Forex technical pattern analysis-three technical pattern combinations you need to know
We have told you a lot of graphic forms, we feel a little tired, now we should take a break, and you should also take the time to learn for yourself.
Just a joke! We will not leave you until you are fully prepared!
In this lesson, we will discuss how to use these graphical patterns to guide your trading.
Just knowing how these tools work is not enough, we still have to know how to use them. As all these new weapons are loaded into your ammunition depot, our chances of catching more “prey” have increased a lot.
We will summarize the graphical patterns just discussed and classify the different signals they emit.
The reversal pattern indicates that the current ongoing pattern is about to reverse.
If a reversal pattern is formed in the upward trend, it means that the upward trend will be reversed and the exchange rate will soon fall. Conversely, if the reversal pattern appears in a downtrend, it means that prices will soon rise.
In this lesson, we discussed six types of graphics that send signals, do you remember their names?
- Double top
- Double bottom
- Head and shoulders
- inverted head and shoulders
- Rising wedge
- Down wedge
If you remember the names of all six forms, that’s great!
Do you remember the type of order we talked about in the preschool course? Let us review again, what is a stop loss order.
Set your own stop entry order (Stop Entry Order), that is, you set a buy order at a point above the market price, or a sell order at a point below the market price.
This strategy is used when the market has a breakthrough market. For example, if a trader believes that when the exchange rate reaches a certain price, it will confirm the establishment of the current trend and will continue this operating trend. In this case, This strategy can be used.
For example, the current price of GBP/USD is 1.5050, and it is in an upward trend. You believe that if the price touches 1.5060, it will continue to rise. At this time, you also have two options: first, sit by the computer, buy at the market price when the exchange rate reaches 1.5060, or choose to set your own stop loss order, when you feel that the price will continue to run toward the current price, you are in 1.5060 set a stop-loss buy order.
How should we trade these technical patterns? The simple method is to set up a stop entry order in the area that crosses the neckline, and the direction is consistent with the direction of the new trend. Then target at a level that is highly consistent with the shape.
For example, if you see that a double bottom pattern has formed, you can place more orders at the top of the neckline of the pattern, the target amplitude is roughly the same as the vertical distance from the bottom of the pattern to the neckline.
For better risk management, don’t forget to set your stop loss order! You should set a reasonable stop loss near the middle of the pattern.
For example, you can first measure the vertical distance from the neckline to the bottom of the double bottom, and divide this distance into two, and use the center area of this distance as your stop loss target.
The sustained pattern is such a pattern that it implies that the current trend will continue.
Generally, sustained patterns are also called consolidation patterns because they show that the buyer or seller will take a breather before the exchange rate moves further in the current direction.
Here we list some continuous patterns, mainly wedge-shaped, rectangular, and sharp flag-shaped patterns.
It should be noted that wedge-shaped patterns can be regarded as both reversal patterns and continuous patterns, which mainly depend on the trend when they are formed.
How should we trade these patterns? The simple method is to set your own stop loss order above or below the pattern (of course, this depends on the direction of the current trend). Then, select a profit target, the profit target amplitude is at least equal to the height of the wedge or rectangular form.
For the sharp flag, you can set the profit target at a level that exceeds the height of the flagpole.
For continuous patterns, the stop loss is usually set above or below the actual pattern.
For example, when we are trading a bearish rectangular pattern, we can set a stop loss area above the resistance line at the top of the rectangular pattern.
Bilateral patterns are more deceptive because these patterns imply that the exchange rate has almost equal chances of going up and down.
So, what kind of signal is the bilateral form?
To answer this question, we are here to launch a grand triangle.
Do you remember that the triangle indicates that the exchange rate may break both upward and downward.
Before trading these patterns, you should consider two possibilities (upward or downward break), if it is an upward break, you should set the stop loss at the top of the pattern, if it is a downward break, you should set the stop loss to the pattern bottom of.
If one of the orders you set triggers, you can cancel the other order. Either way, you can catch this wave of price movements.
Double chance means more fun!
The only problem is that if your own stop loss order is too close to the top or bottom of the pattern, you may be facing a fake breakout.
Therefore, be careful, and don’t forget to set your stop loss!