In this article I will walk you through...
Explaining Price charts and their significance!
How do Traders find chart patterns!
The most commonly used and best patterns to look out for in your own strategy!
Exclusive insight into how the Pros trade!
Why chart patterns don't work by themselves!
An even better way to trade using chart patterns and professional strategy combined for the ultimate trading strategy!
In this article we will focus on the correct way to trade the forex markets!
Traders are always looking edge over the markets, the main way that Traders try to gain this edge is through the use of chart patterns.
There are hundreds of different ways interpret charts and movement in markets, these are very complex methods that require practice, by the end of this article you will have an understanding of how and why traders use chart patterns, you will learn the professional method of analysing markets and the SECRET to unlocking the professional standard of analysis.
This will give you your own edge over the markets!
What are Price Charts?
To understand chart patterns you first need to understand price charts, any analyst, retail trader or market watcher will use price charts to measure price in real time and the historic movement of any forex pair.
Forex charts depict historical behaviour across lots of different time frames and measures the movement between the two forex pairs, charts allow traders to essentially look into the past and according to technical analysts this past behaviour can be and insight into what the asset may do next.
What are chart patterns and what do they tell us?
When looking at a price chart patterns of movement can start to be noticed.
These patterns are normally seen in historical data, analysts find these patterns and if the pattern has repeated itself multiple times with the same outcome in the historical data a trader will try to predict when this pattern will emerge again and then enter a position based on this historical data.
With so many ways to trade currency, picking common methods can save time, money and effort.
Eventually traders will be able to spot these patterns and know immediately what trades they want to execute.
There are many simple methods spotting these patterns, it is called technical analysis, traders use indicators like the RSI or an ATR to try and determine what markets are doing, they also use Fibonacci and trend analysis as some of the most common patterns of movement shown on price charts.
The act of reading these price charts using all these strategies to determine a pairs future movement is called technical analysis.
But what is technical analysis? and why does it look so complicated?
its is not as complicated as it seems, let me explain...
What is Technical analysis?
All traders professional or retail use technical analysis as a way of determining the validity of a trade, however, they use this analysis in very different ways...
We will explore this further later on in the article but for now, let's take a look at the essential patterns every trader knows and uses regularly.
THE CHART PATTERNS you NEED to know!
Reversal chart patterns
Reversal patterns are those chart formations that signal that the ongoing trend is about to change course.
Continuation chart patterns
Continuation chart patterns are those chart formations that signal that the ongoing trend will resume, wedges can be considered either reversal or continuation patterns depending on the trend on which they form.
Bilateral chart patterns
Bilateral chart patterns are much more complex because these signal that the price can move EITHER way.
Download your very own 4k Desktop Chart Pattern Wallpaper so you can never miss 'em again!
Do chart patterns work?
No, they don't work! Well, not by themselves anyway...
A common misconception with chart patterns and technical analysis is that it is a reliable way of predicting market moves.
Whilst they are still used by professionals it is not for the same reason as retail traders and this is why we see consistent growth from The Professionals and not so much from the retail traders.
Technical analysis and chart patterns uses purely historical data to predict future market moves, they do not take into account current economic or political conditions of either of the two economies involved in the forex pair.
These economic or political events/shifts can have a huge effect on the price of a currency in real time and in the future leaving patterns useless!
Indicators like unemployment rates, interest rates, homebuilding and consumer confidence all have huge effect on currency and cannot be predicted by technical analysis.
Don’t be disheartened, I know I have told you that chart patterns are not the most effective way to trade but I have the solutions for you, just hang on in there!
Chart patterns and technical analysis still play a role in the professional method of trading...
The REAL purpose of chart patterns
This means they used by professionals to time the entries into the markets and provide the best risk to reward ratio possible.
They are a key factor in working out risk management and are instrumental of the overall management of a trade before it is even entered.
Think of technical analysis as a final gateway to the opening of the position, identifying you a time and a place to enter a trade that gives you confidence and stability!
Technical analysis give you a route into a market but they are not the whole journey, technical analysis needs to be paired with fundamental analysis, using both these methods of analysis together is what these professionals are paid for.
What is fundamental analysis?
Fundamental analysis is a way of looking at the forex market by analysing economic, social and political forces that may affect the markets in a major way.
The idea behind this type of analysis is that if a country's future economic and political outlook is good the currency should strengthen.
