A tool that all traders use on the forex market is the forex charts. Some traders will use the forex charts for more than others. If you are looking to use charts as your main analysis of the market you have to know about some of the common patterns. There are 3 commonly used patterns that you should know about. You should know how to identify these patterns and what they are telling you about the forex market. When you understand this you will be able to trade better and in the correct direction.
Engulfing Patterns on Charts
The engulfing pattern can be easily found on a candlestick chart. This is possibly one of the easiest patterns to identify and use because of the appearance. This pattern represents an immediate and very strong change in trend and overall price movements. To find this pattern you need to look for two candlestick bodies in an up or down trend. In a down trend there will be an uptrend candle whose body fully engulfs the preceding down trend candle. With an uptrend there will be a down trend candle that fully engulfs the preceding uptrend candle body.
This is a highly tradable pattern because it indicates a reversal of the trend. Traders view this as the start of a trend and place a trade in the direction the currency should move. It is important that you have a stop with this trade which is placed just blow the pattern. It should be noted that there are no profit targets for this pattern as there is no way of knowing how long the trend will run and how much the price will change.
The Ichimoku Cloud Bounce Pattern
The Ichimoku pattern uses the prices on the forex charts to create the pattern. The pattern itself is not actually that easy to pick out on the chart, but when it is combined with the price action a common pattern does appear. The Ichimoku cloud is basically previous resistance and support levels which now form a resistance and support zone. The basic conclusions that you can get from this pattern are:
- When the price of the currency pair is below the cloud then the market is bearish. The cloud is then seen as the resistance level.
- When the price of the currency pair rises about the cloud zone then the forex market is bullish. The cloud then acts as the support level.
The cloud bounce pattern is a commonly found continuous pattern. The strength of this pattern is the dynamic support and resistance levels which identify enter and exit points for trades. Traders generally use this pattern during trending markets as it helps to capture most of the trend and traders can make the most out of their profits.
Triangle Patterns on Forex Charts
Triangle patterns are also very common particularly when you look at short timeframes. The triangle pattern occurs when the price highs and lows converge in an ever tightening area. The triangle can be ascending, symmetric or descending in nature. Triangles are able to provide entry and exit points for traders.
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