'll profit handsomely as it plummets down.a

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