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Double top and Double Bottom are price action pattern formations identified to predict the behavior of the market. As the name suggests, Double Top is when the price action forms two peaks almost equal to each other, and the Double Bottom is when the price action dips to form two consecutive bottoms with only a peak separating the two. Of all the chart pattern formations, Double Top and Double Bottom could pass as one of the easiest-to-identify.
*Double Top Identification
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Double Top is formed when the market follows the uptrend and then pulls back. The pullback must have created a peak to its left in order to form a trough. The price then again rallies to form the second peak almost equal to the first, then drops again lower than the trough. The second peak, unable to break through the limit set by the first, marks the resistance and reduction in buying, thereby calling out a potential reversal.
*Neckline
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The right place to draw the neckline is at the lowest point of the pullback. The price rises from the trough to form the second peak and drops back again to the neckline completing the formation of Double Top and the opportunity.
Entry
The right time to enter the trade is by the completion of the pattern formation. When the shaky line from the second peak downs to the neckline signifying the uptrend reversal, it plunges deep breaking through the neckline. Shorting is the obvious option for profit since the prices are dropping.
Exit
The safest exit with considerable profit is calculated from the neckline with the same value as the height of the peaks.
*Stop Loss
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In case, worse comes to worst and you misinterpret the chart for a double top, Stop Loss is the measure to keep your loss to the minimum. It is better to limit the loss to the latest peak created within the pattern.
*Double Bottom Identification
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On contrary to the double top, the double bottom is identified by a dip, followed by a rise, which is again followed by a dip. In the downtrend, the price forms a trough by pulling back to the upside. The price drops again to a point above the first trough unable to drop lower signifying the reducing sellers, thereby marking the downtrend reversal. The price then rallies all the way up until it falls short of buyers or reaches a balancing point.
Neckline
Here, Neckline is the plane drawn to connect both troughs through the edge of the middle peak.
Entry
Similar to the double top, it is best to enter the trade by the completion of the double bottom. When the price rallies towards the neckline, it goes all the way up breaking through the neckline. So going long at the neckline makes the most of the opportunity.
Exit
The position in the uptrend, marked from the neckline with the same value as the height of the troughs, is safe to close the trade.
*Stop Loss
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Stop Loss for the Double Bottom is set at the recent trough formed inside the pattern to limit the loss which is inevitable.
Double Top and Double Bottom are trend reversal patterns, which even the traders who disregard the chart patterns look forward to. These are simple trading patterns and doesn’t require much expertise to be able to identify, but the only shortcoming is that the reward: risk ratio is not too tempting. The ratio can be made favorable by setting stop loss in a much closer position. It is advised to take the trade only when the potential for profit is sound.
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PENNANT
A flag in the shape of a triangle with a tapering tail towards the end is referred to as Pennant. A similar looking pattern is formed immediately after a major movement in the price chart of a financial trading and forex trading asset in the shape of a triangular flag that can be seen by connecting the trend lines which are converging towards the end of the chart and then follow the same path of the initial trend with an outbreak. Pennants can be classified as Bearish Pennant and Bullish Pennant depending on its trend direction. This is how a Bearish and Bullish Pennant depicted in a Chart.
BEARISH PENNANT
Bearish Pennants can be seen during a strong downtrend in the price chart followed by a short period of up’s & down’s, the trends lines of which resembles a triangular flag. Then there comes another sharp downtrend of fall in price which bestows an opportunity to make a short trade which is profitable from a huge fall in price.
BULLISH PENNANT
Bullish pennant is almost the inverted version of bearish pennant which can be seen during a strong uptrend in the price chart. After forming a pennant pattern, the upward trend continues with a sharp break out and this paves a way to be profitable from the price rise. Bullish pennant is helpful for making long trades when the price rises for the second time.
ADVANTAGES OF BULLISH AND BEARISH PENNANT
The advantage of the bearish pennant in trading is that it allows us to make a short trade which will be beneficial to the traders to gain profit up to a certain level from a huge fall in the price.
Similarly, bullish pennant which is formed during the rise in price chart can also be profitable for the traders when used to make long trade when the price rises for the second time.
FLAG PATTERN
Flag patterns are formed when the price chart moves in a narrow path sideways preceded & followed by a steep break out or breakdown depending on the type of trend and can be differentiated as the Bullish and the Bearish Flag.
BULLISH FLAG AND BEARISH FLAG
The Bullish flag is a result of a sudden uptrend in price rate which looks like a pole and is followed by a collective narrow path of highs & lows which depicts the shape of a flag and then again follows the trend line with a breakout. On the contrary, the Bearish flag is an inverted version of the Bullish flag which finds its existence during a downtrend instead.
