Three Most Popular Chart Patterns in Forex Trading

Posted by Deb | Forex,Guest Post | Monday 26 August 2013 11:31 pm

There are many set-ups you can use when trading currencies. Many of them may appear like it’s sound and can bring you profits but be warned – there are many set-ups that can only result in a loss.

Forex traders can minimize some of the trial and error involved by using the chart patterns that have been proven by other forex traders as effective and have proven to be profitable set-ups.

Channel Pattern

The channel pattern is one of the most recognizable patterns in forex charts because it looks quite distinctive. It is two parallel trend lines that enclose price. These lines essentially govern the trend. Trades are usually entered that follow the trend – in this case, when the price bounces off one of the trend lines. Your profit target is usually within the domain of the opposite trend line. This set-up and strategy is quite profitable and if you have made the correct assumptions, you can ride the trend as it moves within the range and between the two trend lines. Even when the price penetrates the trend lines, there is still the opportunity to earn since the trader can then trade on the breakouts.

Double Top

A double top is another very recognizable set-up. The double top happens when the price of the currency tests the resistance level on two different occasions and is not able to break the resistance. When this happens the price now breaks and assumes a bearish movement. When a trader sees this pattern on his chart he will commence his trade when the price breaks the neckline and then the trend is joined when the price begins the pullback to the broken neckline. You will have a 73 percent chance of a successful trade using this pattern, which is quite high.

Asymmetric Triangle

The asymmetric triangle can be identified by looking the chart and looking for an asymmetric triangle where there is a trend line and one horizontal level that price will usually be able to penetrate. Trading with an asymmetric triangle pattern is similar to how you trade double tops – trade is entered after the currency price pulls back and goes to the broken horizontal level. But this trade is done with a strict stop loss and only of the risk/reward is 1:5:1. The asymmetric triangle has a success rate of 76%, which is very high.

These three patterns are quite effective in providing forex traders with a useful and tested way of plotting out a strategy and giving signals on when to enter into a trade. These three patterns pass the forex traders text of being profitable patterns regardless of the currency pair used.

About The Author

Mario Singh talks more about forex strategies at his website


Don’t Stretch Your Stop Loss

Posted by Deb | Day Trading Journey | Saturday 10 August 2013 11:33 pm

I would like to speak today about a habbit I once had, and recently heard about other new traders who are getting into it: I spoke with a new trader, who realized that when his trades go bad, with the market going stronly against him, he can often avoid loosing by stretching his stop-loss. He takes a bigger risk, and when the market seems to find a new critical point he adds new orders from the new critical line, thus “averaging” his losses. In this method he can make even double profits, since if the market goes back to its original possition, he will have more money or contracts invested and make more profit!

I know I have been doing this mistake a lot, and usually it works. When I used to do it, I made very nice profits over a long period of time. So what’s so bad about this, you ask?

Stop-losses are exactly what their name means: A point in which you think the trade has gone bad, and in which you should get out of the position in order to stop your loss. When entering a position, you should calculate exactly where you would like to put your stop-loss, so as not to loose too much. You don’t want to have your stop-losses too tight, otherwise they will catch before the market has a chance to retreat to your desired direction. Place the stop-losses in a position which is sensible by the graphs. If you see the stop-loss is too big for your account, simply do not enter this position. Wait for a better chance.

Putting a tight stop-loss and then stretching it will make you risk too much money. In most cases, by averaging out – entering again in the next critical point – you will be able to exit the position with a nice profit. But then, one day, the market will surely continue to go against you: It will continue breaking the subsequent critical lines, and if you go on “averaging”, you will find out you have wiped out your account.

Stretching your stop-losses is a bad practice. Lazy traders who do not want to calculate the right place for the stop-loss will find it appealing, but the big boom is sure too come. Don’t trade without good stop-losses.