Trading chart patterns (such as bull trap candlestick pattern or bear trap candlestick, two black gapping, three black crows, evening star, and abandoned baby) are one of the methods of technical analysis intended to define turns and trends in the market. With the help of a chart pattern, it becomes easier to notice conditions where the market tends to break out. With the use of these chart formations, it becomes possible to see if the price is likely to continue in its right direction or go opposite.
Accurate analysis, no matter whether it is Forex analysis or analysis of any other market, involves the use of various tools, such as indicators. In a large number of Forex Chart Patterns, it becomes quite difficult to highlight one of them, which is used more often by traders. However, the value and importance of these tools cannot be overlooked, as they can sometimes help to see the biggest moves in the markets.
Therefore, Chart Patterns guide traders on what may happen in the market and serve as the basis for developing Trading Strategies and making the decision when to sell or buy the asset.
As easy as it may seem, taking positions on chart patterns is not necessarily easy. Indeed, there remains only probabilities, that the objectives will not be achieved every time, or the pullback will be too violent and will cause you to hit your stop. There are also many scenarios against you. In order to maximize your chances of success, we are going to see a few tips.
Tips and rules for trading chart patterns
On figures that may present a pull back, always wait for this one to enter. Indeed if you enter directly on the breakout, then you can exit at a loss on a possible pull back. On the other hand, if you enter when it touches the right, then there, you will optimize your win/loss ratio as well as possible.
Try to position your stops slightly outside the recent highs/lows. This way, if prices are correct, those highs/lows can push prices back without you hitting your stops.
Respect the objectives given by the figures as well as possible; if they are too weak, refrain from getting into the position
For double tops, place your stops at least half the size of the pattern.
If the shoulders are short, then place your stops just above, if not at ¾ of the shoulder.
Generally, try to trade patterns over relatively large timeframes, at least on a 30-minute chart.
In short, we have, so to speak, seen one of the biggest parts of graphical analysis. Indeed no one can ignore on his chart the formation of an ETE or a double top. This forex technique has a clear advantage, and it is the timing. Indeed you can easily identify your entry points and especially your exit points, which is obviously not the case for all methods. Besides that, the analysis of chart patterns, although it is old, gives good results.