Recognizing Forex Trading Market Patterns
In order to be successful trading on the Forex market, it is a good idea to develop a keen eye for the patterns that can come up in the market’s reports. At the close of each day, there is a graph produced of each currency’s activity throughout the day. The graph charts each moment of the day, and instead of drawing a line of best fit (average of the overall trend of the day’s activity) the graph is drawn directly following the points that are drawn into the graph. The result is an accurate portrait of exactly what the currency did during the day. From this type of graph, it’s possible to see if there was a net gain or net loss over the course of the day, but it is also possible to see exactly what the currency did all day.
If there was an initial dip but an overall gain, this graph shows one both the dip and the gain over the course of the day. The graph shows at what time of the day the currency went up and at what time it went down; the result can be even more efficient trading if one learns how to read the graphs and identify patterns in them. Identifying a pattern that repeats itself day after day over a period of time can help a trader to know exactly where to put their money and exactly when to invest and when to sell out. The bottom line is that Forex trading is more of a science than going with one’s gut. Below, some of the more common patterns are named and discussed.
One possible pattern is called the shooting star. In this pattern, the morning open is higher than the previous day’s closing value. Over the course of the day, the currency gains value at first and jumps high above its initial value. However, before the end of the day, the vast gains have been eliminated as the currency plummets to close lower than it opened. Seeing this pattern repeatedly can mean that a trader can buy and wait until the currency has gained a lot of value, and hopefully sell it again before it has gone down in value. The exactitude with which one studies the Forex graphs could mean that traders could map out just how much the currency goes up as part of its upward swing, and sell as the currency reaches its apex, not before and not after. This type of pattern could mean big money if one has learned to analyze the pattern properly.
Another type of common pattern is the hammer. This type of pattern occurs when the currency sees a significant decline in value during the day, but before the close of business powers itself up so as to close somewhere near the opening price. This may not sound as much like a goldmine pattern as the shooting star was, but in Forex trading, what you save is what you earn. Recognizing the hammer pattern could mean the difference between breaking even and losing out. If a currency starts to drop during the day, a lot of amateur traders sell as they watch the currency going down. They figure they’ll cut their losses and sell before they’ve lost too much. Then, after they’ve sold out at a net loss, they watch the currency regain its value and jump back up.
Recognizing these patterns can mean the difference between gaining a lot of money or a little and the difference between losing money and breaking even. Either way, recognizing the patterns means one is much more likely to do well in the Forex market.
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