When choosing a pair to trade the best way to determine direction is comparing each economy and determining which is the stronger of the two and which is the weaker economy.
We also look at what economy has the biggest scope or for growth and which economies have problems on the horizon that we can foresee, such as a potential rising in unemployment or too much domestic spending.
In fundamental analysis we look at a huge range of leading indicators, These indicators are called leading indicators as they tell us what may or may not happen in the future economy, we also focus on economic sentiment to determine the strength of each economy.
Professional traders use fundamental analysis before any kind of technical or chart pattern analysis, these professionals are trained over months and sometimes years in understand in the understanding of macroeconomics and politics.
Of course, we are not asking you get a PhD in political science.
ENTER.. the Macro Currency strength meter from Logikfx!
In very simple terms, a currency strength meter is a tool that shows you how strong, or how weak a currency is, or will be in the future. The free currency strength indicators, available elsewhere online, use an aggregate exchange-rate price calculation to determine strength, which as mentioned above, has no predictive power at all. Why? well its formula is purely based on historical price, so will only tell you what's happened in the past, and not what's happening in the future!
The Logikfx currency strength meter is a lot different to others out there. It's calculated by crawling thousands of economic reports for over 23 different economies and then running them through a clever algorithm to determine currency strength based on future economic growth or contraction. It makes fundamental analysis accessible, and fast for its users.
Simplified fundamental analysis negates the need for a learning curve, it takes away the staring at computer screen and allows you to trade like a professional.
"Fundamentals have never been so easy to trade, till now!"
Marcus, Director at Logikfx
The 3 stage approach to using chart patterns
Here at logikfx we follow the professional trading method of macro trading using our three level system we know how to analyse any trade we put on to get the best possible outcome in every trade we execute.
The first step is value, this is the most important and probably the most complex step, we use fundamental analysis to determine whether trade idea is good or bad and equate its value.
If the fundamentals look good that means the trade is of a high value and there is huge potential for our bias to be confirmed.
If the fundamentals are not so positive or maybe even just neutral the value of that trade decreases and we put those trades on a watch list to see how the fundamentals change over time.
As LITA traders we have access to all sorts of analysis tools and education to help with this step...
Along with a great mentorship programme to help us through this first step process, we call the this the LITA technology and not only is the Macro Currency Strength Meter part of this but also the GDP differential meter both essential in any fundamental analysis.
Non LITA traders and professionals who use fundamental analysis will find all this info and more such as interest rate decisions and consumer confidence surveys themselves through hours of research.
The second Step is optimise, using indicators and chart patterns as a timing tool we determine a viable point of entry for any trade.
This is where the technical analysis comes to the forefront of professional analysis as it provides a door into the market to allow us to enter safely and be able to move on to step 3 with confidence in our bias.
To optimize our trades us LITA traders have lots of useful tools available.
One example is the COT reports mapped over time telling us the bias of hedge funds, effectively allowing ourselves to trade with them, and therefor emulate their success.
Step 3 is where we control our risk, using professional risk management methods we are able to protect our capital and ensure safe and well managed trades where we are able to enter the market with complete confidence and security no matter what way the trade goes.
At Logikfx we use our own software and tools such as the basis point calculator, the position size calculator to determine stop loss and take profit and our exposure limit calculator to manage our deposits and our exposure to gain complete confidence in our trade.
Professional traders also pay close attention to our risk to reward ratio, if the risk is significant and the reward is not then we do not place a trade and we go back to step 2 to try and find a better place to enter.
It is easy to get caught up the hype surrounding new chart patterns, retail traders flashing algorithms and bots that find complex shapes and ridiculous movement in markets, however, you must realise this is not the best way to trade.
Whatever you decide to do remember it is not all about indicators and complex shapes, looking at the bigger picture is what anyone should do to gain clarity on a currency pair.
Still learning how to trade? Learn through Logikfx Investment and Trading Academy (LITA) and take the first steps into growing your value as a trader with our free online courses, webinars, seminars. All from a small team of highly skilled traders with over 15 years’ experience in the financial markets. Learn how to make money trading forex, alongside the best ways to manage your risk through a proper trading journal, and sensible approaches to setting a stop loss (that doesn't get hit)!
Already know how to trade? Save hundreds of hours each month on trading technology, analysis and research using Logikfx's Macro Technology in the LITA Portal. Computing thousands of fundamental reports for over 23 economic regions, you'll know accurate currency strength at the click of a button.
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