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Patterns in Forex Trading

Patterns in Forex Trading

Doing your own technical analysis is mandatory when you think about starting trading forex online. You don’t need to do fancy charts but you definitely need to know about the basic patterns to be found when charting. They should be treated with respect and a clear understanding of each and every one of them is a must when trading the financial markets, especially the foreign exchange market.

There are many of them and depending on your approach, they can be divided into  classical reversal or continuation patterns, candlestick reversal and continuation patterns, and structures that belong to different trading theories (e.g. Elliott Waves).

Classical reversal patterns are the head and shoulders pattern (normal and inversed), wedges (rising and falling), double tops/bottoms, to name a few. Each of them come with a measured move, but the measured move should be viewed only as an intermediary checkpoint as sometimes price travels quite a lot after such reversal patterns appear. On the category of continuation patterns fall pennants, bullish or bearish flags, and, of course, triangles, when price exits the triangle in the same direction it enters in the first place.

More interesting are the candlestick reversal and continuation patterns, like morning and evening stars, bullish and bearish engulfing, doji’s (gravestone doji, dragon fly doji, etc), piercing and dark-cloud cover patterns, and the list can go on.

Patterns in forex trading should be addressed carefully because they represent a map for traders all over the world. If you are bullish in a bear market, then your eyes look for spotting places for possible reversals, and normally you will look after reversal patterns. The same is valid for the opposite situation, when you are bearish in a bullish market, then you look for bearish signals, and reversal patterns are the ones you are looking for.

Last but not least, even if one is counting waves using the Elliott Waves Theory, there are patterns, especially on the corrective phases, that will help the trader make the correct price forecasting about where the possible reversal point might be.

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