Chart Patterns & Trend Action for Forex, CFD and Stock Trading

good evening ladies and gentlemen this is Barry Norman on behalf of 23 traders and welcome to a class on trend patterns and interpretations now understanding trend patterns and how to read while understanding how to read a chart and then identifying trend patterns on the chart can help you make very successful trading decisions now technical analysis refers to the study of financial markets based on price movement it uses the assumption that the price of a share or a security reflects all the information about it that could share including market set of it as well as its perceived value charting refers to technical analysis that is performed through careful inspection of price data for identification of well known patterns that emerge in share prices for example a head and shoulders pattern channels triangles and wedges these are formations that we can see on the charts based on price movement now chart patterns are a well duct or well documented technical analysis literature and are based on the psychological phenomena that occurs between buyers and sellers of financial instruments and liquid markets pattern formations do not form a trading system but rather provide an indication of the future trend of the asset as the price breaks psychological barriers in the form of support and resistance lines so basically chart patterns are just patterns that we that appear in place movement on chart there are numerous types of patterns all names according to the shape that the price graph forms between the support and resistance lines the general types of patterns include triangles chain channels wedges and heads and head and shoulders when these patterns develop its telling the trader that there should be a specific market reaction whether it's a market reaction up or down we don't know but it tells us what is about to happen and then when it does react we tell it tells us what we can then expect of that pattern so the most common chart pattern that traders look for are called triangles triangles come in symmetrical triangles ascending triangles and descending triangles now that sounds like a lot but it's really in the direction of triangles going as you see here on the left a symmetrical triangle the upper and the lower channels are an equal proportion or equal angles in an ascending triangle the support line is horizontal and the trend line is on an angle coming up to it in the opposite in a descending triangle the support line or the resistance line depending which splice is moving is horizontal and the trend angle then or the price channel angle then descends on it but in all three cases what is important is number one to serve recognize the pattern and we can all see triangles pretty easy and recognize the action because what's happening what this is telling you is the price is being forced into this ultimate channel here this ultimate tight squeeze and it's going to have to react when it gets to this point in a certain fashion as either going to break down or it's going to break up so it is the congestion of price movement in the pattern so a triangles form between converging support and resistance lines a negative slope resistant line indicates a reducing level of profit-taking or more uncertainty about the value of a security with a positive sloping support line the price levels are squeezed into a corner once the supportive resistance line is broken pressure that is built up as a result of uncertainty is released and a certain amount of momentum is added to the price change in the direction of the breakout so if it breaks out this way and what we can expect is when it makes the break out for a short period of time it's going to have some momentum behind it so this would tell us when we recognize this pattern we should be trading this asset going up and in a short term not for a long term investment so for binary options it works very well to trade it in the next time frame the next expiry or when it breaks down you would trade it to go down because what is telling you is okay the markets have now broken out it's not telling you the markets not going to come like this go like that and go like that but at the moment it has momentum and because it is pent up momentum that either the Bears of the goals have now gathered the strength to break out for that little next shirt a little while it's going to have some momentum so a breakout is one of the key things that traders look for and to make profit and it's the momentum that is added to the price change in the direction of the breakout now there are specific variations of triangles that can occur namely ascending and descending an ascending triangle has a horizontal resistance line and a descending angle a descending trial has a horizontal support line it's these two right here okay so basically remember one price is moving up okay this would be your resistance line and this would be your support line one prices moving down okay this is your resistance line so as you notice in a downtrend to form the triangle you they're in an uptrend you have the horizontal line here to support the channel with the development of the triangle now an ascending triangle usually occurs as a continuation of a bullish trend while a descending triangle usually occurs as a continuation of a bearish trend you can see that in the price charts on the right hand side so here we have an uptrend a slight uptrend support underneath the uptrend line horizontal support line defending triangle price moving down support line okay ascending triangle we have both them moving in together so basically an ascending triangle has an angular support line and an angular trend line I'm sorry I'm a little problem with my marker tonight but we'll get it off here if it doesn't