TWO TRADE ENTRY SPOTS
Entry spots can be identified in two spots, the first entry spot occurs during the flag break while the second entry stop marks its place during the break of the pole.
TWO TRADE STOP-LOSS SPOTS
This Flag pattern is of two measured stop-loss levels. One can be placed under the upper trend line on the uptrend and the other at the lower trend line on the downtrend.
CONCLUSION
The gist of the above information would help the traders to tune their trading knowledge and also be helpful for the people who are beginners in trading to trade without much chaos.
Alfa Financials offers a full suite of the best trading platform for beginners and professional traders. To view our customizable trader platforms, we are the trusted and experienced regulated online forex brokers for Forex, Futures, CFD and Currency Trading.
Rising and falling wedges are chart pattern formations mostly employed by day traders for their potential in predicting the upcoming price actions. It wouldn’t be precise to group wedges into one category; Wedges can either be reversal or continuation pattern. And just as the name suggests, the ever wavering graph gives rise to a formation much similar to that of a wedge.
Rising Wedge: Formation
A rising wedge is formed when the sloping support line goes steeper than the resistance line. The support line is the slope or plane below which the price actions struggle to stoop, and the line above which the price action struggles to break through is the resistance line. The distance between lines decrease gradually and when the lines come close to each other, the chart will be inflicted by a redirection.
Reversal or Continuation
The factor which decides the formation’s character is not how long it takes to complete the formation, rather the emphasis is on when the pattern is formed. If the rising wedge is formed in the uptrend, then it is most likely a reversal; and in the downtrend, the wedge is most likely to go as a continuation.
Price Target:
The right position to take the trade is when the prices fall below the support line. It signifies that more traders are willing to go short than the ones willing to go long.
The safest position to exit with substantial profits is by the difference between the resistance and support at the start of the wedge. The measured height is used from the entry point to determine the exit point in the downtrend.
The stop loss is placed at the recent high within the wedge, just to be safe in case of a misinterpretation.
Falling Wedge: Formation
Falling wedge is much similar to the rising wedge. The resistance line progressively narrows down to the support line and establishes a wedge-shaped pattern. The distance between the lines gradually comes down and after the narrowed part is when the surge is likely to occur.
Reversal or Continuation
The falling wedge can be a continuation or reversal, just like its bearish counterpart. The falling wedge occurring at the downtrend is mostly suspected to be a reversal pattern. On the other hand, the wedge falling at the uptrend is most likely to be a continuation.
Price Target:
The right position to take in forex trading is when the prices rise above the resistance line. It signifies that more traders are willing to go long, rather than short.
The safest position to exit with substantial profits is the difference between the resistance and support at the start of the wedge. When the price thrusts above the resistance line, the exit can be marked at the approximate height of the wedge.
The stop loss is placed at the recent low formed within the wedge, to limit the losses in case of a misinterpretation.
Bottom Line:
Identifying and trading chart patterns are one of the peerless ways to make quick profits, but rudiments astuteness to banish misinterpretations and miscalculations. The catch in trading wedges is that once the formation is complete, taking the trade can be profitable irrespective of the reversal and continuation.
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There is no set formula for trading successfully. However, success in your trades depends to a great extent on proper analysis and implementation. Because of FX trading’s easy accessibility and popular appeal-24/5 sessions, leverage and low cost your profit potential is unlimited. However, you can also lose money very fast by trading forex with one miscalculated or wrong move. Let's take a look at 5 factors why your constant practice in forex trading is not effective:
1. Not Treating Trading as a Business:
You should treat forex trading as merely another business. Just as any business has its own share of risk, uncertainty, ups and downs, gains and losses-these things are a part and parcel in forex trading too. Thus, you should totally curb your emotions and approach your trades with a clear & focused mindset. Also, remember you cannot become successful overnight. Unless you do this you cannot put your best foot forward.
2.Lack of a Trading Plan:
You need a blueprint to script your forex trading success. Most traders choose to ignore this and continue trading without any proper planning or strategy. As a result, they end up decimating their account and making costly trading mistakes which dent their self-confidence too.
3. Improper Analysis of the Markets:
Remember trading is not like gambling in a casino. If the trades you enter are not worth the money you are risking and there is no favorable set up restrain yourself & live to trade another day. By wrongly analyzing charts, making faulty moves and forcing trades when it's best to stay out will only reduce your trading career to shambles. Execute your trades only when you are sure about them.
4.Wrong Approach:
In trading timing is everything. Being consistently profitable requires time. Choose instruments and time-frames that you are comfortable trading in. It is up to you whether you want to be a scalper or day trader, whether you want to base your trades on simple support and resistance or technical indicators like MACD, crossovers, etc. Once you decide upon a methodology test it on a variety of time-frames, instruments, etc. If it is effective fifty percent of the time chances are that it is an effective strategy and will give you a winning edge. Otherwise, change it.
