ForexBees

Symmetrical Triangles:

Symmetrical triangles are very common forex chart patterns. These represent a period of indecision. Symmetrical triangles are usually considered as a continuation of overall trend. A symmetrical triangle should contain at least two lower highs and two higher lows. When you see these higher lows and lower highs and join them a symmetrical triangle takes shape. Triangles represent a battle between buyers & sellers. This means that either buyers or sellers are not pushing the price far enough to make a clear trend.

Symmetrical triangles tend to breakout in the direction of the previous trend.

Check the following picture. It is showing higher lows and lower highs. When joined those lower highs and higher lows it formed a symmetrical triangle.

Forex Symmetrical Triangle

Trading Entry: Enter the trade when the top trend line or the bottom trend line is broken with a strong candlestick. A strong candlestick means a candlestick which has a large body with relatively small tails or no tails at all. Check the following picture. In the following picture the top trend line is broken with a strong candlestick. It does not have long tails compared to the body of the candlestick. So its a good opportunity to enter a long trade.

symmetrical triangle broken with a strong candlestick

If the candlestick has a long tail compared to the body of the candlestick and if the tail and not the body of the candlestick that break the top trend line or the bottom trend line then do not enter the trade. For example check the following picture. In the following picture a symmetrical triangle is shown and the symmetrical triangle top trend line is broken by the tail of the candlestick and not the body of the candlestick. Moreover the candlestick has a long tail compared to the body of the candlestick. So its not a good opportunity to enter the trade.

symmetrical triangle broken with a tail and not with the candlestick body

Take profit and stop loss:

Measure the base of the triangle. The price difference should be the same amount as the breakout.

We measure the base of the triangle by taking the price difference between the highest high and the lowest low once the triangle has started to form. Once breakout occurs enter trade. Set stop inside triangle. Set target (limit) for less than amount of the triangle base. Monitor trade until exit price is achieved. Breakouts from triangles tend to occur very quickly.

Check the following picture. In the following picture the difference between the highest high and the lowest low is 60 pips. So the potential break out will be 60 pips. Once the top trend line is broken by the candlestick, it penetrated 10 pips upwards. So the profit should be 50 more pips. But always use some less number of pips than the actual target. Since in the above example there are 50 pips more for profit put the take profit level 5 pips less than the original that means 45 pips. Set stop loss around 5 to 10 pips below the top trend line with in the triangle.

Take profit and stop loss

The following are some of the real time examples of the symmetrical triangles formed on different currency pairs price charts.

EURUSD Hourly Chart Symmetrical Triangle:

EURUSD hourly chart symmetrical triangle

NZDUSD four hour chart symmetrical triangle:

NZDUSD four hour chart symmetrical triangle

USDCAD hourly chart symmetrical triangle:

USDCAD hourly chart symmetrical triangle

Forex Rectangle Patterns:

A forex rectangle pattern is technical analysis pattern consisting of horizontal lines called support and resistance lines. Rectangles are used for channels or Breakout Trades. Generally forex rectangle patterns are considered as continuation patterns. To say a pattern as a rectangle pattern, it should have at least four pivot points two at the top resistance line and two at the bottom support line. It is considered a period of indecision. Confirm top and bottom with four pivot points. Two on top, two on bottom. Some times rectangles may form with more than four pivot points. For example you may find a rectangle with 6 pivot points, three at the top and three at the bottom. This is ok. But a rectangle should have have at least four points with two at the top and two at the bottom.

The following is an example picture of how a rectangle pattern looks like in a down trend. It is drawn using four pivot points, two at the top resistance line and two at the bottom resistance line. If any of these resistance lines broken in any direction it’s a good opportunity to enter the trade in that direction. Since rectangles are considered as continuation trend patterns I showed that it is breaking in the downward direction. It may not be true always. Sometimes it may break the rectangle in the reverse direction also.

Forex Rectangle Pattern

Trading Entry:

Enter the trade when the support or resistance line is broken with a strong candlestick. A strong candlestick means a candlestick which has a large body with relatively small tails or no tails at all. Check the following picture. In the following picture the support line is broken with a strong candlestick. It does not have long tails compared to the body of the candlestick. So its a good opportunity to enter a short trade.

Forex rectangle broken with a strong candle stick

If the candlestick has a long tail compared to the body of the candlestick and if its the tail and not the body of the candlestick that broke the support or resistance line then do not enter the trade. For example check the following picture. In the following picture a rectangle is showing and the rectangle is broken by the tail of the candlestick and not the body of the candlestick. Moreover the candlestick has a long tail compared to the body of the candlestick. So its not a good opportunity to enter the trade.

Forex rectangle broken by the tail of the candlestick and not the body

So whenever the support or resistance line is broken with a strong candlestick wait for the candlestick to the completed. When the candlestick completed enter the trade

Take profit and stop loss levels:

Measure the difference between top & bottom that means the resistance and support lines. The difference is expected to be roughly the same as the potential breakout. When breakout occurs enter into trade. Set stops inside the rectangle & Set target (limit) for less than the difference between top and bottom rectangle. Remember target price is measured from rectangle. Monitor the trade until exit price is achieved.

Check the following picture. In the following picture the difference between the resistance and support line is 40 pips. So the potential break out will be 40 pips. Once the support line is broken by the candlestick penetrated 10 pips downward. So the profit should be 30 pips more. But always use some less number of pips than the actual target. Since in the above example there are 30 pips more for profit put the take profit level 5 pips less than the original that means 25 pips. Set stop loss around 5 to 10 pips above the support line with in the rectangle.

