Forex Charts
Written by Forex Explore
Head and Shoulders Pattern
The Head and Shoulders pattern is one of the most popular reversal patterns. In forex trading head and shoulders formation allows you to clearly identify the signal and entry point.
Head and Shoulders forex chart pattern, also known as a trend reversal formation, has the following features:
- Left Shoulder – a rise to a peak of a chart, followed by a decline.
- Head – currency price grows up above the left shoulder and then goes down.
- Right Shoulder – final rise to the level of the left shoulder, followed by a decline.
- The neckline – a line which connects the lowest points of the graph.
What should forex trader do in case of this chart formation? The agenda is to make a trade entry order under the neckline of the head and shoulder formation. It is also possible to find out how far the price movement will go by evaluating the distance between the neckline and the head. Whenever the head and shoulder formation occur, the neckline turns into a major support level. The price movement can bounce off the neckline or it can break through and gather momentum.
The successful head and shoulders formation requires a heavy market volume. Keep in mind that it is possible to witness a false breakout of the neckline.
Reverse Head and Shoulders Pattern
Reverse Head and Shoulders pattern is obvious – it’s the same head and shoulders formation we described above, except that it is “up side down”. The reverse version of head and shoulders has following features:
- Left Shoulder - a fall to a low point of a chart, followed by a rise.
- Head - currency price falls down way below the left shoulder and then goes up again.
- Right Shoulder - final fall to the level of the left shoulder, followed by a rise.
- The neckline – a line which connects the highest points of the graph.
Written by Forex Explore
In today’s tutorial we will look at a common chart formation in forex trading that helps to predict the price movement – double top and double bottom patterns.
A double top forms when the price reaches a level that cannot be broken. As soon as the price reaches that point it meets the resistance, it bounces back like a ping pong ball to the level of support, but then goes back to the unbreakable level once again. Now, at this stage you still don’t have a double top. To have double top formation the price has to bounce off that level for the second time and there you have it - two “hills” of price movement.
The line which connects to two tops is a resistance level. Another line is a support level and it is drawn based on the point from which the price goes back up for the second time. Double top pattern is considered over when the price drops under the support line.
Double top formation doesn’t form within seconds, or even minutes. In forex trading it may take weeks if not months for the formation to take place.
Double top pattern is actually the most common one in forex trading. It appears often enough to disagree with those who claim that the price movements are a random and unpredictable. The price frequently stops at the top points and therefore can hardly be considered random.
As you probably have already guessed, double top pattern has a twin – the upside down copy – and it is referred to in forex trading as double bottom.
A double bottom forms when the price drops, then rebounds, and drops for the second time to the equal or almost equal level as the first drop and finishes of by another rebound.
What should a forex trader do when these formation appear?
In case of the double top, it would be wise to place the trading orders below the neckline since according to the nature of the pattern there will be a turnaround of the uptrend.
In case of the double bottom, the general trading perception is to place trading orders above the neckline.
A double top is a reversal forex chart pattern which is considered to be reliable among many forex traders. The formation is created when there is an extended price move upwards. The main features of double top are the two peaks (or in other words “tops”) which are located almost equally at the same height.
Written by Forex Explore
One of the pattern formations in forex trading is called Symmetrical Triangle. This pattern is formed when a sequence of higher price values creates a line and a sequence of the lower price values creates a line and together they form a triangle.
Symmetrical Triangle is formed when neither the buyers nor the sellers manage to take over the price movement. As the lines of the triangle are closing the gap between them, forex traders expect a breakout. At some point the competition ends and either buyers or sellers give up. Whenever the barrier formed by the triangle is breached a distinctive movement often follows.
Symmetrical triangle indicates consolidation during uptrend or downtrend and therefore hints for a breakout. Since the breakout is unavoidable symmetrical triangle is extremely useful. The direction of the market is visible enough for forex traders to place orders. And even if a mistake is made, it is possible to cancel the first order fast enough to still make the right decision.
The breakout below the lower triangle line is the beginning of a upward move, while the breakout above the upper line triangle line is the beginning of a downward move.
If you manage to identify the pattern early, you will be able to benefit from the distinctive price movement which often follows a breakout.