5.Inadequate Risk Control:
Risk management is inevitable for survival in the markets. Curb losses quickly and often, if required. Try to veer your trade in the right direction before it becomes unmanageable and your losses are magnified. With adequate patience and iron discipline, you can trail your stops, use stop losses and be profitable at best, or break even at worst.
Concluding Summary:
If your trades do not deliver the desired results once you switch from virtual to live trading then pause and review your methods. Rework your strategies, see what's hindering your progress and take on the markets once again after the necessary course correction. Your efforts will surely be fruitful.
Alfa Financials offers a full suite of the best trading platform for beginners and professional traders. View our customized trader platforms, we are the trusted and experienced regulated online forex brokers for Forex, Futures, CFD and Currency Trading.
The diamond chart pattern is one of the reliable chart patterns mostly used by the day traders to identify the potential uptrend reversals. The bearish diamond’s occurrences are far more prevalent than their bullish counterparts. The diamond pattern has enabled a large number of traders to make quick profits.
Forex trading markets, because of their high liquidity, gives way to more diamond formations than any trading counterpart.
Cutting the Diamond Bear
An offset head & shoulders formation is chosen for the trend lines to be sketched. The left shoulder and the head are connected through a straight line. The head is then connected to the peak of the right shoulder. This forms the upper boundary of the diamond. The price must not break the boundary for it to remain in the pattern.
For the lower part, the left shoulder is again connected to the trough formed after the head which is then connected to the right shoulder.
Identification: Diamond vs Head & Shoulders
It is not hard to get confused with the pattern of head & shoulders and diamond as they mirror each other. The offset nature of the head & shoulders pattern can be identified by the head located closer to the left shoulder and the tail slightly closer to the right. And the neckline will always struggle to be a straight line.
Entry
The right time to take the trade is by the completion of the pattern. The breakdown is most likely to happen right after the formation of the diamond, so shorting at the end of the right shoulder could prove to be beneficial.
Exit
The safest exit is marked from the right shoulder with the difference in value between the highest Peak and the deepest crevice within the pattern. The diamond pattern’s breakdown has more profit potential than just the difference between the peak and trough, but, more than that is a risk.
Stop-Loss
Stop loss is a counter-measure to limit your losses in case of the failure of your analyzed pattern. It is most advised to place the stop loss at the last peak formed before the completion of the diamond.
Bullish Diamond Pattern
Bullish diamond chart pattern, also known as the diamond bottom is also an existing pattern which is straight opposite to what we have seen, except for the profit potential. It is used to identify the downtrend reversal, but their formation is scarce when compared to the bearish diamond tops.
For the Bullish diamond pattern, the entry is the same as that of the diamond top, but the exit by the uptrend and the stop loss is placed at the last trough formed inside the pattern.
Before trying the learned chart analysis pattern in real time, use the historic trading charts to check if you can identify the right pattern. Novice traders, because of their overwhelming enthusiasm, often put their knowledge to work before testing it out and incur heavy losses. Learning diamond pattern makes no difference if you don’t practice and hone your skills.
Alfa Financials offers a full suite of the best trading platform for beginners and professional traders. View our customized trader platforms, we are the trusted and experienced regulated online forex brokers for Forex, Futures, CFD and Currency Trading.
We’ve been through a lot of tips & tricks, hacks and lessons which could help you understand your career better and earn profits. But have you ever known the 3 qualities you need to become a successful trader in forex trading? A trader doesn’t become successful just because he has made a trail of profits. Being successful means being consistent, being balanced, and above all, knowing what they are actually are. To be successful, make sure you adopt all these qualities.
Identify Your Trading Style:-
Taking the first step right forms the solid foundation for your career. You may be able to win trades with some random methods for now, but to be successful and consistent, you should definitely know what your style is. Ask yourself questions that could help get to know yourself better. To name a few:
The more questions you can answer for yourself, the more you can understand about yourself and help you identify your trading style.
A Right Mindset:-
If you are going to still carry on your weaknesses, you might as well consider quitting trading. Right trading requires the right mindset capable enough to withstand all the downfalls. You must remember that successful traders are made, not born. Make sure you follow your trading plans, control your unwavering emotions and be disciplined throughout.
Get Along With Like Minded People:-
People around you can either make or break your trading career. Being with the right people can help you learn things faster and in the right way. A perfect trading companion might alert you when there are big opportunities and stands by as moral support in case you happen to lose trades.
You need to have a perfectly planned layout and these much-needed qualities if you are to become a successful trader. Though it requires years and years of disciplined practice and opportunities, remember that it is not impossible. You just have to push yourself a bit more on the right path that could lead you all the way to success.
