reading forex chart patterns part 3
DESCRIPTION
www.sm-forex.com This is part 3 of my series in how to read a forex chart and recognise chart patterns. Included here are moving averages, continuation patterns, reversal patterns and MACD.TRANSCRIPT
Copyright © 2007 Forex Education Ltd
“IT’S TIME TO GET MORE OUT OF LIFE”
www.sm-forex.com
Reading Charts 3
The Forex Codes Moving Averages
– Shows the trend in a smoothed fashion– Used as moving levels of Support and
Resistance– No good in sideways, tight-ranging markets– It is a “lagging” indicator. It follows price
action
Copyright © 2007 Forex Education Ltd
The Forex Codes Moving Averages
Copyright © 2007 Forex Education Ltd
The Forex Codes Moving Averages
• On all our charts we use:
1. 10 DAY EMA2. 200 period EMA/SMA3. 5 WMA4. One or more other EMAs depending upon
timeframe used
Copyright © 2007 Forex Education Ltd
The Forex Codes Moving Averages
Copyright © 2007 Forex Education Ltd
The Forex Codes Moving Averages
Copyright © 2007 Forex Education Ltd
The Forex Codes – Chart Pattern
• Chart Pattern is one KEY to trading success
• It is a Market “Fingerprint” or “CODE”
• Use only the most basic and obvious chart patterns just like the Pros do!
• Others will have spotted them hence more probability of success
Copyright © 2007 Forex Education Ltd
The Forex Codes Continuation Patterns
• These occur when the prevailing trend pauses
• The next move usually in the same direction as the Trend
• Higher the timeframe the more powerful the pattern
• There are always exceptionsCopyright © 2007 Forex Education Ltd
The Forex Codes Flags and Pennants
• Very powerful patterns to trade. Very reliable.
• Brief pauses in a dynamic market move
• Must be preceded with a sharp and almost straight line move
• After the pause the trend resumes on a burst of trading activity
Copyright © 2007 Forex Education Ltd 9
The Forex Codes Flags and Pennants
Copyright © 2007 Forex Education Ltd
The Forex Codes Flags and Pennants
Copyright © 2007 Forex Education Ltd
The Forex Codes Flags and Pennants
Copyright © 2007 Forex Education Ltd
The Forex Codes Reversal Patterns
• Higher the timeframe the more powerful the pattern
• Can be more risky because you are going against the trend
• Must have a prior trend• It may only be a short-term reversal of trend• First sign may be the breaking of an important
trendline
Copyright © 2007 Forex Education Ltd
The Forex Codes Reversal Patterns - Double Tops
• Very frequent and easily recognised• Top is often referred to as an “M” • Ideal DT has two prominent peaks at about the
same price level• It is a bearish pattern at the top of an uptrend• Good for bounce trading off a high
Copyright © 2007 Forex Education Ltd 14
The Forex Codes Reversal Patterns - Double Tops
Copyright © 2007 Forex Education Ltd
The Forex Codes Reversal Patterns - Double Tops
Copyright © 2007 Forex Education Ltd
The Forex Codes Reversal Patterns - Double Tops
Copyright © 2007 Forex Education Ltd
The Forex Codes Reversal Patterns - Double Bottoms
• Very frequent and easily recognised• Top is often referred to as an “W” • Ideal DB has two prominent troughs at about
the same price level• It is a bullish pattern• Good for bounce trading off a low
Copyright © 2007 Forex Education Ltd 18
The Forex Codes Reversal Patterns - Double Bottoms
Copyright © 2007 Forex Education Ltd
The Forex Codes Reversal Patterns - Double Bottoms
Copyright © 2007 Forex Education Ltd
The Forex Codes Reversal Patterns – Where Could a Reversal Occur
• At a Key “Cluster” Level
• At a Pivot Level
• At a break of solid Trendline
• At a Fibonacci level
• At strong Support or Resistance
• With MACD DivergenceCopyright © 2007 Forex Education Ltd 21
The Forex Codes Reversal Patterns – MACD
• MACD is a simple momentum indicator
• Can help us spot trend reversals
• I use it for spotting “Divergence” only
• Must be used in combination with other tools and never on its own
Copyright © 2007 Forex Education Ltd
The Forex Codes Reversal Patterns – MACD
Copyright © 2007 Forex Education Ltd
The Forex Codes Reversal Patterns – MACD
Copyright © 2007 Forex Education Ltd
The Forex Codes Reversal Patterns – MACD
Copyright © 2007 Forex Education Ltd
The Forex Codes Reversal Patterns – MACD
Copyright © 2007 Forex Education Ltd
The Forex Codes
Copyright © 2007 Forex Education Ltd
Copyright © 2007 Forex Education Ltd
“IT’S TIME TO GET MORE OUT OF LIFE”
www.sm-forex.com
Reading Charts 3