What are Chart Patterns in Forex?
A chart pattern in forex trading refers to the shape formed by a price chart in forex trading platforms. It provides an idea of how prices will behave. If you want to become a successful trader, it is pertinent that you accurately predict the price action.
Chart patterns help forex traders to identify trends in price movements. Essentially, forex trading involves buying and selling, which is affected by demand and supply. This is a lesson in Economics 101. That is beside the point, and it notwithstanding, chart patterns create a clear picture of the forces of demand and supply.
Savvy forex traders use chart patterns to position themselves accordingly. They identify which group, between bears and bulls, are about to win the battle for price trend. The good thing with chart patterns is that they enable a trader to catch major movements before they happen, potentially leading to huge profits.
Furthermore, chart formations help forex traders to identify situations in which the market is just about to break out.
In summary, chart patterns in forex trading are used to:
- Establish entry points when the market is trending upwards or downwards.
- Identify entry signals
- Identify exit signals.
Types of Forex Chart Patterns
There are several chart patterns; they include:
- Double Top and Double Bottom
- Head and Shoulders and Inverse Head and Shoulders
- Rising and Falling Wedges
- Bullish and Bearish Rectangles
- Bullish and Bearish Pennants
- Symmetrical, Ascending, and Descending Triangles.
