Profitable Forex Trading - Identifying Forex Price Patterns
James Woolley
June 22, 2009
When you first start trading forex it can be quite daunting trying to figure out how you can actually come up with your own profitable trading method. However the best way is to study technical analysis, and more specifically to create a trading strategy that profits from one or more of the three most common forex price patterns.
The first of these price patterns is the initial breakout. When the price breaks out of an established trading range, it usually marks the beginning of a new trend, particularly on the longer time frames. So one way you can profit from this price pattern is to plot the high and low points of the current trading range and then wait for the price to break through one of these points before entering a position.
You may also like to use some kind of volatility indicator such as the ADX indicator, for instance, because when one of these indicators starts to rise, it means that there is some momentum behind the breakout. Therefore it's well worth entering a trade in the same direction as the breakout.
Another forex price pattern that you may like to trade is the pull-back that almost inevitably occurs during a particular trend. It's very rare for the price to move up or down in a straight line because in most cases there will be at least one pull-back where traders take some of their profits off the table.
The key is to wait and see if the trend continues after this period of profit taking is over. If it does you can simply jump on board and enter a position in the same direction as the initial price trend.
Finally the one other price pattern that can generate some decent profits is the price reversal that occurs at the end of a particular trend. This pattern is slightly harder to trade because you are speculating that the existing trend is actually over, which in many cases will turn out to be incorrect.
However you can increase your chances of being right by using a few technical indicators for guidance. For instance if the parabolic SAR and supertrend indicators switch from bullish to bearish, and a short term moving average crosses below a longer term moving average, for instance, then this is a high probability set-up because all the indicators confirm that a price reversal is under way.
So the point I want to get across is that whenever your are creating a trading strategy, you should always focus on one or more of these three price patterns because they all occur regularly throughout the day on a whole variety of different time frames.
Click here to read a full Forex Income Engine 2.0 review and to discover lots more forex strategies that you can use to trade the markets.
The first of these price patterns is the initial breakout. When the price breaks out of an established trading range, it usually marks the beginning of a new trend, particularly on the longer time frames. So one way you can profit from this price pattern is to plot the high and low points of the current trading range and then wait for the price to break through one of these points before entering a position.
You may also like to use some kind of volatility indicator such as the ADX indicator, for instance, because when one of these indicators starts to rise, it means that there is some momentum behind the breakout. Therefore it's well worth entering a trade in the same direction as the breakout.
Another forex price pattern that you may like to trade is the pull-back that almost inevitably occurs during a particular trend. It's very rare for the price to move up or down in a straight line because in most cases there will be at least one pull-back where traders take some of their profits off the table.
The key is to wait and see if the trend continues after this period of profit taking is over. If it does you can simply jump on board and enter a position in the same direction as the initial price trend.
Finally the one other price pattern that can generate some decent profits is the price reversal that occurs at the end of a particular trend. This pattern is slightly harder to trade because you are speculating that the existing trend is actually over, which in many cases will turn out to be incorrect.
However you can increase your chances of being right by using a few technical indicators for guidance. For instance if the parabolic SAR and supertrend indicators switch from bullish to bearish, and a short term moving average crosses below a longer term moving average, for instance, then this is a high probability set-up because all the indicators confirm that a price reversal is under way.
So the point I want to get across is that whenever your are creating a trading strategy, you should always focus on one or more of these three price patterns because they all occur regularly throughout the day on a whole variety of different time frames.
Click here to read a full Forex Income Engine 2.0 review and to discover lots more forex strategies that you can use to trade the markets.