The price pattern is the overall picture of supply and demand in the forex market, along with the battle between buyers and sellers. Based on these price patterns, traders will make the best investment choices
Table of Contents
- 1 What is the price pattern?
- 2 Why should traders care about price patterns?
- 3 Important price patterns in forex
- 3.1 Price reversal patterns
- 3.2 Continuity Price Patterns
- 4 Some notes when using the price model
- 5 Conclude
What is the price pattern?
Simply put, a price pattern is a pattern in which prices move according to a certain pattern. When connecting the price points, you will get special shaped charts such as: head and shoulders pattern, 2 bottoms, 3 bottoms…
Price patterns in forex provide a complete picture of supply and demand in the market. The price pattern tells them about the previous changes in the market along with the fierce battle between the buyers and the sellers. Most importantly, price patterns help determine which side is the winner. From there can also help traders have a better chance of successful trading.(price patterns in forex trading)
Why should traders care about price patterns?
Price patterns are used very often by traders when analyzing the market. The reason is that this method brings a lot of advantages to traders when trading.
Finding a solution to the market’s problem will greatly determine the success of a trader. In particular, the price model is one of the methods to help you find the main trend of the market and catch the trend.
For new investors, the use of indicators will be difficult to access. But with price patterns, the trader is just observing the price chart. Thanks to that, even if you are a newbie, investors can easily access the market.
Important price patterns in forex
In forex there are many different price models. However, price patterns are often divided into two types: reversal price patterns and price continuation patterns.
Price reversal patterns
Price reversal patterns are patterns that signal the current price trend is likely to change from bearish to bullish or from bullish to bearish. If a reversal pattern is formed in an uptrend, it suggests the price is likely to fall. Conversely, if a reversal pattern forms during a downtrend, it suggests that the price may reverse upwards afterwards.(Read more : fundamental analysis)
However, the trend reversal does not happen immediately, but it will have a period of “tuckling” between buyers and sellers. Here are some important price reversal patterns that every trader must know:
Head and shoulders pattern
The Head And Shoulders pattern signals a future reversal. The head and shoulders pattern has a peak called the right shoulder. Next is a higher peak called the starting point. This pattern eventually ends with a lower high called the left shoulder.
There are two types of head and shoulders pattern:
– The dominant head and shoulders pattern is used to signal that the price has a tendency to reverse from up to down.
– An inverted head and shoulders pattern appears, signaling that the market tends to reverse from bearish to bullish
Note: When the head and shoulders pattern appears, the market price will reverse. At this time, investors need to consider carefully to invest with maximum profit.
Double bottoms usually appear at the end of a downtrend and signal that the market is about to reverse from bearish to bullish. The double bottom is shaped like the letter “W”. It means that the market price will gradually fall to the first bottom then the price will tend to recover a little higher before falling and forming the second bottom. After the market makes the second bottom the price will not go down. but continue to increase.(Read more : forex trading methods)
Model 3 bed (Triple Bottom) help reverse trend of the market. This pattern consists of 3 bottoms shaped like 3 Vs joined together accompanied by 2 tops shaped like the letter A. The end of the 3 bottom pattern is a breakout point (breakout point) located on the side. on the resistance line.
This triple bottom pattern usually appears at the end of a downtrend. This is also a sign that the market is about to reverse from bearish to bullish. The time to break out from the resistance line is the best time for investors to buy buy orders.
Model two peaks (also known as Double Top). This price pattern, shaped like the letter M, appears during an uptrend and signals a bullish-to-bearish reversal.
In an uptrend, when the market price goes up, it meets a strong resistance area that the price can’t break through, the price makes a downtrend and forms a top. Next, the price failed to break through the support line turning upside down forming a bottom. Similarly, when meeting resistance, the price will turn down again to create a second peak. Finally, a breakout point beyond the support line will signal that the double top pattern is completed and this will be a reasonable time for investors. make a sale.(Read more : stochastic tool)
The Triple Top pattern appears in an uptrend, signaling a reversal from bullish to bearish. This model is shaped like 3 mountains lined up next to each other. The peaks of this pattern are usually about the same height and alternating between the peaks are 2 temporary troughs.
This pattern is usually formed over a period of 3 to 6 months. In the period before the appearance of the third peak, this 3-peak pattern looks quite similar to the 2-peak pattern.
However, the special feature of the 3-peak pattern is that the market signal will be stronger than the 2-peak pattern. Even many seasoned traders think that the accuracy of the 3-peak pattern is only behind the accuracy of the head and shoulders pattern.
Diamond pattern (Diamond Top). This pattern is made up of two triangles joined together that are shaped like a diamond. A diamond pattern appearing in an uptrend signals a bullish to bearish reversal.(Read more : professional trader)
The diamond pattern has two lower support lines and two upper resistance lines creating a high and a low. After the price falls and breaks through the right edge of the diamond is a strong reversal signal and investors can enter a Sell order to make a profit.
Continuity Price Patterns
Continuity price patterns are those that give a signal that the current trend will continue. Below are some of the popular continuation patterns in forex.
Model wedge (Wedge Pattern) usually appears after an uptrend or fall. The wedge pattern signals that the price may reverse or continue the previous trend. The structure of a wedge pattern usually consists of two support lines below and an upper resistance line. Finally, the upward or downward slope converges at a point to form a complete wedge.
There are two types of wedge patterns: Rising Wedge and Falling Wedge.
The triangle pattern (Triangel) shows that both buyers and sellers are not fierce in the battle for the right to dominate the market price. This is signaling a pause in the trend.
There are three main types of triangle patterns: isosceles triangle, ascending triangle, and descending triangle. M Oi pattern will have its own implications help traders easily participate in the market.
A Rectangle occurs when the price is restrained between two parallel support and resistance lines. This is a pause in the infighting between buyers and sellers and represents a consolidation in price before resuming in the original trend.
The flag pattern (Flag) shows signs of price continuation in an uptrend or downtrend in the market . This pattern is quite similar to the rectangular pattern in that the price is located between two parallel support and resistance lines. However, this pattern has an additional shank that tends to be the opposite of the flag.
Pennant pattern (Pennant) formed after a strong trend. This is the result that follows a brief accumulation, before the price of the market continues to move in the original direction. The pennant pattern is used by many traders to predict the next price direction of the market.
Cup and handle model
The Cup and Handle pattern usually occurs during an uptrend and signals trend continuation. Alternatively, this pattern can appear during a downtrend and signal a bearish-to-bullish reversal.
Some notes when using the price model
Price patterns in forex give traders a lot of benefits in predicting future market trends. It can be said that the price model is something that investors cannot ignore if they want to invest with high returns. However, when using price models in forex, investors should note a few things to use them most effectively.
Technical indicators are extremely important tools to help investors make judgments and assessments in their strategies. Therefore, investors should apply in combination with the price model to make the best options.
The best time to trade with the major price pattern is at the breakout point or when the price retests the support or resistance line. Therefore, when trading, traders need to wait patiently for the price pattern to form and have a confirmation point.
Forex is a risky channel and no one can be sure that the choice they make is correct. Therefore, always be prepared to avoid risks and always take profit and stop loss in every trade.
In the above article, we have introduced to you the most popular forex price patterns and the notes when using price patterns. Hopefully, the article has helped you have the most overview of the price model and also help you choose the right type of price model. Good luck with this pricing model.