Charting has always been used as a way of analysis and forecasting for forex and is a part of technical analysis. It is based solely on the study of patterns using trend lines drawn on the price chart and candlestick chart formations.
Creating a chart has three principles, namely:
1) All factors or elements affecting the currency pair are reflected in the price
2) The price always moves in a trend
3) Patterns created by price movements always repeat themselves
A trader who studies the price will be able to clearly identify the trend of a particular currency pair and predict its changes. Therefore, future probable behavior can be predicted.
The problem is that while traders can identify these patterns, trading them requires a certain skill and patience that most traders struggle with.
Here we will list some classic chart patterns and recommend how a trader can trade them in an easy way.
Double top or bottom
Head and shoulders/ Head and shoulders turned
Falling and rising wedges
These formations are usually trend reversal patterns that are highlighted by the breaking of the key support resistance levels that caused the pattern to form.
These formations are usually trend continuation patterns where prices will go into consolidation for some time after a period of continuous trend movement to gain more momentum and continue their trend.
Although these chart patterns can be easily found in any forex book and explained in detail, traders have always faced the problem of 1) identifying and 2) executing trades using these patterns.
How can these problems be solved?
For identification, a trader can opt to use a chart pattern recognition service such as Autochartist which provides chart pattern signals and its trading potential. One can also choose to use their broker’s report or resource tools for advice. These services often provide detailed analysis of trading signals and the quality of the signal produced.
By using such a service, a trader can train himself to easily identify such patterns on a chart. After some time, they will be able to identify these patterns without the help of these services or simply using these services to confirm their findings.
To easily execute chart patterns, a trader must find ways to automate the process of executing their trade when the signal is right to enter. Since charting for chart pattern recognition can result in drawing many trend lines, support or resistance levels, it is sometimes difficult to trade outside the lines due to the limitations of the trading platform. It is advisable to be able to develop or have a forex trading tool that can not only assist the trader in the charting process but also in executing his trades.
These solutions will help the trader to ease his burden of spending time on drawing and monitoring his charts where he can now do it easily and automatically with less stress on trading. Trading classic chart patterns will be easier than before with better trading signals and more profitable trades.