Investing in Forex is the best alternative for you if you are looking for an income to survive through these harsh economic times. However, you may end up landing into a deeper mess than you were due to the lack of understanding of the forex trading patterns. Forex trading patterns will provide entries, stop loss, and profit targets. This will be a huge sigh of relief that helps you to get understand how the trading market works. This article is aimed giving you the best as far as forex trading patterns are concerned.
Table of Contents
Top 6 Forex Trading Patterns
1. Head and shoulders
This is a technical indicator that appears as a baseline with three peaks. The middle one is always the highest while the other two are almost similar in height. It describes a specific trend, bullish-to-bearish reversal. It is usually the most reliable trading pattern. It is among the top trading patterns with, varying degrees of accuracy, and an upward trend nearing its end.
It forms when the particular price of a stock increases then falls subsequently before the rise of the stock’s price. The trend continues one more time forming a middle peak (nose) higher than the other peaks.
After the third peak falls back to the level of support, it is believed that it will then assume a bearish downtrend. The first and third peaks form the head. Lines connecting the first and second trough are referred to as necklines.
2. Double top
It forms when the stock’s price reaches high points two consecutive times. There is however a moderate fall of the stock’s price between the two peaks. It is a bearish reversal pattern due to the trend it follows. It is only said to be a double top pattern when the price of the stock falls lower than the two peaks (support level). And is equivalent to the low between the two peaks.
3. Double bottom.
This is a technical analysis pattern that indicates a high period of selling causing a drop in stocks’ prices or the index below the support level. It then rises to a certain level before dropping again. It is also a bullish reversal pattern that signifies an end of a downtrend and the beginning of a potential uptrend. As the market advances to become bullish, the trend reverses again to become more bullish.
4. Rounding bottom
This is another technical analysis pattern that is almost similar to the cup and handles pattern. The only difference is that the Rounding bottom does not experience the temporary downward trend of the handle portion. The downward slope indicates an excess supply in the trading market forcing the stock prices to go down. If the buyer assumes the market at a lower price, then the stock starts to peak positively forming an upward trend. The rounding bottom shows a reversal towards a positive market trend. The rounding bottom shows a reversal towards a positive market. This makes the investor’s expectation gradually shift from bullish to bearish.
5. Cup and handle
The cup and handle pattern is also referred to as a bullish signal, while the right side is experiencing a low trading volume. (Bearish market). It is almost similar to the rounding bottom pattern, while the handle is similar to a wedge pattern The cup is shaped in the “u” design while the handle slightly drifts downward to indicate a lower trading volume. It then transforms to a bullish signal when the stock prices increase and help the investor to spot an opportunity to invest.
They are usually characterized by converging trend lines over 10 to 50 trading periods. There are two types of wedge patterns: Rising and falling wedge patterns.
The rising wedge is represented by a trend line caught between two upward trending lines but can also occur in the middle of a downward trend. The trend lines drawn may converge to help a trader anticipate a higher incoming trading period. It can also indicate a breakout towards the lower trading direction.
A falling wedge occurs when a trend line is drawn below the lows on the pattern and can converge as prices deteriorate making buyers step in to stop the rate of decline.
These are useful technical information that helps you to understand how an asset has moved in a certain way and how it is likely to move in the future. It will help you decide whether to open a long or a short position. Wish you all the success in your Forex Trading business.