good day ladies and gentlemen and welcome to our class on chart patterns and their
interpretations for Forex and CFD trading now technical analysis refers to the study of the
financial markets based on price movement it uses the assumption that price reflects all
the information about the asset including market sentiment as well as its perceived value charting
refers to technical analysis that's performed through careful inspection a price data for the
identification of well known patterns that emerge in price for example a head and shoulders channels
triangles or wedges now chart patterns are well documented in technical analysis literature and
are based on the same psychological phenomenon that occur between the buyers and the sellers
of financial instruments in liquid markets pattern formations do not form a trading system but rather
provide an indication of future trends of price as it moves through key psychological barriers
in the form of support and resistance now there are a numerous types of chart patterns all named
according to the shapes that we see on the price graph between the support and resistance lines
the general types of patterns are the ones that we can rely on and there's all types of weird
ones out there there could I saw one who came up with the Batman pattern the other day but
the ones that we rely on are triangles channels wedges head and shoulders we also have patterns
like double bottoms and double tops and triple bottoms and triple tops we have cup and saucer
but we have pennants and flags but they're all based on channels and triangles so let
me pop up a little chart here to help you see it this is what I call market structure now market
structure are some of the patterns that appear in an everyday trading so starting left we see
double bottom we see bull flag bull pennant we see ascending triangle descending wedge triple
top bear flag bear pennant inverted head and shoulders expanding wedge cup and handle and
head and shoulders but these are the most reliable well known supported patterns as you can see on my
price chart here we have a beautiful triangle developing on our charts and triangles are one
of the most reliable chart patterns and from these patterns we can actually they will help
us give us our entry point our exit point our target and where to put our stop loss so you
get everything wrapped up in a pattern now I don't trade from technical indicators I trade
using support and resistance and chart patterns that is my basic whole package for trading you
can also see here this is a beautiful triangle we got our buy zone we got our first target we got
our target a price accumulation you can see our resistance now you can see what our projections
are all of this comes from that triangle and those support and resistance lines on a chart
so whether the your primary and out analysis tool or your secondary chart patterns work very
very well especially in the type of markets that we are trading and they're easy to spot
so like I said the most popular well-known is triangles a triangle is formed between converging
support and resistance lines a negative sloping resistance line indicates resisting level of
profit-taking and more uncertainty about the value of an asset basically what we have is we have
price being pushed into the apex of this formation and we know at some given point price is going to
have to break out of that formation now a lot of people give characteristics to these patterns like
this is a bullish pennant or a bullish flag and it should be tell you a continuation where this
one should be giving you a reversal I don't pay any attention to characteristics I want to see
my chart pattern develop and I'm gonna wait for that breakout whether it breaks up or down is
irrelevant to me that's what I'm waiting for I don't care what I'm saying I need that breakout
then I need to confirm the breakout and then I will use my chart pattern basically my triangle
to figure out my target point my entry what price I should be entering whereas me enter
where I should be putting my stop-loss and how to calculate my risk management so overall in
triangles there are three major types of triangles ascending wedges descending wedges and symmetrical
triangles they're all based on the relationship between the support and resistance of the line
above and below forming a triangle a descending triangle has a horizontal support line and a Verta
and an angular resistance line where at descending triangle ascending tri is the exact opposite and
symmetrical triangle has the two angles of the or the two levels above them forming the triangle the
support and resistance lines coming together at the same degree now once we've realized that we
have a triangle pattern we can use that triangle to set our take profit point our momentum how far
we expect the triangle to move when it breaks out and the standard formula for triangles is we can
expect the momentum of the breakout to carry it the same width of the base of the triangle some
people say one and a half I'm conservative I use one so it's important to note that an ascending
trial can also be found in a downtrend so the combination of the name of the triangle and
the market trend are deceiving now we want to wait for price either to break upward or downward break
out and we want to look for volume to confirm the breakout from that point we can then start setting
our target our stop loss and our take profit points but we also get the same thing in what
we call a rectangle or a channel now rectangles I don't really trade rectangles are more or less
triple tops the triple bottoms and channels are support and resistance both moving downward at the
same degree okay I don't even know if I classify them in my pattern interpretations but they are
well-known and they work extremely well and we have up channels and down channels and then we
go on and we have rectangles so like I said a rectangle just looks to me like double bottoms
and double tops and then we have wedges we have a continuation wedge and a reversal wedge but a
wedge looks just like a triangle except they have different angular different angles on their slopes
so I apply the same thing that I would apply to my triangle and as price is forced closer and closer
to the apex it gets narrower on our we wait for the breakout of that price pattern and then we
have a well known complicated pattern called a head and shoulders a head and shelters how to
describe basically a human being a human being has two shoulders and a head now lots of traders want
to put very strict rules on this but I say it's just like human being some of us have long necks
in high head some does not fire far high forehead some of us have sloping shoulders some of us have
very broad sometimes not round shoulders but it means price will push up and they come back down
