Forex Charts Patterns : Most successful chart patterns

Forex Charts Patterns

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The financial markets are not that difficult to trade if done with understanding and market strategies. The market strategies include a lot of analysis tools and indicators to support the trade. There are many technical and fundamental tools to get information about the market and its fluctuations. 

Technical tools are more prominent due to the study of price changes it provides, whereas fundamental tools analyse the news and market information taking place. Some of the tools are indicators, expert advisors, chart patterns, economic reports, automated trading, economic calendars, etc. 

In the article, we’ll be understanding the use of forex charts patterns and their types; in addition to this, traders will know what the forex market is and how it operates to provide traders with opportunities. So, let’s begin with the forex market and gradually know the forex charts patterns that will guide traders in their forex journey. 

Forex Market

The forex market has been at the top in the financial markets for a long time; it has a high market turnover that attracts millions of traders daily. Growing day by day, traders are investing in this currency market to double their profits. It is one of the online markets that offer ample market opportunities to trade. 

The market is fully online and accessible 24 hours for traders; thus, traders have overnight benefits and can monitor their investment whenever they want. Moreover, traders have several plans and strategies at their door when investing in the forex market. 

Investors can use them to predict the market movements and study the market in depth thus, having an idea about market moves and accordingly investing their funds. 

The forex market trades in international currencies that are highly volatile and provide liquidity as well. So, investing in the market has both advantages and risks at the same level. Therefore, it totally depends on the trader’s knowledge and market strategies that are used to boost the trade and find potential benefits. 

Working on the over-the-counter market, forex traders can invest privately or through online brokers such as Abinvesting. In addition, the brokers have various facilities to enhance the trade with their trading platforms, tools, forex charts patterns, accounts, etc. A trader can use them to analyse the market and make forecasts to trade better. 

How Does the Forex Market Work?

Forex market is different from other markets and does not work on the exchanges but directly between the two trade parties. Including banks, individuals, corporates, companies, and many more. Having no central location to trade makes it more convenient to invest as traders can invest anytime and anywhere. 

Traders of the forex market can invest in international currencies in various ways. Below mentioned are the three different types of the forex market that could be used to invest: 

Spot Market: 

Spot market trades in currency pairs in physical form, in which the trade is made in two business days. Traders deal in financial instruments for immediate delivery, which is done for cash exchange. Thus, the spot market is also referred to as the liquid or cash market. 

The transactions are instant and are done for a commodity; traders use the spot market when they want cash and term it as the spot price. The price for the immediate delivery, which is done by placing the buy and sell orders. The sport price keeps shifting due to market uncertainties. 

Forward Market:

The forward market involves buying and selling currency pairs, where the trade occurs on a future date and price fixed in advance by the trade parties. The traders agree to buy and sell the currency at a set price with a future date or within a range of future dates. Thus, it is a market with no legal obligation. 

To better understand, let’s look at it through an example, a trader deals in EUR/USD currency pairs. The traders decide to exchange the currency pair on a specific date with a present value of the currencies. However, the traders may shift the date of trade on a range of dates as per their requirements. 

Future Markets:

The futures market is alike to the forward market, where the investors or the trade parties buy and sell the currency pairs for a set date and price. However, the futures markets contract is binding, and traders have to execute the trade on the set date. Traders cannot move the date ahead or make changes to the price set. 

The contract is suitable for currency trade and used in several other markets to invest and earn high profits. 

The forex market traders also speculate on the forex prices and earn good returns from the rise and fall of the currency prices. Thus, a trader has various options to choose from and invest in the forex market. 

Base and Quote Currency are two significant parts of the forex market, without which the trade won’t be possible. Traders analyse the base and quote currency of the pairs through forex charts patterns and other tools to invest. Here, we have incorporated the meaning of these two terms with their use in forex trade: 

Base currency is the top and initial currency mentioned in the currency pair. The base currency has high market value and is used to decide the value of the quote currency. 

The quote currency is the second currency mentioned in the forex currency pair that has a low market worth in comparison with the base currency. 

The currency pairs are coded in three letters to recognise the currency quickly, like the US dollar is coded as USD, and EUR is the code for European Euro. 

 Traders get the value of the currency pairs by getting the one unit value of the base for the one unit of the quote currency. Thus, this helps them trade and benefit from the investments and know the market prices of the currency pair. 

Forex Chart Patterns

The traders of the forex market have various indicators, tools, and what not to analyse the market. These are used to predict market movements of prices and other factors impacting the trading instrument. In a forex trade, the forex charts patterns are useful to trade indicators. 

Traders use the forex charts patterns to have a deep analysis of the market movements of trade instruments. The movements or fluctuations in the forex currency pairs are represented on charts in pattern form to have a look at the market and what could be the possible next move. 