want to turn off there we go okay using triangles to trade it's important to note that an ascending triangle can also be found in a downtrend so the combination of the name of the triangle and the market trend is deceiving thus the financial asset needs to test the resistance line twice and needs to test the resistance level twice and the asset closing price needs to be higher than the previous closing price in other words the closing price has to follow the rising trend line so in other words when you have the trendline okay to actually be a triangle because you see these shapes forming but they don't fit the rules and if you don't follow the rules then you're just blindly trading some type of a format so let's go through this again okay in an ascending triangle the trend is see this is the financial entities had test the resistance line when price bounced up to this resistance line bounce off of it at least twice okay and the closing price needs to be higher than the previous close so not only does it need to bounce up and test the resistance line it needs to close higher in the next timeframe than it did in the previous time break in other words the closing price has to follow the rising trend so you need twice it to test the resistance line and that the actual center of the triangle when you're forced in here will fit those rules that the close has to be higher than the previous close so once you have it testing this resistance line twice and then the close is this is the higher than the previous close you now have the final formation of your actual triangle okay now when we come to volume when in a spending trial volume usually contracts although there are a few numbers in cases that show volume has not contracted volume is the number of shares or contracts being traded in specific time there's a relationship between the trend and volume when the trend is moving in a specific direction and volume stays savetti it's supporting the trend if volume increases while the trend is happening means more and more traders are jumping into the market and supporting that trend when volume contracts it's telling you that the traders are getting indecisive them when you're getting into the wedge of a triangle the center of a triangle you should be getting this drop in volume because the traders aren't sure where this is going to be where it's going to be so now you have three pieces of information to determine your triangle so the distance between the rising trend line and the resistance that will give us our projection because this is going to give us a projection of where we can expect Christ to move so at this point if we get to breakout okay this breakout should be equal in the distance of the third side of the triangle so for resistance level had a level of 1 and our trend line had a level of 0.5 then our projected value would be 1.5 so we're expecting a 1.5 or an equal distance to what the width of this triangle was in an upward movement if it's a breakout up because from an ascending triangle we are looking for it to regain its traction on the trend line you're not looking to trade going down because you're not looking to trade against the trend now besides triangles you could also get the formation of what's called channels and rectangles a rectangle is exactly what it sees is a channel that develops when your support line is running horizontal and you have range trading so your trend line is also running out a horizontal a channel is formed between parallel support and resistance lines this pattern can indicate this pattern usually indicates a relatively strong trend up or down with the price stay within the lines until a breakout a breakout from a channel indicates either a reversal in the trend or a change in the slope of the current trend so you can get a breakout going up okay and when you get that breakout if this one is a reversal of the trend because you see prices moving in a downtrend now these tops and bottoms are the peaks and valleys of price movement and the support and resistance line or draw are gathered by fighting price points in common and when you have this breakout it's most likely telling you there's a reversal happening channel is the same except I mean rec times name except it is on a two horizontal lines okay now we have up channels and down channels similar to a channel okay and then we have breakout rectangles of pattern formed between horizontal support and resistance lines similar to a channel rectangles and channels are sometimes referred to as flags and pennants okay depending on the slope of the initial trend and the slope of the breakout a flag would be defined as a bullish continuation channel down there's a lot of mouthful there a bullish continuation channel down or a bearish continuation channel up a pennant would be defined as a bullish continuation triangle or a fair continuation triangle only called a pennant because they look the same they're forming a pennant like you know you you know you you wave it a sports game then we go into wedges wedges are similar to triangles in that these patterns are formed between converging support and resistance lines however where the support resistance lines in a triangle have one positive and one negative slope the support M you define a wedge would both have a positive and a negative slope wedges with positive slopes are called rising wedges and ones with negative slopes are called following wedges okay now all of this gets to be a lot to remember but the fact is they're all except for rectangles and for slopes rectangles and channels all of them was a kind of form triangles form triangles breakouts are breakouts so whether it's a wedge or it's actually ascending or descending they do have slightly different variations they have slightly different rules you know about