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The Chart Patterns Basics

When the current price trend is losing momentum, the market usually makes a pullback or enters a period of consolidation. In such market phases are forming swing highs and lows, which could be used for drawing several lines of support or resistance. Combining these lines, we can clearly distinguished chart patterns. They are divided into two main types – continuation and reversal patterns. The chart patterns are pretty simple and easy to use in my opinion.

The main thing to remember about the chart patterns is that they usually indicate that the market is in a period of indecision. Market participants that supported the previous price move have exhausted their funds and need a little break before continue to buy or sell. This break causes the price action that we see as some pattern on the chart of the currency pair. At the same time the opposing camp is not standing still and is preparing for a new battle. The chart patterns represents the preparation of both camps. If the camp that commanded the market so far, prepares better - bars line up in formation for continuation of the trend. The result of the battle determines whether the break of the configuration is real or fake.

I will list the main principles regarding the chart patterns formation. If you can understand and learn to apply them in practice, you will find various chart patterns with no need to memorize them.

  • You should look for chart patterns only if there is previous trend.
  • The larger the chart pattern, the greater the potential for the next price move.
  • Tops are forming faster than bottoms.
  • The flag waves in the opposite direction.
  • Every chart pattern could fail.