Profitable FOREX Trading Patterns

Markets are in a constant state of balance and imbalance. They make impulse moves and then correction moves. We may refer to these moves as waves. We will see impulse waves and correction waves as markets move in trends. When market prices are flat, they usually have reached a temporary state of equilibrium.
While we look for trends on a long-interval chart, every trend consists of smaller price movements or waves. These smaller price movements can be categorized in order to identify the highest probability wave in which to trade with the trend to profit from FOREX.

Profitable FOREX Trading Patterns
DOWNTREND TRADING STRATEGY: SELL AT RALLY TOPS
Selling on rallies is really the exact opposite of buying on dips. The trend is going down instead of going up. When the position starts to move upward it is retracing, or profit taking just in the opposite way as the previous example showed. So when the position moves up and starts to go back down you can add to your positions on the short side. Going short is just selling before you buy.

In the FOREX it is a little different than shorting a stock. You are only taking the other side of the trade. Say you were looking at the EUR/USD. If you wanted to short it, you would say sell. This is what you would do if you thought the U.S. dollar was going to get stronger. Essentially what you are doing is really buying dollars and selling cures. So as not to confuse you just think of it as buying and selling. When the EUR/USD is going up, you buy and when the EUR/USD is going down, you sell – that’s how you start profiting from FOREX

Profitable FOREX Trading Patterns
FOREX SYMMETRICAL TRIANGLE
The FOREX symmetrical triangle is the most prevalent of the triangle patterns. It may be considered to be both bearish and bullish and is found in both uptrends and downtrends.
One difference from other triangle patterns is that the breakout likely can go either way but usually aligns with the prevailing trend, as opposed to bullish ascending triangles or bearish descending triangles.

The symmetrical triangle is a formation that is also considered a con­solidation period. Sometimes in a downtrend or uptrend it acts as a mid­point to a continuation of the pattern.
Sometimes symmetrical triangles even form as reversal patterns at the end of a trend, but typically they are continuation patterns. Regardless of where they form, symmetrical triangles are patterns worthy of watching because they indicate that buyers or sellers are at a standstill and waiting for a catalyst that could make the currency pair break out to higher or lower prices in the short term.

Profitable FOREX Trading Patterns
RULES OF THE SYMMETRICAL TRIANGLE IN FOREX

Trend. Found both in an uptrend and a downtrend.

Shape. The bottom trendline placed across at least two points must make an upward-sloping line. The lows do not have to be a whole lot higher but should be noticeably higher than others (so others will see it also). There should be a few days to a few months between the proximal lows. The upper descending trendline is formed by at least two high points connected by a trendline that angles downward and to the right. These highs should be succes­sively lower, and there also should be a few days to a few months distance between the lows. There must be at least four points touch­ing the trendlines, but there can be many more than four total.

Duration. The length of the pattern can range from a few weeks to many months, with the average pattern lasting from 2 to 3 months.

Volume. As the pattern develops, volume usually contracts. When the downside breakout occurs, there is usually stronger volume to confirm the breakout, but this is not always necessary. In the FOREX, you are watching the volume of lots traded – that’s where the profits can be made. This is seen on most software and charting tools.

Pullback. Following the breakdown or breakout, the currency pair usually will rebound back up to previous support or resistance. On a breakdown, what was the lower trendline support turns into resistance, and vice versa. In symmetrical triangles, the pullback occurs with more than 21 % of the breaks, with 16 % falling back into the symmetrical triangle formation as a false move, and sometimes will change direction totally. You can use the apex of the trendlines as a stop loss price to get the most profits from FOREX.

Profitable FOREX Trading Patterns
ASCENDING TRIANGLE: A BULLISH CONTINUATION PATTERN IN FOREX PROFITING
The FOREX ascending triangle is a bullish formation that usually forms during an uptrend as a continuation pattern. Sometimes an ascending triangle forms as a reversal pattern at the end of a downtrend, but typically it is a bullish continuation pattern. Regardless of where ascending triangles form, they are bullish patterns that indicate that buyers are accumulating the currency pair, and it could break out to higher prices in the short term.

Profitable FOREX Trading Patterns
RULES OF THE FOREX ASCENDING TRIANGLE

Trend. Usually it forms in an uptrend.

Shape. The top trendline placed across at least two points must make a horizontal line. The highs do not have to be exact but should be within reasonable proximity of each other. There should be a few days to a few months between the proximal highs. The lower
ascending trendline is formed by at least two low points con­nected by a trendline that angles upward and to the right. These lows should be successively higher, and there also should be a few days to a few months distance between the lows. There must be at least four points touching the trendlines, but there can be many more than four total.

