trading patterns in forex trading
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Using Trading Patterns in Forex Trading

Forecasting by analogy is one of the leading prognostic methods in many sciences, including finance. In trading, its principles have been embodied in the form of patterns or specific combinations of indicators that form certain figures on the price chart. Since they are easy to distinguish, patterns are very popular among traders. They predict future events in the foreign exchange market based on the development of similar patterns in the past.

Understanding Trading Patterns

Currency price fluctuations have certain patterns because they are based on the behavior of buyers and sellers. And by predicting further price movement, the trader foretells their behavior. These fluctuations can be represented graphically. Therefore, when you see a similar figure on a new chart, it means that you are dealing with the same type of situation and can forecast its further development with a high degree of confidence.

There are many benefits to using Forex trade patterns, such as:

  • Visibility. They are easy to distinguish on the chart, which means that even beginners in trading can easily master this type of analysis.
  • Adequacy. If you have mastered this tool for analyzing the current market situation, you may not even resort to any additional ones.
  • Signal clarity. If the pattern is complete, you can be sure that the signal being sent is clear. At the same time, if there are any deviations, then it is better not to take risks by assuming that you are witnessing a specific pattern.

Common Reversal Patterns

A trader should predict not only the formation and strength of a trend but also its reversal. This event determines whether you can make money on the placed order or incur losses, assuming that the trend will continue. Among the most common reversal patterns are the following:

  • Head and Shoulders pattern Forex;
  • Double top and bottom;
  • Triple top and bottom;
  • Diamond;
  • Rounded top and bottom or saucers, etc.

Continuation Patterns

Trend continuation figures indicate just the opposite — that the direction of movement has not yet exhausted itself, and therefore, you should expect the trend to continue. At the same time, there may be pauses filled with lateral movement in the growth or decrease in prices. This is the time when the price consolidates to continue on its way in the same direction. Among the most popular patterns of this type are the following:

  • Ascending, Descending, or Symmetrical Triangle
  • Bullish or Bearish Rectangle
  • Pennant
  • Flag
  • Wedge

Japanese Candlestick Patterns

Japanese candlesticks have become one of the most common patterns in Forex trading due to their informativeness and depth of analysis. This pattern contains several variables at once:

  • Currency price at the opening and closing of trading;
  • The maximum and minimum price for the time period of the chart.

Therefore, the analysis of these patterns allows the trader to see many nuances that are important for making decisions:

  • Strength of bullish or bearish tendencies at the moment;
  • Trend, its momentum and direction;
  • The general mood in the market.

Trading Strategies Based on Patterns

Once you’ve explored the various chart patterns in Forex and settled on the ones you want to work with, it’s important to test them. To do this, you may conduct backtesting, which allows you to evaluate their accuracy on historical data. If the results suit you, you should try to identify a chart pattern on the current price movement.

Pattern analysis will tell you the most effective entry and exit points for maximum profit. But no matter how much you believe in the effectiveness of pattern analysis, it is better to play it safe when executing orders and placing stop-loss orders.

Summary

The trading patterns predict the continuation and reversal of the trend, the magnitude of the fall or rise in the price of the currency, and other circumstances of the price movement. You can try to discern them not only visually but also automatically with the help of the best robots from the Forex Store. This mode of working with patterns is much more efficient because a person quickly gets tired of monitoring charts. But robots can track patterns flawlessly, unambiguously, and very quickly. Relying on their help, you will not only master this type of analysis but also make significant profits from trading.

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