Thus, having prior knowledge makes it worth investing in the forex market. The forex charts patterns are an essential part of the technical analysis. But traders have to use them with proper practice and trade experience, as novice traders won’t get the patterns formed and may make wrong decisions. Therefore, the practice and forex trade knowledge is a must for effective trading. 

Forex charts patterns are the price patterns that are viewed through charts graphing the prices of the currency pairs. When the forex market makes movements daily, they form certain patterns that repeat in specific situations. A forex trader analyses the forex charts patterns by studying the patterns on charts formed. 

The forex charts patterns are used either for a reversal in the trend or for the continuation of the ongoing trend of the forex market. Thus, helping traders decide whether they should open a trade position or close the existing position. 

Being a technical analysis, the chart patterns are divided into three categories, namely, traditional chart pattern, harmonic chart pattern, and candlestick chart pattern. 

The traditional chart patterns are the most common forex chart patterns that have been used in the forex market for years. Examples of traditional chart patterns are double top reversal, double bottom reversal, etc. 

Harmonic chart patterns are the patterns of the forex market that use the Fibonacci ratio to quantify and validate the forex chart patterns. Examples of harmonic chart patterns are butterfly, cypher, etc. 

Candlestick patterns are the most used forex chart patterns that help traders understand the forex market movements in prices. Examples of candlestick patterns are a hammer, morning star, etc. 

However, there are no best or perfect forex charts patterns; traders decide the chart patterns based on the trade instrument and the market. Here, we have some of the forex charts patterns that are mostly used in forex trading discussed: 

Head and Shoulders Pattern

A forex chart pattern is built on the charts to analyse the price pattern of the trade. The head and shoulder pattern has a high peak with two lower peaks on both sides. The peaks formed help forex traders forecast the bullish and bearish patterns of the market reversal. 

There are three peaks in the pattern; the first and third peaks are small, with the middle and the second peak is higher. But gradually, all the three peaks fall in the same level of support, which is referred to as the neckline. When the third peak falls back to support level, it is said that it will break out into a bearish downtrend. 

Double Top

A trend reversal pattern of the forex market, the double top, is used to highlight the trend reversal of the market. The price of the currency traded will increase and reach a peak before leveling back to the support level. The trend moves back again and then takes reversal against the trend going. 

Double Bottom 

It is a forex chart pattern that shows the selling period that traders can use; the price of the currency falls low and below the support level. Thus, the trader gets the period of time in which they can sell the currency pair. The price then moves high to the resistance level and drops again. 

In the end, there is a reversal that brings an upward movement in the price, and the market becomes bullish. So, the double bottom is a bullish reversal pattern with a downward trend and then a shift upwards. 

Cup and Handle 

It is a candlestick pattern that shows the bullish continuation pattern of the market. Through this, traders understand the bearish market emotion before the trend completely continues in a bullish motion. The chart pattern forms the shape of a cup and handle. 

In this, the price of the currency enters the retracement phase temporarily and forms the handle of the pattern. The retracement has two parallel lines formed on the graph, and the price of the currency then reverses, comes out of the handle shape, and continues with a bullish trend. 

Wedges 

The forex chart pattern shows the price movements of the currency being tighethen in between the two sloping trend lines. The wages are of two types basically, rising and falling. The rising wedge is represented when the trend line is caught between the two upward lines of support and resistance. 

In the rising wedge, the support line is steeper than the resistance line. The pattern formed indicates a decrease in the price of the currency permanently, which is shown by the support level breaking. 

On the other hand, the falling wedge takes place between the downward sloping levels. In this case, the resistance line is steeper than the support one, and the falling wedge indicates a rise in the currency price and breaks in resistance level. Both the rise and fall of the wedge are a signal of reversal, where the rising wedge shows a bearish market and the falling wedge shows a bullish market. 

Flags

In the forex trade, the flags are formed when the prices of the currency traded consolidate after a sharp trending move. The preceding sharp trending move is termed the flagpole. Forex market traders use-flags and flagpoles to analyse the market trends. 

When there is an upward trend, then a flag pattern is formed where the prices consolidate, forming lower highs and lower lows. It has a single period of profit-taking. When there is a break outside of the upper falling trendline, then it signals that the bulls are ready to drive the prices higher for the coming phase. 

Conclusion

A trader of the forex market can use an enormous number of patterns to trade. All the above-discussed and not-mentioned chart patterns are useful for analysing the market and predicting the future market trend. Traders can get access to the tools and platforms via online brokers. 

There are several online forex brokers that provide services to ease the trading process, ABinvesting as mentioned before is one of the online forex brokers with a high market reputation. Similarly, there are other brokers available online.

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