(more coming soon)
This is my take on price patterns with some current, relevant examples – no fancy diagrams. You should be able to see what I mean fine enough. It takes time and practice to recognize and find them, so make a habit of going on price pattern safaris to really learn these. For a more complete course on price patterns and their strategies, refer to the Investools currencies courses.
Price patterns – know this stuff
Ok here’s the deal. Price patterns are nothing more than support and resistance twisted around, and when prices peak in certain orders.
There are only a handful or patterns that everybody uses, trust me. No need to buy a book on the things for the “secret” price patterns. I’ll tell you about these here.
Price patterns are not magic. Sounds absurd, but truly: don’t overemphasize them. Their role is the same as support/resistance usually is. And that roles usually is ancillary to your studies, which time the entries into trades. Patterns are good at showing a good context for taking those signals, among other things. They are advantageous to us as traders because they usually give us a target of how far the price “should” go from the breakout, and we usually have an idea of about when/where they will do this.
The price patterns we will look at are divided into two categories: continuation and reversal patterns. We’ll look at continuation patterns first, since they are much more common, and then reversal patterns.
These are triangles, wedges, and pennants (triangle shapes), and flags (rectangular).
Triangles come in several varieties (symmetrical, ascending, descending, etc.), but the names are simply labels for the shapes. Triangles will usually break in the direction of the previous trend, before the triangle shaped consolidation. However, they can and often do go either way. What’s important is to watch for the breakout. Our example of the EUR/GBP in this chart just happened yesterday from time of writing this.
A triangle is simply converging support and resistance – they point in toward eachother and will eventually reach an apex off on the right somewhere.
How long they form: From the edges of support and resistance to the apex is usually a time span of one to several months. Importantly, a defining feature of triangles is that they swing from a peak at resistance, down to the inverted peak at support, doing this and touching each at least two times at top and two times at the bottom. This is illustrated in the chart.
When to expect the breakout: Triangles usually breakout 2/3 – 3/4 the way to the apex from the base. This does not always happen, and sometimes they go all the way to the apex before moving. In the triangle chart here, this break was a little closer to half way between the base and apex.
Targets: Measure the triangle at the base. This distance, in pips, is how far we can expect price to go as a minimum. This is a rule of thumb and, of course, doesn’t always happen.
(more coming soon)