1. HEAD AND SHOULDERS

 

Head And Shoulders patterns can be normal or inverted. The normal head and shoulders consist of three peaks where the center peak is the highest while the inverted head and shoulders consists of three lows with the center low the lowest. A neck line is drawn through the lowest points either side of the head. A break through the neck line provides a "sell opportunity".

 

 

With the inverted head and shoulders the neckline is drawn through the top of the two peaks either side of the head. A break through the neckline provides a "buy opportunity".

 

 

2. ASCENDING AND DESCENDING WEDGES

 

Ascending Wedge in an uptrend-bearish. This pattern occurs when the slope of price candles highs and lows join at the point forming an inclining wedge. The slope of both lines is up with the lower line being steeper than the higher one. Place an order to breakdown and out of the wedge. The drop out of the wedge can be very dramatic.

 

 

Descending Wedge in a downtrend-bullish. This formation accurs when the slope of the price candle high and lows join at a point forming a declining wedge. The slope of both lines is down with the upper line being steeper than the lower one. To trade this pattern, place an order on a break up and out of the wedge.

 

 

3. 123s HIGHER LOWS AND LOWER HIGHS

 

This pattern can also be a continuation pattern, but at the top of a trend this pattern provides a good confirmation of the direction change. The "3" point is a failed retest of the previous High or Low. The failure of the test signifies the change from a Bull Market to a Bear market and vice versa. The "3" point can also be referred to as a Higher Low or a Lower High. This pattern is very useful for finding a trade entry.

 

Higher low

 

Lower high

 

4. DOUBLE TOPS AND DOUBLE BOTTOMS

 

Double tops and bottoms are one of the most well known and powerful money making techniques known by forex traders. They are a test of a previous high or low. Triple Tops and Triple Bottoms are similar but have three peaks or lows.

 

A double top occurs when the price attempts to break out above a recen pivot high but fails. This pattern consists of two tops of approximately equal height. Many traders wait for the confirmation when the retracement low beneath the two peaks is broken to the downside after the second peak. When a double top has been formed, the price objective is usually an equal distance down beyond the correction low (valley between two peaks). Double tops are not as strong in a strong up trend as they are in a downtrend.

 

 

The mirror image of the double top is the double bottom, a bullish formation. Support cannot be established until there is a test of the last point of support.Double tops (M shaped) and double bottoms (W shaped) are stronger if the equal point are a long way apart. The two peaks of a double top do not have to be exactly at the same level so allow a few pips difference. A double bottom with a slightly higher low for the second point can be a strong bullish signal. Double bottoms are not as strong in a strong downtrend as they are in an up trend. A double bottom which coincides with a pivot line can produce a fast move forward.

 

 

5. SUPPORT AND RESISTANCE LINES

 

Support and resistance lines can be both horizontal and sloping.

 

Support lines act like a floor and are price areas where a currency pair finds it difficult to penetrate below the support line. Support lines are drawn through a previous set of lows and either pause a downtrend or reverse it depending on the strength of the support line.

 

 

Resistance lines are drawn through previous pivot highs. Resistance acts like a ceiling. Depending on its strength, a resistance line can pause an up trend and when very strong can reverse an up trend. Its strength is determined by the length of time it serves as resistance and the number of times it has been touched by price. The longer the period of time, the greater the strength of the line.

 

 

6. TRENDLINES

 

It is important for traders to know which way the market is going, i.e. is it trending up or down or even going sideways. Money can be made in all these conditions, but it is important that traders "trade with the trend".

 

A trendline is a straight line that connects key prices areas in a move, an up trendline connects successive Higher Lows or Higher Highs and a down trendline connects successive Lower Highs or Lower Lows. Trendlines connecting succesive Lower Highs is also known as a resistance line while a trendline connecting successive Higher Lows is also known as a support line.

 

 

A trendline can be defined as border lines for making buy or sell decisions. Trendlines form the boundary lines for most of the chart patterns. A trendline of about 45 degrees is considered the most reliable, and if steeper than that the market typically cannot sustain that kind of momentum for long. Watch to see if the market bounces off a trendline or slices through. Watch for retests of the trendline after the price has sliced through. You will often find a good buying or selling points at the third touch of a trendline.

 

 

 

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