Alfa Financials offers a full suite of the best trading platform for beginners and professional traders. View our customized trader platforms, we are the trusted and experienced regulated online forex brokers for Forex, Futures, CFD and Currency Trading.
It's a truism that following trends provides the much-needed edge to any forex trading plan or strategy. Hence the popular saying goes, "The trend is your friend". Investors study particular trends and take their positions based on the dominant trend while disregarding any trades that contradict it. However, there is no single indicator that can guarantee you a cent percent success in your trades. Currency trading often involves other important aspects such as risk management and your trading disposition & style as well. Having said that, there are a few useful and widely-practiced indicators employed by most traders to identify trading opportunities. At best indicators should be used as a reference and to postulate all your trades based on a signal from one indicator may prove to be detrimental to your trades. Thus, you cannot depend on them as the ultimate trading approach. Let's now discuss some of the time-tested and popularly trending forex indicators that can be beneficial in extending your winning streak.
Moving Averages:
The moving average is a plotted line that reckons the average price of a currency pair over a time frame. The moving average that a trader decides to use depends on the time frame in which he or she trades. Usually, the 200-day,100-day, and 50-day simple moving averages are widely used. When the market is on an uptrend you can use the moving average or multiple moving averages to recognize the trend and the apt time to buy or sell. The moving average can be used in several ways. If one is to look at the angle of the moving average and the movement is towards a horizontal direction then the price is said to be ranging not trending. If it is an upward angle then an uptrend is underway.
Crossovers are another means of utilizing moving averages. By plotting both a 200-day as well as a 50-day, you get a buy signal when the 50-day surpasses the 200-day. Conversely, you get a sell signal when the 50-day drops below the 200-day. The time frames can be altered as per your individual requirements. When the price exceeds above a moving average it's a buy signal and the reverse is true for a sell signal. Moving averages are widely used to identify trends and find areas of support & resistance. They are considered a lagging indicator as they are based on past prices. On the flipside, since market rates are more dynamic than the moving average it often tends to give incorrect signals too.
MACD (Moving Average Convergence Divergence):
The MACD is a technical analysis indicator that oscillates above and below zero and follows both trends as well as momentum. An elementary MACD technique is to see on which side of zero the MACD lines is on. If it's above zero for a prolonged period of time then it signals an uptrend whereas if it crosses below zero for a longer time frame then it's a downtrend. Signal line crossovers provide supplementary buy and sell signals. A MACD consists of two lines- a fast line and a slow line. A buy signal is generated when the fast line crosses through and above the slow line. In case of a sell signal, the fast line crosses through and below the slow line.
RSI (Relative Strength Index):
Relative Strength Index is an effective indicator that lets us see the overbought or oversold levels of stock. It is another oscillator but here the fluctuation is between zero and 100 and so it provides some different information than the MACD. When the indicator is above 70, the price is viewed as overbought and due for a correction and if the indicator reaches below 30 then the price is viewed as oversold and due for a bounce. While ordinary overbought and oversold levels can be precise for trend-following investors they may not provide timely signals most of the time.
An option is to buy near oversold conditions in an uptrend and take short trades near overbought conditions in case of a downtrend. Trendlines or a moving average can help interpret the trend direction and in which way to take trend signals. Erroneous signals to buy or sell can be formed when stocks have sharp spikes in price and as in the case of other technical indicators, one should not rely solely on RSI to execute their trading strategy.
On Balance Volume (OBV):
Volume by itself is an invaluable indicator and OBV takes a huge chunk of volume information and collates it into a single one-line indicator. It computes the cumulative buying/selling pressure by adding volume on gainful days and deducting volume on losing days. In theory, volume should corroborate trends. Rising prices should be accompanied by rising OBV and shrinking prices with a falling OBV. If OBV is rising but the price isn't, the latter is likely to follow suit and start increasing. Again, if the price is going up but the OBV is flat-lining or plummeting then the former may be near the top. In another situation, if the price is lowering and the OBV is flat-lining or rising then the price may be nearing the bottom.
Indicators are extremely helpful in decoding price information and signaling trends as well as forewarning you of market reversals online forex trading. They are suitable for all time frames and each indicator can be applied in more ways than specified. It's best to combine indicator strategies, research more on them and test them out before applying them in a live trading environment so that you can find out what works best for you and is ideal for your trading style. Good luck with your forex trading!
Alfa Financials offers a full suite of the best trading platform for beginners and professional traders. View our customized trader platforms, we are the trusted and experienced regulated online forex brokers for Forex, Futures, CFD and Currency Trading.
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Forex is a financial market which is used by many people all over the world in a day to day life. In other words, it is a gathering of people where buyers and sellers are involved. It allows people to make a profit regularly.