Stop loss and take profit levels

If the market tests the original support or resistance levels of the rectangle it can be an opportunity to reenter the original trade. That means sometimes the price charts my retrace back to the support line or resistance line then its another good opportunity to enter the trading.

What are chart formations?

Chart formations are naturally occurring patterns in forex trading. These patterns indicate future breakouts in forex trading. If you can identify these patterns you can much better benefit in forex trading as you can identify the break outs. The entire goal is to spot big price movements before they happen so that you can take advantage of them. Using these chart formations gives us a very good opportunity to identify these big price movements when they are about to happen.

There are many patterns in technical analysis like candlesticks techniques etc. But here I am going to deal with the traditional price vs time charts that can be visually identified on price charts.

Why do chart formations work?

Chart formations are one of the simplest technical analysis that anyone can do. Technical analysis makes the assumption that history repeats itself. They have been in practice for a long time and most of the traders follow them. Not only for forex, these chart formations also work for other things like stocks, commodities etc. Most of the traders always look for these chart formations and whenever a formation is there traders will try to enter trading so these chart formations always work.

Why should I use chart formations?

If you are new to forex and if you don’t know much about technical analysis chart formations are one of the simplest technical analysis you can do as it is very easy to understand and apply them. Even if you are an advanced trader then also you can use it as this is very powerful technical analysis. Chart formations offer very simple approach to find trading opportunities. As you can directly spot the formations just by looking at the charts they are very powerful.

The following is the four hour chart of AUDJPY currency pair as of Feb. 18th, around 2 AM EST. If you observe the chart you can see that it was going in an ascending wedge. Now it is also forming a double tops. If the bottom trend line for the ascending wedge is broken with a strong candlestick it will be a good opportunity for a short trade. Moreover if it also crosses the neck line of the double tops it would be a very potential short trade opportunity. What do you guys say? Check the following picture.

AUDJPY Four Hour Chart:

audjpy ascending wedge and double tops

The following is the four hour chart of AUDCHF as of Feb. 19th, around 12 AM EST. If you observe the chart you can see that it is going in an ascending wedge. It looks like it is breaking the bottom trend line of the wedge. If there is a strong candlestick formed breaking the bottom trend line of the ascending wedge it’s a good opportunity to enter a sell trade. Moreover the CCI and Stochastics haven’t reached the oversold region yet. I will observe the hourly chart and if a strong bearish candlestick is formed breaking the bottom trend line it’s a good opportunity to enter a sell trade. What do you guys say?

Check the following pictures of AUDCHF currency pair.

AUDCHF Four Hour Chart:

AUDCHF Four Hour Chart

AUDCHF Hourly Chart:

AUDCHF Hourly Chart

The following is the four hour chart of EURUSD currency pair as of Feb. 18 around 11 PM EST. If you observe the chart you can see that it was going in a channel for some time and the bottom trend line of the channel was broken around 4 hours back. So I am expecting it will follow that and go down more. But right now Asian market is going. So mostly there is a chance for reversal for some time and again it will follow the downward direction. So observe the hourly chart. In the hourly chart I am using the stochastics and CCI. In the hourly chart the stochastics and the CCI were in oversold region and now trying to come above the oversold region. So its better to wait until it comes to the overbought region or the stochstics moving averages cross again. I think the following are the three ways we can enter a sell trade on this.

1) CCI reaches the overbought region and then try to cross below the overbought region, its a good opportunity to enter the trade.

2) Stochastics reaches the overbought region and then try to cross below the overbought region, its a good opportunity to enter the trade.

3) When the stochastics moving averages cross over its a good opportunity to enter a sell trade.

4) when the price chart reaches the trend line its a good opportunity to enter the trade but we have to use a good stop loss.

Check the following pictures of EURUSD currency pair for four hour and hourly charts.

EURUSD Four Hour Chart:

eurusd four hour channel broken

EURUSD hourly chart:

eurusd hourly chart - observe stochastics and CCI

The following is the AUDUSD four hour chart as of Feb. 18th around 1AM. If you observe the chart you can see that it is going in a channel. The channel bottom trend line was broken. So I have entered a sell trade. But I observed it in the hourly chart when it retraced back to the trend line I entered the trade. Lets see what happens. I will update it in the comments section.

AUDUSD four hour chart:

audusd trend line broken in four hour chart

AUDUSD hourly chart:

Trade entered in audusd hourly chart when it retraced back to the trend line

The following is the hourly chart of GBPUSD hourly chart as of Feb. 16th, around 2 AM EST. I have drawn two trend line and it formed a symmetrical triangle. It looks like the top trend line of the symmetrical triangle is breaking. There is still 5 more mins. for this candlestick to be completed. After 5 mins., if the candlestick is still a strong bullish candlestick its a good opportunity to enter a long trade. What do you guys say? Check the following picture.

Looks like gbpusd symmetrical triangle breaking

The following is the hourly chart of USDJPY as of FEB 16th., around 1 AM. There is around 5 Min. more to complete the hourly candlestick. If you observe the chart it looks like the channel is breaking in the downward direction. After the completion of this hour if the candlestick is still a strong candlestick it’s a good opportunity to enter a short trade. What do you guys say? Check the following picture.

usdjpy looks like channel is breaking

The following is the GBPUSD hourly chart as of FEB. 15th, around 3PM EST. I have drawn two trend lines one at the top and another at the bottom and you can see that it has formed a symmetrical triangle. The triangle might be broken at any time. If the triangle is broken with a strong candlestick its a good opportunity to enter the trade. Also observe the four hour chart and you can clearly see the symmetrical triangle formation. Check the following pictures.

GBPUSD Hourly Chart:

GBPUSD hourly chart

GBPUSD Four Hour Chart:

GBPUSD four hour chart