How Forex Chart Patterns Work
Chart patterns form due to the interaction between the buyers and sellers, which generally leads to the various chart patterns that you can see on your chart every single day.
Generally speaking, all chart patterns are looking at the interaction of supply and demand.
In other words, this constant battle between buyers and sellers so to speak gives birth to the many chart patterns you’re probably trading right now.
Let’s move on…
And see how to identify chart patterns
See below:
How to Read Chart Patterns
Forex chart patterns are a lot like those unrealistically perfect Instagram models.
The Instagram images look great but when you start to see the true reality, you’re not that excited anymore.
It’s easy to only see those typical cases where chart patterns worked, but it’s really hard to see when they didn’t work. We’re conditioned to avoid pain so; it’s easy to ignore the instances when a chart pattern didn’t work.
So, in order to be able to trade chart patterns like the pros, you need to have a systematic approach to reading chart patterns. Otherwise, you’ll continue chasing the fake Instagram models. But, when reality hits you, it will hit you where it hurts the most aka your wallet.
Now…
Let’s see how to recognize chart patterns like the pros.
There are really 3 major things that can be applied to any chart pattern:
The first step is to assess the size and quality of the chart pattern relative to surrounding price action
The second step is the location of the chart pattern. Where is the chart pattern located within the trend? Key swing high and swing low, Support and resistance levels, pivot points, etc.
The last step is to assess the potential profit margin. If it doesn’t offer a minimum risk:reward ratio of 1:1, it’s not a good