Types of price patterns/trends
Most Forex traders use shorter-term charts to pick up intraday trading signals, but we used this longer-term chart because it is easier to discuss the trends on a less volatile chart. The ups and downs of the market are smoothed out when you look at a longer time frame, so it’s easier to see the patterns when you have less detail. You get more detail and the most amount of noise from charts in the shorter time frames, such as 5- or 10- minute charts.
As you get more experienced working with charting, you’ll see that markets follow certain patterns. These patterns become very well known to traders. We review the basics of some of the better-known patterns, but no pattern guarantees you a perfect reading of the future trend for the market.
A well-known phrase among traders is, “the trend is your friend until it ends.” When you see a strong trend, try to research the fundamentals behind that trend and you’ll have an even better idea of what may be driving that trend and what the next moves for that currency pair might be.
Wedges – The wedge pattern forms when your trend lines look a lot like a symmetrical triangle. You’ll see that the trend lines you draw have highs and lows that come together at an angle. Usually this angle points up or down. Then you’ll see a trend, either up or down, form outside this pattern. An upward line would be a bullish trend indicating a good time to buy. A downward line would be a bearish trend indicating a good time to sell.
Channels – When you see your trend lines run almost flat with no indication of an upward or downward trend, then what you are seeing is called a channel. This type of pattern indicates that both buyers and sellers are undecided about the direction of the market. When you see this type of pattern, your best bet is to wait until you see signs of a breakout of the market in one direction or the other before picking your buy and sell points.
Gaps – A price gap usually forms when the opening price of the current bar is above or below the closing price of the bar for the previous period. You’ll see gaps most often on daily charts, such as the one in the preceding figure. Frequently a gap can be an indication of a more dramatic breakout. In this situation, the pair continued to fall in value.
There are many other types of patterns traders use to determine their buying and selling strategies. The keys to successfully working with charts are dedication, focus, and consistency.