Thursday, 19 June 2008 15:30
The beauty of technical analysis lays in the ability to predict future by looking at the past. That's where forex charts come handy. Don't worry, it has nothing to do with geometry. Charts are a graphical description of forex price activity over a specific period of time. There are a lot of chart types but the most favorite ones are:
- Line Chart
- Bar or OHLC Chart
- Candlestick Chart
Reading Line Charts
The name speaks for itself – forex line chart consists of data points which represent closing prices and are connected by lines. When the chart is complete for a specific period of time it looks simply like a high school graph you used to make. Forex line chart is the basic type of chart and gives a trader a chance to observe the price changes.
Reading Bar Charts
Bar chart unfortunately has nothing to do with beer or snooker. However compared to line chart that only shows closing price bar chart also shows an opening price, highest price and lowest price all at the same time. So instead of a continuous line you get short vertical "bars" with little left and right "tails". The left tail shows the opening price and the right tail represents the closing price. Bar Chart is often called OHLC which stands for Open High Low Chart.
So, just so summarize:
Open = Opening price of the period represented by tiny horizontal tail on the left side
High = Highest price of the period represented by the TOP of the whole vertical bar
Low = Lowest price of the period represented by the BOTTOM of the whole vertical bar
Close = Closing price of the period represented by tiny horizontal tail on the right side
Reading Candlestick Charts
Candlestick charts have exactly the same "features" as a bar chart with open, high, low and close prices within one vertical bar, except that the bar is more like a larger block which is down right in the middle of the vertical line and it shows the range of opening and closing prices. Colors are also involved in Candlestick charts.
If the block is green that tells us that the closing price is higher than the opening price (the price is moving uptrend/bullish).
If the block is red that tells us that the closing price is lower than the opening price (the price is moving downtrend/bearish)
Candlestick charts are most favored among forex traders because of its colors! It is easier to focus on something and remember it better if it has colors (true fact!).
Before entering Forex market you have to make couple of major decisions about the kind of trader you want to be and what are your objectives as a forex trader. Foreign exchange trades 24 hours a day during the working days. It is never closed except for weekends and one of the major decisions you will have to make is which time-frame suits you best.
Which time frame is better depends on what you want as a trader and how prices act in the different timeframes. If you can't decide which time frame suits you best try both ways and see what works for you best.
For example, Trading with 5 minute charts will require couple of hours of your time. In that selected period of time you trade and once it is over, you stop. After that you can step away from your computer, take a shower and sing Scorpions' "Wind of Change". Then at some point of the day you come back to trade again. Your main goal is to stay focused during those few hours of active trading, place your orders, fix stops, adjust profit targets, and control your margins and so on. Unless you can spend the whole day plastered to your computer screen wearing your pajamas this is pretty good way of trading schedule.
The time frame you choose to trade forex depends on how much time will you be willing to spend trading and the time zone you live in, because you will have to be awake at the exact time when the trading markets are in their active state.
So basically you can be either day-trader or position-trader. The meaning of Forex day varies and it can happen anytime during 24 hours. If you live outside US and
As a day trader you would use 1, 5 or 15 minute charts. You will catch all the moves happening during your daily trading period of time and then exit all of your positions at the end of the day. This means that you never start your day with positions carried overnight from the previous day. You always start clean. It is quite stressful to watch the market and see the changes, but it is not as stressful as position trading.
What about position trader? How is he different from a day trader? Position trader uses larger scale frames and will not trade according to hourly charts. The time frames the position trader is interested in are weekly, monthly or even yearly charts. The positions are usually carried overnight from the previous trading day and the long-term trends are the ones that move the trader along.
Position trading sounds more risky since there might be significant daily price swings. It is relatively more stressful way to trade as well since you will always wonder about the positions you have left overnight. In my opinion, you have to be rich enough to afford this kind of trading. However, if your stops are set far enough from the daily price action you will surely see some profits.
So if you aren't that rich yet and scream occasionally at your dog go for smaller frames. Using middle frames (30 - minutes) you can easily watch the markets for a possible trade based on your trading tools. If you see something promising you can tune to hourly chart and see if you are trading any major trend. You can also check out 5-minut chart for a selected entry price.
So once again, the tip for the time frames is to know yourself in order to get into the trading environment that agrees with you.
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