Technical analysis tends to predominate among those who start in Forex because it is the easiest way to simplify the price movements. It is this rule that patterns in Forex, we looked last week, facilitated the interpretation of key events in the course of price movement.
After studying the symmetrical triangles, ascending and descending triangles, let us now look at the double-back and triple-back, double-and triple-tops tops, cup and handle, head and shoulders and inverted head and shoulders.
At first glance, might seem an anatomy class, but not quite. These are funny names that are given to this type of patterns, but in practice if we observe these patterns immediately realized its significance. Patterns are also common and much appreciated by those who love Technical Analysis.
In the form of lists, we will examine:
- Double top
- Double bottom
- Triple top and triple bottom
- Cups with handles
- Cups with handles reversed
- Head and Shoulders
- Inverted Head and Shoulders
Double and triple top
A double top is formed after the existence of a large upward movement, ie a tendency buyer. The tops are the values where the price is a resistance level and fails to break (all in psychological terms).
Then, after reaching this level the price will drop slightly next to a support.
But then again test the resistance and if not able to overcome, fall and test again the small support.
If support breaks, we say that has formed a double top.
Strategic option, open a position below a seller and always below this support. Do not open the support value. Support also other indicators such as Stochastics, Parabolic SAR and the other trend indicators like moving averages to confirm this move.
In the case of triple top, the reasoning is the same. But after the second ring in support buyers still have "strength" and can again lead the price to test the resistance, and if not able to overcome, returning to base, the support, and with some probability this support is broken and so can open a short position.
Since we never know when there is a double top or when there will be a triple top, and because you never know if the market will also have power to revive and attain higher maximum resistance must always leave always sell orders below this short bracket. This support is often referred to as "neck line" due to another pattern, the inverted Head and Shoulders.
Double and triple fund
The analogy is the same, except that in turn, want to open long positions and not short, and it happens after a strong downward trend.
In the graph we see that they are formed as two funds because the price was not able to go below, because there was a strong resistance in the area. This is a sign that the selling pressure may be ending and that a reversal may happen. In this situation we put a buy order above the neckline, which is above that of short-term resistance.
The same would apply to a triple bottom, we would have only three funds, namely, three rings in great medium.
Cup and handle
The "cup and handle" well known resembles a cup with handle. That is, the graph will have a cup shaped like a triangle, and then also a wing triangle but smaller. The wing must have a trading volume smaller (if visible on actions).
When a Forex pair is in this situation seems to be testing a resistance zone, but cannot overcome, then there is a relatively strong selling pressure, until it is a base. So that underlies the price is available to retest this resistance, but when the tests cannot overcome because there is some selling pressure.
Except that this pressure is already low, then the price does not go down so much as the first time, and as such, the resistance tests again with a strong volume, with a strong buying pressure, get beyond it and reach new highs.
The case of the inverted-cup-and-handle, is curious, because in the end it will look like you had a full cup of tea or coffee and the burning reversed the market altogether.
The inverted cup with handle are actually very "profitable" because they are perhaps the hardest to find, but that reveal market sentiment (in the sense that we are not immediately obvious that this is a cup-and-handle reversed, but there are thousands of them in front of us and not repaired, hence the difficulty to find them).
In this case, reached a stand but cannot break, then there is a very strong recovery of the market with an increased tendency buyer, but this is short lived clerk returns again and the pressure reaching back support but without being able to break the.
Again there is a return of buying pressure and there are very minor climbs. However, selling pressure is stronger and break up even the support and falls continue.
Head and shoulders - head and shoulders reversed
We looked up at the figure funniest market and occur frequently in various Forex pairs and multiple time periods. It is clear that the figures with larger periods of time have better validation, but the heads and shoulders always have a high probability of success whatever period of time (timeframe).
The Head and Shoulders is another reversal pattern:
- It consists of a relative maximum, the left shoulder, then a higher maximum, the head, and finally, another relative maximum lower than the head, the right shoulder;
- Plot the neck line connecting the minimum relative, the minimum generated by the areas between the shoulders and head;
- Sometimes we have bodies "crooked", when the tilt of the neck line is negative, this is an excellent situation for negotiation, but on the other hand, if the neck line has a positive slope, is more likely to fail.
We then try to open a short position below the neck line. It is possible to calculate a take profit, or the target, the distance between the reproducing head and neck below the neck. In this case for example could close 50% of its position and place a stop-loss above the neck area. There are several setups that you can try and give you the freedom to do so.
The same thing happens in reverse Head and Shoulders, which is formed by a relative minimum, the left shoulder, then a lower minimum head, and finally another higher relative minimum of the head, right shoulder.
Plot the neck line connecting the relative maxima, ie, the maximum generated by the areas between the shoulders and the head. Sometimes we also bent bodies, namely when the slope of the neck is positive, this is an excellent location for trading, but on the other hand, if the neckline has a negative slope, there is a greater probability of failure.
Take note that all the examples happen many times, but you must keep in mind that the situations are not 100% guaranteed or 50%, so place a stop-loss to prevent losses.
I have helped on some forms of market standards for operating in different frames and pairs.