Chart Forex
Patterns : Chart Forex, How To Trade
Now that we have learned the basics of technical analysis and
multi time frame analysis the
next thing we will look at is chart
patterns in the forex, futures and stock markets.
Forex
Chart patterns are what technical traders look for on historical
price charts to help them determine what the current supply and demand forces
are, and how prices may be affected as a result.
In our previous lessons on trends and support and resistance,
we have already identified several of the most basic
chart patterns which traders use to place trades.
As you remember from these lessons, some of the more common
patterns are up trends (bullish pattern), which when we view on a chart
forex we identify with a potential buying opportunity, and down
trends (bearish pattern), which we identify as potential selling opportunities.
Although support and resistance are not classified as chart
patterns there are many
chart patterns which are associated with identifying support
and resistance, and we will start by examining the most basic of these patterns.
Double Tops:
A double top is a reversal chart pattern which is defined by
a chart where a financial instrument makes a run up to a particular level, then
drops back from that level, then makes a second run at that level, and then
finally drops back off again.
In its most basic sense what the double top pattern is saying
about supply and demand forces is that demand is out pacing supply (buyers are
winning) up to the first top causing prices to rise, and then the equation flips
and demand is no longer out pacing supply (sellers are winning) causing prices
to fall.
After then falling back the buyers make another run at the same
price and then after failing to break that level for a second time, sellers
take control and keep the upper hand causing prices to sell of even more dramatically
after the second top than they did after the first.
For double bottoms the reverse is true.
A double bottom is also a reversal pattern in the futures, forex,
or stock
markets which is the exact opposite of a double top.
To form a double bottom a financial instrument makes a run down to a particular level, then trades up from that level then makes a second run down to at or near the same level as the first bottom, and then finally trades back up again.
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