and when it comes back down to the same bottom and then moves back off it that's starting to form
what we call the neckline it then pushes up and forms the head okay the head is higher than the
shoulders it comes down to that same neckline and then thumbs up and forms the right-sided shoulder
which is equal distance as the first shoulder and then starts moving back down to the neckline
we don't can't do anything at all until it forms that last leg after it's made the right shoulder
and then when it crosses that neckline and is crossing downward in a standard hand shoulder
tells us the market is shifted and you can go in for a short trade an inverse head and shoulders
is just the opposite and will tell you can go in for a long or a buy trade now the popular head
and shoulder Thunder is essentially a triple top but the center of the triple top the center of our
the top is much higher now people some people all types of calculators gotta be ten percent higher
fifteen percent I say it's a human being as long as you have a two shoulders and a head it can be
cockeyed it can have a short neck a long neck a wide neck it needs to form the shoulders and the
head because in real life trading it gets much harder to pick it out and a head and shoulder if
it takes a lot of time a lot of candles to make its formation but once we have this formation
we can then apply some standard calculations and that is our target price when we get the
breakout is equal to the neckline - the head - the neckline and that's a pretty easy calculation and
this is how it works on all patterns but even in a reverse upside down so once we have our target
we also have our entry point because our entry point would be slightly below the formation of
the bottom shoulder at the bottom or take our our stop-loss point would be the top height of
the of the shoulder so therefore we have our take profit point we have our stop-loss point we have
our entry point and we have everything we need to make a trade then of course the I mentioned
earlier we had multiple tops and bottoms double tops and double bottoms triple tops and triple
bottoms now I don't spend my time dealing with double bottoms and double tops why because
especially in our type trading when were you using fifteen minute charts five minute charts
30 minute charts one hour charts okay and we're using fast freeze but these happen all the time
so they vary if you were to start doing strategy and calculate every time you got a double bot
bottom and double top you never get anywhere now triple is a little bit more reliable because to
form a top and a bottom equal distance over and over and over again starts telling us something
important is happening so it's establishing a support and resistance and bouncing between those
but an important measure of the quality of a pattern it's a trend that precedes it does not
matter whether the trend is bullish or bearish but the consistency and the duration of the initial
trend partly determines the wealth formulas of the pattern in other words if you get a
triangle coming off of a nice uptrend or a nice downtrend that triangle is gonna be a lot more
reliable and the more well-developed the prettier that triangle is the more reliable it would be as
a trading piece of information now the pattern is said to have broken out once it has crossed
either the support or the resistance line if the pattern broke out in the same direction
as the preceding trend it could call be called a continuation pattern if it breaks out in the
opposite direction of the preceding trend it's a reversal pattern so as we can see on
the simple chart here we can then use the same basic formulas the width of the pattern will
give us our target point our entry point would be the height of the breakout villa the candle
when it broke out the stop-loss would be placed below then the preceding swing low we're swing
high depending on which way it's going and we would always wait for volume for confirmation
and we always I always believe in waiting for the third candle formation in the first candle that
breaks out or the first bar that breaks out of your pattern is your breakout candle that will
give you your price to enter the second candle would be my confirmation it needs to break you
stay outside of that pattern because a lot of times they'll break out and go right back
into the key into the triangle or the pattern and then the third candle is my entry candle I
would enter in that third candle as soon as that price hit that entry point and then I would use
that stop-loss my target point and do my trade and you can see you get these same formulas for rising
wedges bearish triangles bearish pennants bullish pennants bullish rectangles and falling wedges
so remember we always want to look at the preceding trend and the well-developed
trend as well as the well how well-developed the pattern is so that's it and that's the basics for
understanding chart patterns so remember technical analysis traders use the term continuation pattern
describe seemingly random price movements that can be interpreted to mean a current larger trend is
likely to continue there are both bullish and bearish continuation patterns any given pattern
is not considered complete until the price is broken out of the pattern and resume the previous
trend or reverse the previous trend there are plenty of false break as an apparent patterns
that form but still lead to a trend reversal also despite their widespread appearance continuation
patterns are still somewhat subjective and this is why I don't ever look at whether they are a
continuation of reversal I only care that we have the pattern and where we the reversal is
deserve reversal break up or did it break down and then we also want to pay attention to our
support and resistance lines above and below that price because we can't set our target price higher
than the next resistance level so in order to do our risk reward ratio if our target price would
be higher than the next resistance level we have to reduce that target price below that resistance
now trading bait breakouts is best on under prevailing market conditions either
up trending or range bound with price action approaching the upper end of a range once a
resistance level has been identified volume should be monitored very closely volume is
your final key to understand that this is a true breakout and not a false breakout
so that's a general introduction to chart patterns then we have all types of webinars
available on our site a YouTube channel and you can see them on trading triangles
a triangle trading strategy the one-two-three strategy and we'll then look at these in live
markets and how we would actually trade them as they occur in the market and what's true what's
the whole strategy would be that we would use to apply to them but thank you very much for
joining us today and subscribe to our YouTube channel and come watch all the videos you like