The use of chart patterns in forex trading is basically a medium for an improved detection of big currency movements before they even take place. It fundamentally helps a forex trader to spot good trading conditions where the forex market is ready to break out. Chart patterns in forex trading helps to indicate if a currency price will lead on in its current direction or converse. Every information gotten in chart patterns helps forex traders to maximize profit, avoid losses and manage risk associated with the currencies being traded.
TYPES OF CHART PATTERNS IN FOREX TRADING
DOUBLE TOP AND BOTTOM
This is a chart pattern used in forex trading in which the identified quote for a particular currency or investment moves in accordance with the alphabetic word W (double bottom) and M (double top). This chart patterns analysis is used by forex traders as a technical analysis in the explanation of various currency movements and as a part of a forex trading strategy to exploit periodic patterns.
HEAD AND SHOULDER CHART PATTERN
This type of chart pattern used in forex trading is seen as one of the most steadfast and popular chart pattern used to trade forex as a technical indicator. This type of chart pattern is a reverse pattern in which when produced, indicates that a currency or security is most likely to move against the preceding trend. They are basically two types of head and shoulder chart pattern. The first is the head and shoulder top chart pattern that indicates that a currency’s price will defiantly fall and the head and shoulder bottom which indicates that a currency is set to rise in price.
RISING AND FALLING WEDGES
This forex trading chart pattern is one that indicates a reverse of a currency or security trend that is presently formed within a wedge. Wedges are mostly seen to have the same shape as a symmetrical triangle in essence that it contains two trend lines known as the support and the resistance which tells the price of a currency or security.
BULLISH AND BEARISH RECTANGLE
The bullish and bearish rectangle is a chart pattern which is frequently used in forex trading. The bullish and bearish version/rectangle is a furtherance chart pattern that takes place when a currency price pauses during a strong trend and momentarily bounces in the space of two parallel levels and then continues. This also have a bullish and bearish pennant that gives a forex trader the opportunity to trade long on a currency and make profit from the rise in prices.
TRIANGLE (SYMMETRICAL, ASCENDING AND DESCENDING)
Triangles as a form of chart pattern are of three types. The symmetrical triangle is a continuation pattern that indicates a state of consolidation in a currency trend trailed by a resumption in the previous trend. This chart pattern is produced by the union of a downward line and an upward support line. The ascending triangle is seen as a bullish pattern that indicates the high movement of a currency price upon completion. The descending triangle is seen as a bearish pattern that indicates the downward movement of a currency price upon completion.
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