Improve your forex trading by learning the main groups of chart patterns: from the neckline, divide that by two, and use that as the size of your stop. Top Forex chart patterns ranking · 1. Head-and-shoulders · 2. Pinbar · 3. Double top/bottom · 4. Channel · 5. Triple top/bottom · 6. Bearish/bullish engulfing · 7. 1. Chapter 9 – Winning Combinations for Trading Strategies; 2. Combining Indicators; 3. Moving Average + Stochastic; 4. Bollinger Bands + Stochastic; 5. CRYPTO WALLETS COMPARE FEES

So according to the latter, the strength of the trend is confirmed by growing volumes, while correction, as a rule, is characterized by a decline in the volumes. At the same time, an important bar is being formed near point 3, indicating a high risk of a decline. As filters for the described graphical configuration, we can use not only price action tools, but also standard or non-standard indicators. The trader will play out the pattern only if they see a divergence - different locations of tops bottoms in the charts of currency pairs and indicators.

In the chart, the tops in the growing market are declining, while the indicator consolidates their growth. Divergence allows a trader to effectively enter a short position. As indicators, we can use both trend indicators as in the above example - MACD and oscillators, some of which are based on the detection of overbought-oversold zones. If you succumb to the general criticism and believe that the indicators based on prices are lagging, you can return to the price action methods.

My experience suggests that speed is important in the implementation of the reversal model. If the trend line constructed on the basis of point 2 and the previous fractal breaks through three bars, then the bulls in the growing market run away from the battlefield, having lost faith in their abilities to restore the uptrend. It should be noted that the trader must initially determine the time interval to work with. This is necessary to ensure that by leaping from one time frame to another, filters are not artificially changed.

Simply put, do not be like a pig that will always find mud. As a rule, in the first case, large players do not have time to take profits at the optimal level, as they cannot find the required number of buyers. In order to reduce the risks of such a scenario, they deliberately try to assure their opponents that the uptrend is not yet complete, and the situation may become favorable for the bulls at any moment. Alas, this is just a deception, a trap created in order to take money from the plankton.

The formation of trading ranges With regard to the pattern, to which several previous materials have been devoted, the formation of consolidation allows us to talk about the varieties of the pattern. Often, the trading range is formed within the wave , but a wider spread of waves should not scare you, because it allows you to implement a variety of strategies. The most popular variety of pattern is the Splash and Shelf model described in Linda Raschke's best-selling book Secrets of Top Trading Performance.

She assumes the formation of a peak in conditions of a bullish trend with the subsequent formation of consolidation. The market mood is changing rapidly, and the bears intercept the initiative in case the lower border of the trading range the shelf is broken.

This is the entry point to the short position. Conservative traders should click SELL after the closure of the breakout bar. It must be below the shelf. The Splash and Shelf pattern, unlike , is not an exclusively reversal model. It can be played out in BUY on the bullish market if the quotes have approached the upper boundary of the consolidation range, and then took it by storm and took the buyers to the operational space.

However, bears often arrange traps for their opponents. One of them is related to the formation of the pattern Fakeout-Shakeout. The key condition for its formation is an unsuccessful testing or the so-called false breakout of one of the boundaries of the consolidation range. If the quotes of a currency pair return to its middle, there is your entry point to the short position.

A stop order should be set at the level of one of the previous extremes. Conservative trading involves entering into shorts at the breakout of the lower boundary of the shelf. It should be noted that the Fakeout-Shakeout is an independent pattern and often appears in the charts with no connection to If the analyzed pair managed to rewrite both extremes one at a time, and then returned to consolidation, then the probability of the Broadening Wedge pattern formation is high.

We will talk about it in great detail in one of the following articles. Now I would like to draw your attention to selling at the breakout of the lower limit of the consolidation range Using consolidations within the implementation of various reversal graphical configurations is the favorite strategy of many traders. Trading ranges give the opportunity to win some time and think about best entry and exit points, position size and risk. As a result, you make a weighed decision that you feel confident in.

Did you like my article? In the image below I have drawn an example to highlight how a basic bullish reversal pattern is created. Price is moving lower in a downtrend before forming part 1. This is a move back higher against the trend or overall move currently in place. Part 2 is a move inline with the trend, but crucially a new higher low is formed. For a bearish reversal this would be a new lower high. Part 3 sees price make a new move back higher and importantly break the recent swing high of part 1.

That may sound confusing, but with a little time spotting them on a chart it will soon become clear. How to Identify a Reversal Below is a real chart of a bullish trend reversal taking place. Price had heavily sold off lower before forming part 1, the move back higher. In part 2 price rotates lower, but this time we have a new higher low. The pattern is completed when price makes move 3 and moves above the recent swing high. Below is an example of a bearish reversal taking place.

This has the same three parts as the bullish example shown above, but in reverse order. After price was trending higher it formed a quick move lower. The trend does not continue as we get a new lower high. The pattern is then confirmed when price breaks lower and through the recent swing point. How You Can Use and Trade the Reversal The 1,2,3 pattern is best and most commonly used to spot trend reversals, but you can also use it to identify when a range is breaking and to help you look for potential trade opportunities.

Using to Identify Major Range Breakouts Whilst commonly used as a trend reversal pattern, you can also use the to spot when a range is breaking or looking to potentially break. This can be incredibly handy if you are a breakout trader or you look to make breakout and quick retest trades. Being able to spot momentum shifting could put you on the right side of the market. The first chart below is of a ranging market that has just broken lower and through the range support level.

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