Duration. The length of the pattern can range from a few weeks to many months, with the average pattern lasting from 1 to 3 months.

Volume, As the pattern develops, volume usually contracts. When the upside breakout occurs, there is usually stronger volume to con­firm the breakout, but this is not always necessary.

Throwback. Following the breakout, the currency pair usually will pull back to support. On a breakout, what was the upper trendline resis­tance turns into support, and vice versa. Sometimes there will be a return to this support level before the move begins again.

Profitable FOREX Trading Patterns
DESCENDING TRIANGLE
The FOREX descending triangle, also a variation of the symmetrical triangle, gen­erally is considered to be bearish and usually is found in downtrends. The ascending triangle is a bullish formation that usually forms during an uptrend as a continuation pattern. Sometimes descending triangles form as reversal patterns at the end of a downtrend, but typically they are bullish continuation patterns. Regardless of where they form, descending triangles are bullish patterns that indicate that buyers are accumulating the currency pair and that it could break out to higher prices in the short tem.

RULES OF THE FOREX DESCENDING TRIANGLE

Trend. Usually it forms in a downtrend.

Shape. The bottom trendline placed across at least two points must make a horizontal line. The highs do not have to be exact but should be within reasonable proximity of each other. There should be a few days to a few months between the proximal lows. The upper descending trendline is formed by at least two low points connected by a trendline that angles downward and to the right. These highs should be successively lower, and there also should be a few days to a few months' distance between the lows. There must be at least four points touching the trendlines, but there can be many more than four total.

Duration. The length of the pattern can range from a few weeks to many months, with the average pattern lasting from 1 to 3 months.

Volume. As the pattern develops, volume usually contracts. When the downside breakout occurs, there is usually stronger volume to confirm the breakout, but this is not always necessary.

Pullback. Following the breakdown, the currency pair usually will rebound back up to previous support. On a breakdown, what was the lower trendline support turns into resistance, and vice-versa before the down move resumes. This is called the pullback. In descending triangles, the pullback occurs with more than 23 % of the breakdowns, with 12 % falling back into the descending triangle formation and moving upward. You can use the lower trendline resistance as a tight cover point if you are short or the falling upper trendline as a hard stop.
Target. Once the breakout has occurred, the price projection is found by measuring the widest distance of the pattern at the first confir­mation point and adding it to the resistance breakdown price.

Profitable FOREX Trading Patterns
THE FOREX FALLING BROADENING FORMATION
The FOREX filling broadening formation is similar to a megaphone in appearance, in that it has diverging trendline that spread apart from an apex. These are generally distinguished by a noticeable slant to the downside.

A falling broadening formation generally is considered bearish and usually is found in short-term downtrends or at the midpoint of an uptrend. The implication, however, is still generally bearish. This pattern is marked by a series of lower tops and lower bottoms.

The currency typically will bounce off the lower trendline and retrace from the upper trendline. Once the currency pair breaks out above the upper trendline, the pattern can be considered a reversal, and the uptrend should resume.

Profitable FOREX Trading Patterns
SUPPORT BREAKDOWN OR RESISTANCE BREAKOUT FOREX PROFITING PATTERN
Understanding support and resistance is a very important part of charting to save losses, hold on for gains, and preserve capital. Support refers to the price level at which a security tends to stop falling because there is more demand than supply. Technical analysts identify support levels as prices at which a particular currency pair has bottomed in the past.

When a currency pair is falling toward its support level, it is said to be "testing its support," meaning that the currency pair should rebound as soon as it hits the support price. If the currency pair continues to drop through the support level, its outlook is considered very bearish. When sup­port is broken, it often defines a new resistance point.

A support breakdown refers to a currency pair's previous level of sup­port. Once this level is broken, the currency pair typically will fall to its next support level. Technical tools used to determine support levels such its trendlines and the Fibonacci fan frequently will forewarn or suggest that a major downtrend or consolidation period is ahead.

Resistance refers to the price ceiling at which currency pairs reach persistent selling to profit from FOREX. It is significant when a currency pair breaks through the resistance level because this means that it usually will go on to new highs. When resistance is broken, it often defines a new support level.

A breakout refers to a currency pair emerging up through a previous resistance level and usually to a new high. It is significant when the currency pair breaks through the resistance level, in that the volume is increas­ing because this means it usually will go on to new highs.

