The Forex market is more like an ocean. Similar to the waves, the movement of the price is affected by numerous economic and technical factors. Becoming an experienced trader is more like becoming a sailor. To know the nature of the market and factors influencing the price movement, a person has to spend enough time in the market. Because most of those factors are dynamic, and they don’t let the price be at a constant place.
However, there are certain patterns and paths the market seems to follow often. Most of those patterns are the results of some common cause-and-effect conditions. Macro and microeconomics help to create a loop in the different trading instruments and that’s how they make patterns. To trade them, traders should have in-depth knowledge about them.
We have chosen the most common patterns to discuss because traders will face them more during their careers. Let’s begin:
1. Double Top
There is a chance that you are about to watch a double top pattern forming in your chart if you haven’t watched it already. It is of one the most crossed market conditions by the Forex traders.
A double top is a bearish reversal pattern that forms after a prolonged bullish move. The peaks or tops are formed when a currency’s price reaches a particular resistance level.
So, the price rejects that level and starts falling lower. If the price bounces off again after the second hit, it will form a double top. This tells everyone that a strong reversal is imminent as the buying pressure has is near its end. To get more info about exhaustion among buyers and sellers, you may read articles at Saxo.
During a double top, the best time to enter a trade is near the neckline. Because that promises an upward reversal possibility, traders should know that such moments represent a trend reversal formation. So, it will be wise to look for them after a potent bullish movement.
After the second hit, the price will drop, even breaking the support. The new support profundity will match the double top’s height. People should remember these attributes as they will come in handy to set profit targets.
2. Double Bottom
Like the above one, a double bottom is also a reversal trend formation. The only difference is for this one people have to go long rather than short. Usually, the pattern is formed when the price of an asset test a major level in the higher time frame.
Such formations emerge following a prolonged downtrend when two bottoms or valleys come into shape. For this, the price first goes through a downtrend and then forms two valleys as it falls short of the ability to go further below a particular level.
If you watch a picture of this pattern, you will see that the second bottom fails to break the former bottom’s determined support. It signals that the selling pressure has come to an end, and the possibility of a reversal occurs very much likely. But remember, when you trade the reversal, the risk factors should be very low. And never expect that you will always just because the critical neckline is broken.
The price rise beyond the neckline and continues its advancement. It travels almost the same length that it did to make the valleys from the neckline. Only by remembering and understanding this little information, retail traders can easily take the trades. They can also dig out the best possible time to enter the trade to get the most yield.
These double bottoms and the double tops are the most primary and the most common market situations that a trader can predict and make use of to be profited or save already. However, we advise everyone to practice and watch them in action in a demo environment a few times before engaging with them in the real market situation.