Chart patterns are an important part of technical analysis. Since they are often repeated on the trading charts, you can easily spot them on any timeframe. Chart patterns are used by both scalpers and long-term traders.
The chart patterns can be divided into three types:
– trend continuation patterns;
– reversal patterns;
– double top and bottom (when the price can move in any direction).
Figures used in trading:
- head and shoulders;
- cup and handle;
All figures of the stock market, Forex and other financial markets on the chart can rise, fall or be symmetrical. Looking at the trading models, experience traders can say how the trade will unfold.
Each of the models has its pros and cons. Someone makes money on the tops, and someone else prefers triangles and wedges.
Benefits and drawbacks
Forex patterns have their pros and cons.
The main benefits of these geometric “helpers” are:
- clear formation rules;
- market analysis without additional tools.
Having understood what a pattern is and how it works, a trader opens up a lot of opportunities for analyzing and predicting the market situation. Due to the graphical analysis, you can buy or sell assets quickly and profitably.
The established rules for the formation of figures and their meaning show the Forex traders how to act in any given situation. All you need to identify trading Forex chart patterns in a rising or falling wedge is to use levels and trends, which allows you to understand the situation without additional tools and indicators.
The main drawback of working with patterns is the subjective perception of indicators.
The importance of chart patterns in Forex trading is difficult to overestimate. The ability to distinguish patterns helps a trader to predict market movements, choose a trading style, and place market-with-protection orders in advance.