When resistance is broken, it often defines a new support level. If the volume is weaker than normal on the breakout, the move higher usually will be short-lived due to a lack of broad participation.

Profitable FOREX Trading Patterns
THE DOUBLE BOTTOM PATTERN IN FOREX PROFITING
The FOREX double bottom is a formation in which a currency pair hits a low, rallies, and then falls back to the low. Usually this is a bullish formation that pre­cedes an up move and is an important formation when identifying an entry point. The shape of the pattern is much like the letter “W” in that the currency pair will make two important lows within near price proximity of each other.

If the price breaks below the two low points, the pattern is void, and the currency pair could continue lower.
Typically, the currency pair will move higher off the second low and continue to break out above the left arm of the W. At this point the breakout and the formation are complete, and the currency pair should continue higher to a target at least equal to that of the height of the formation.

Profitable FOREX Trading Patterns
RULES OF THE FOREX DOUBLE BOTTOM
Trend. Found both in uptrends and downtrends but more prevalent in downtrends.

Shape. Much like that of the letter W and the formation is completed when the price goes above the left arm of the W There must be two low points in close price proximity of each other.

Duration. The length of the pattern can range from a few minutes to many.

Volume. As the pattern develops, volume usually contracts. When (lie breakout occurs, there is usually stronger volume to confirm the breakout, but this is not always necessary.

Target. Once the breakout has occurred, the price projection is found by measuring the height of the pattern and adding it to the break­out price.

Profitable FOREX Trading Patterns
HEAD AND SHOULDERS FOREX FORMATION (CROWN)
A FOREX head and shoulders is a formation that usually precedes a sell-off. The head and shoulders pattern generally is regarded as a reversal pattern and is seen most often in uptrends. It is also most reliable when found in an uptrend.

A rebound that is strong will begin to slow down eventually. About the same time, supply and demand are generally in balance. Sellers come in at the highs (left shoulder), and the downside begins (beginning neckline).
Buyers soon return to the currency pair and ultimately push through to new highs. However, the new highs are quickly turned back, and the down­side is tested again (continuing neckline).

Reduced buying reemerges, and the currency pair rallies once more but fails to take out the existing top level. (This last top is considered the right shoulder.) Buying dries up, and the currency pair tests the downside yet again. Your trend line for this pattern should be drawn from the beginning neck­line to the continuing neckline.
Volume has a greater importance in the head and shoulders pattern in comparison with other patterns and generally decreases as the pattern is built. Once the neckline is broken, the currency pair frequently will sell off an equal distance from the neckline to the head.

Are you watching out for FOREX reversal bars? You should be. The next time you see a currency pair down in the morning and then reverse to end up or unchanged on the day, don't blow it off as a nonevent. Take a closer look.
FOREX Reversal bars come in two different forms. One version is a churning bar, in which a currency pair's opening price and closing price are close to or equal to the same price.

There can be a wide price range during the day, but it ends up closing near where it opened. These days frequently go unnoticed by a novice. Fol­lowing a big move or if the volume is anything but light, take a close look.
The second version is a key reversal, which again follows a short-term trend in a currency pair. Then a day presents itself when the market moves big in the same direction in the morning but then reverses to close well below the currency pair's previous close in an uptrend or well above the currency pair's previous close in a downtrend.

The psychology behind this kind of bar is that buyers and sellers are pouring into the particular currency pair with equal enthusiasm and essen­tially run out of steam. If the currency pair is in an uptrend the buyers run out of new money or buying power, so the currency pair will then fall bringing pressure to the sellers that are out there, and the currency pair can retrace without any real selling pressure.

The same happens in a downtrend. If the currency pair has been selling off recently and you see a churning baron high volume, this could be a bot­tom. The buyers are coming in and soaking up all the sellers. Therefore, the buyers in the future can move the currency pair higher without much over­head selling pressure. The currency pair can then move higher until the "churning buyers" get enough profits to start selling themselves.There are many different strategies with which you can trade. We only cov­ered a few simple rides that many professional traders follow. Most profes­sional traders take these same techniques and refine them to their very own trading styles. As we are all different, in our lives and financial needs, but we all what to start profiting from FOREX - we have to tailor our investing to our own specific needs. You can learn how to trade following some of the guide lines we just discussed or you can create your own. You could even use one of the many trading software out there to help you trade. Regardless of how you decide to trade remember this, confirma­tion - We love to say this as you can never have too much confirmation before placing a trade.