Patterns in forex are used in predicting breakouts, reversals, and trend continuation. It might sound confusing to a beginner, but once you know how to draw them, it gets easier. Patterns create strategies and can be profitable on their own. Understanding how to draw them well should be your main target in this section.
Ascending Triangles And Descending Triangle Patterns In Forex
The ascending triangle pattern is where you see higher lows in the market into resistance; forming an ascending triangle shape when you draw the two lines. This pattern appears in an uptrend.
The descending triangle pattern appears on a downtrend connecting these lower highs with the support level. This in turns forms a descending triangle pattern. This shows that the bears have a lot of strength thus pushing the market downwards.
The longer it takes for this pattern to form, the more significant it is. The shorter the time that it takes for the pattern to form, the riskier it is to shop against the resistance, as there are high chances that the market may break above the support or resistance level. These patterns will help you trade against textbook traders to make profits.
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So Why Does This Pattern Work?
When the market is making higher lows, it shows the market strength where it shows you who is stronger in the market between the bulls and the bears thus helping you to predict where the market is heading.
There will be many traders who will be looking to sell once they see that the market is retesting at the resistance level, this will cause many to set their stop losses right above the resistance level.
When there are enough stop losses above the resistance level the market will tend to break out above the resistance level pushing through the stop losses. What these traders ignored was that the market was forming higher highs meaning that the bulls were in control.
So How Do You Trade Using The Triangle Patterns in Forex?
- Always look for an ascending triangle in an uptrend.
- Always look for a descending triangle in a downtrend.
The Flag Patterns In Forex
This pattern is defined by two major moves;
- A strong trending move; is large-body candles.
- The strong move is followed by a weak pullback; small-bodied candles.
These patterns in forex can be bullish or bearish depending on their positioning; a bullish flag pattern is upright while a bearish flag pattern is upside-down. When is the best time to trade using this flag pattern:
After A Breakout:
For instance, if the market is in a range and then breaks out and a flag pattern is formed, it is a great time to trade as the market is in a strong trend but is retracing.
Strong Trending Market:
Bullish Flag Pattern
In the case of a strong uptrend, the market will form higher highs at longer distances between each other with small retracements. A flag pattern helps you time when the market retracement ends and the market wants to resume to go long; which is a great entry reason to trade and bag those pips. When the market breaks the flag pattern and closes above, this provides a good entry reason to trade. This same principle applies when the market is bearish.
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