When you have just entered the forex market, everyone must have advised you to learn about the market and ways to trade currencies. But forex is a volatile market and thus, you have to be act fast. Experts suggest that you should pick up common methods used by other traders to save money, time and effort. You can develop a good trading plan using chart patterns. Patterns help in fine tuning your trading strategies.
Although it can be difficult to spot patterns, it will improve with practice. Charts and patterns are visual signals that will help you to decide the entry and exit points of trade. While there are many patterns that appear on the charts, here are some mostly used ones that you should know. Cfds strategies are interesting too.
Candlestick chart patterns are very useful for gauging the movements in prices on all time frames. Candlestick charts provide more useful information than area, OHLC and line charts. The engulfing chart pattern is one of the patterns that appear on a candlestick chart. This pattern is an excellent way to spot trade opportunities. The price actions that are indicated by an engulfing pattern are strong.
In a downward trending market, an up candle’s real body will completely engulf the down candle that appeared prior to it. This type of engulfing is called bullish engulfing. In an uptrend market, a down candle’s real body completely engulfs the prior up candle’s real body. This is known as bearish engulfing. The engulfing pattern is highly tradable as the price action signals strong reversals. This can be comprehended from the fact that the candle that appeared prior is completely reversed.
Head and Shoulders
Head and shoulders are formed from the peaks or dips in the prices. In an uptrend market, the tops form the pattern while in a down trending market bottoms form the pattern. When the topping pattern is formed, prices are moving up followed by retracement. The prices move high after which they are pulled back but they rise again to reach the higher high. After the higher high is reached, prices dip again to rise again before falling.
In a bottoming pattern, a price low is followed by a retracement after which a lower low is touched. After the lowest low, a retracement in prices is seen before the prices hit the highest high. The highest high or lowest low is known as the head. Lowest highs or highest lows are known as shoulders. The area between the head and shoulders is known as the neckline. This pattern helps a trader to identify the entry level, stop level and targeted profit.
Ichimoku Cloud Bounce
Ichimoku is an indicator used in technical analysis that overlays the price data on the chart. Although it might not be easy to pick in the actual drawing, it becomes easier to see the pattern when Ichimoku cloud put together with price action. The Ichimoku cloud is formed when former support and resistance levels are combined to create a dynamic area of support and resistance. This is a common continuation pattern.
These are some of the patterns that are popularly used by traders. Experts suggest that you use a combination of patterns and methods to create an effective trading plan.