Patterns on Forex - Application in TradeWednesday, 12 July 2017 02:36
Many market analysts use regularities, making forecasts. Understanding the patterns of the Forex market helps to increase the profitability of the trade, and avoid losses significantly.
Patterns are the events that repeat often, which can be predicted with a probability of more than 50 percent. Nevertheless, it’s worth remembering that not always such forecasts will come true.
Identification of Patterns
First of all, you should pay attention to the frequency of a certain event. Don’t consider events that are repeated less often than in 50% of cases. It’s also necessary that the event in question should be repeated for a certain time. For example, suppose the market is flat for a week. In such conditions, the Martingale strategy brings a good profit. However, after some time, a strong trend appears on the price chart, and this trading method will lead to losses.
At the same time, you shouldn’t search for market events, which will be repeated with absolute probability. Such patterns don’t exist at all, and you should always remember about the risk. Focus on trends that show 60-70 percent efficiency.
Types of Patterns
Here are the most common types of events on Forex:
- Cases that repeat at the same time;
- Patterns of working with a certain type of asset;
- Common models of technical and graphic analysis;
- Seasonal trends.
For example, during the Asian session, at night, the price moves in a lateral trend. This pattern depends on the time of a day.
Probably everyone knows the common graphic patterns, such as head and shoulders, triangle, and so on. They should also be considered regularities, since it’s easy to predict the further behavior of the price after their appearance on the chart. The opening of trading positions is determined based on such rules.
As for the seasonal patterns, the New Year can serve as an example. Every year, activity of the market is falling before the holiday. Agricultural exchanges, such as the wheat market, corn, coffee, etc., are the most affected by seasonal changes. In this case, much depends on yield and harvest time.
Common Forex Patterns
At night, the foreign exchange market is flat. The Tokyo Stock Exchange works and all the currency pairs without the yen demonstrate a least activity. This time is best for the flat strategies.
For example, at night you can trade on the rollbacks of the support and resistance levels. Unlike the daytime, when it’s difficult to predict how the price will behave near such levels: will it break through the line, or rollback of it, at night the breakdown is quite unlikely.
Immediately after the opening of the Asian session, it’s worth building a price channel, based on the first formed highs and lows. Open the purchase transactions at the price rollback of the support level. Transactions for sale are opened with the rebound from the resistance level.
If you follow the calendar of the Forex events, then you know the publication date of important news in advance. It’s often difficult to predict the way the value of assets will go, but the time of the jump in activity is known. As a rule, within five minutes after the publication, the strong fluctuations appear on the chart.
It should be noted that increased activity is observed only after the important news. Trading on the news, traders use pending orders, opening them in a couple minutes before the publication. It’s worth paying attention to the volatility of the pair traded, so you won’t place the orders too close to each other. It’s also worth remembering that, during such periods, the slippage of the price can happen.
What Are the Patterns Based On?
Obviously, price movements don’t occur randomly, but as a result of certain fundamental or technical factors. Use patterns only if you know exactly what they are based on.
For example, the night tranquility is explained by the fact that the exchanges of Europe and America don’t work. Accordingly, the volume of trading is falling significantly. Small players who trade at night cannot have a significant impact on the price.
Currency fluctuations after the publication of news are explained by the fact that all the monetary units depend on the policy of the Central Banks.
Remember that the proper application of the patterns requires a good practice. So take enough time to sharpen your skills on demo accounts.