Thursday, 20 June 2019

The 3 Best Chart Patterns for Forex Trading

Forex trading with chart patterns has long been known as one of the mainstay of technical analysis methods, can be used as a naked trading strategy, can also be combined with technical indicators. However, the many types of chart patterns that can be analyzed make many traders tremble before "fighting" with this one trading weapon.

However, Justin Bennett from Daily Price Action has a powerful recipe for those of you who feel the same with the situation above. He only uses the 3 best chart patterns that have gone through the test results. As a Price Action trader who has more than 10 years of experience, Justin has experienced sweet bitter trading with a variety of chart patterns and candlesticks. Traders who once attracted the attention of CNN, Bloomberg, and Stocks & Commodities Magazine claimed that they had only based on the Inside Bar and Pin Bar, before finally tethering the choice of a combination of candlestick analysis with the 3 best chart patterns below.

1. Head And Shoulders pattern
Up on Justin Bennet as the number one chart pattern that is most reliable, Head and Shoulders (and the opposite version: Inverted Head and Shoulders) usually consists of 3 price waves.

In Head and Shoulders (H & S) patterns, the first High (Left Shoulder) has a height that tends to be parallel to the third High (Right Shoulder), while High are both the most prominent and have the highest point. To be valid, Low points on this chart pattern may not move steeply or tend to be flat, so that it can be drawn as a Neckline. Plotted as a bearish reversal marker, H & S that occurs at the end of the Uptrend is usually considered more promising.

Why are the Head And Shoulders Included as the Best Chart Pattern?

Easy to recognize and profitable if the trader knows what needs to be considered as well as how his ideal trading strategy is.
Can recommend a precise entry level through Neckline, considering that level is also formed based on testing Low points from the previous 3 waves.
Inform the ideal profit target that matches the potential price reversal.

Trading Recommendations With Head And Shoulders Patterns

Wait until there is a Close price below the Neckline in the H4 time frame.
Place sell entries after the retest on the Neckline.
Stop Loss: Use Right Shoulder as a Stop Loss level.
Take Profit: Measure the Neckline distance with the Swing High on the Head, then use the same distance to determine Take Profit below the Entry price.

Tips for Avoiding the Head and Shoulders Pattern Trap

Like other chart patterns, H & S can also trap beginner traders who are not good at recognizing their formation correctly. But according to Justin Bennet, these shortcomings are rooted in the inability of traders to interpret valid Head and Shoulders patterns.

In essence, a chart pattern can be called H & S if Left Shoulder and Right Shoulder are at levels that tend to be parallel; if there is a slope, you need to make sure if the Bottom does not form a Higher Low or Lower Low that is too steep.

The example image below shows a chart pattern that briefly meets the Head and Shoulders requirements; has 3 High points, with the first and third High lower than the second High). However, this pattern cannot be called the real Head and Shoulders, because it tends to rise in an Uptrend and does not show a slowdown in the upward momentum.

The next tip is about installing profit targets. If you are trading with an H & S pattern, don't force it to specify an exit outside of this pattern reversal projection. As per the trading recommendations above, prices usually go down to the distance between Neckline and Head. Therefore, if the measurement obtained is only around 200 pips for example, then don't force it to pursue profits of up to 250 pips. Instead of profit, you can actually lose because the price may turn again after going down 200 pips.

Even if you have a money management that requires Risk / Reward Ratio with a certain target, then you can change the amount of the lot so that the profit value remains in accordance with your risk management. While regarding the time frame, Justin Bennet suggested the H4 time frame and above. The Head and Shoulders pattern that appears on the H1 chart downwards does not need to be taken seriously, because it does not really reflect market momentum which leads to price reversals.2. Wedge pattern
Don't misunderstand, the Wedge pattern mentioned here is not a "circle slice" formation that we all know is divided into Rising Wedge and Falling Wedge. Justin Bennet actually considers the Wedge pattern here as another name for the Symmetrical Triangle (symmetrical triangle) which indicates the continuation of the trend.

The pattern is marked by High High prices which continue to decline, while the Low levels continue to rise. You can line High and Low prices with lines that are as support and resistance. If illustrated, then the movement will converge to form a symmetrical triangle pattern, or in this case it is called a Wedge.

The perfect Wedge Pattern requirement is formed in the H4 or higher time frames, and has at least 3 price tests at the support and resistance levels.

Why is the Wedge Included as the Best Chart Pattern?

This is the best chart pattern that had been cultivated by Bennet before he favored Head and Shoulders. Although its position has been shifted, the Wedge pattern is still ranked 2nd in the list of the best chart patterns by Justin Bennet. In the trader's experience, the Wedge formation is relatively faster than H & S, but its appearance appears less frequently on the chart. If you find it often, then most of these patterns are not perfect, high-accuracy Wedges.

In addition, prices often move fast after successfully penetrating one of the Wedge pattern support or resistance, so you do not need to wait for the price retest (as in the H & S pattern) to aim for the Entry position.

Trading Recommendations with the Wedge Pattern

Wait until the price closes above the resistance or below support.
Open buy from the highest level at the end of the Wedge pattern, or
Open sell at the lowest level from the beginning of the Wedge pattern.
Stop Loss:
In long positions, Stop Loss can be placed in the last price test on Support.
In short positions, Stop Loss can be placed on the last price test at the resistance level.
Take Profit: Measure the distance of the price movement that forms the Wedge pattern, then use the measurement results to determine Take Profit above Entry buy or below Sell entry.

Tips for Avoiding the Wedge Pattern Trap

There are 2 mistakes that traders usually make when using a Wedge pattern:

Force the Support Resistance that forms the Wedge formation. Often, traders ignore less valid support or resistance just to adjust the current price situation with the "Wedge perspective". In fact, the false breakout that occurred on one important level is a sign that the dreamed Wedge pattern has failed to form.

To avoid this error, always make sure that the price points that make up the Wedge are not closed outside of support or resistance. The penetration of the candlestick axis can still be tolerated, but don't assume that a support or resistance has been broken by the body candle.
Relying on a low time frame. Many traders may choose a low time frame to get more frequent signals. But believe me, this does not necessarily promise greater profits. According to Justin Bennett, low time frame signals are unreliable and require fast action which sometimes even makes a lot of traders less mature in preparing trading plans. This trader argues that the most optimal Wedge pattern is sought in the Daily time frame.a

Also Read : 4 Parameters for Measuring Your Trading System Success

3. Flag pattern
Just like the previous pattern, Flag is a price pattern that signals trend forwarding. The shape is similar to a flag that has a pole. You can find it when prices are consolidating in a trend. Often, Flag pattern formation is misinterpreted as the initial reversal by novice traders. In fact, this is a moment when buyers or sellers gather strength to continue the trend again.

Flag pattern that occurs in the middle of an Uptrend is commonly known as a Bullish Flag and has a decreasing flag shape. Conversely, a Bearish Flag pattern occurs in a Downtrend condition and is marked with an inverted flag. According to Justin Bennet, Flag pattern validation can be searched from support and resistance which must be parallel. In addition, the size of the flag must not be greater than the length of the pole.

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