them but visually they all kind of look the same and anytime you see price congesting into one of these patterns it's telling you something and a wedge and a triangle tell you basically the same thing the most common wedges are found as breakouts in the opposite direction of the which that is bearish breakouts in a rising wedge and bullish breakouts in a falling wedge so here we have a following wedge so we're looking for a bullish breakout here we have a rising wedge and we're looking for bearish when we get the breakout if you notice okay we have price moving in towards a downtrend we form the wedge and we have the breakout of the wedge and then price moves into an uptrend here we have an uptrend price breaks out to the bottom and it begins the beginnings of a downtrend then we have the head and shoulders head and shoulders a lot more distinct head and shoulders is a very important pattern when it develops and it takes time to develop and a head and shoulders is exactly what it sounds like it is two shoulders of equal height with a head formed in between this is the head these are the shoulders but what you would see person is price moving up to the head the shoulder coming back down to what we actually in this case it is a support line but it's also called what we call the neck line it's bouncing off of that support line and coming back up here higher than the shoulder coming back down to that resistance line that support line bouncing off of it at forming the next shoulder when it comes back down to that resistance line is telling us where give out to get a break out down and this is historically based on the psychology of the market you actually have the exact inverted head and shoulders which occurs in the opposite way because this starts from an uptrend and then moves in this new pattern develops and then it moves into a downtrend this starts the uppers away with a downtrend but forms if you turn it upside down it forms the same thing out a chart and I don't know what's wrong with the system here but it just doesn't seem to want to turn off my markers the popular head and shoulder Center is essentially a triple top except that D all of the peaks hitting the same resistance level the head Peaks slightly higher than the shoulders some investors have specific beliefs about the amount of the bearish fullback that should occur between the tops from the bottom and inverse head and shoulders is similar to that except it's in the reverse now there is a set of rules that go with a and shoulder and it will help you find your target okay and this is based on your neckline your head the top of your head where it where it actually peaked the breech and where your shoulders we get the calculation is your target price is the neckline which is the resistance line - okay - the head - the neck so if we were to say let's give the neckline here a rating of one let's say the headline is - but it would actually be the price you would look for the actual price that this was formed at the head interpreters form you would actually look at the actual price to the next form and what you would do is you would take the neckline in this case we assigned and reset is number one or one dollar or whatever you want to call it and so is one - the head in this case we said the head was - - the next line which we already signed the number one and this will give us the target price moving down so we have 1 - 2 - 1 so 2 minus 1 is 1 1 minus 1 gives us 0 and exact different down as would be 0 so this was - this was 1 on a graph this would have been 0 and this becomes our target price or equal to the distance here of where we're expecting that asset to fall - so the target price is when it breaks out is where you would set your target rate it could fall much below that but this is where we would set our target based on the formula for using this to make a trading decision so if this was gold and gold the neckline of gold was 1200 happen to be at $1,200 it peaked is the head at $1,250 okay we would then set our target at what our target would be T equals twelve hundred minus twelve hundred and fifty minus twelve hundred which would give us 1150 so our target of this would goal would have been two for gold to fall down to 1150 in its trend and this is target that we're looking forward to set our take profit point as we enter we would enter a price here a trade here after we got the confirming candle and we would take it to that target at 11:50 so we could pick up well you wouldn't get in exactly 1200 to say you got in 1175 eleven eighty and you traded it down to 1150 you would pick up thirty thirty dollars profit per ounce of gold same calculations happen in a inverse trend except your de trades going up same numbers it's just reversed so we also have a multiple tops chart pattern occurs in an ongoing uptrend and indicates that the trend is nearing exhaustion if the security repeatedly has difficulty surpassing us excuse me a certain price point a multiple top pattern will exist and the bullish trend will the bullish trend progresses okay so here we have what's a double top so prices moving up in an uptrend hits this resistance line bounces also if it comes off to the support line comes off to the resistance lines goes back up the support line and then falls back out and break the rule so if they look just like w's they're double tops and we also go on to the next set which is a triple top and the calculations are done exactly the same if your target is s which is your support line which would be the bottom of seeded the triple the double top here up down up down so our target would be T equals s the support level so say for gold this is 1200 and this is an actual number in reality because the number that appeared on the chart the top would say was a 1260 and then you just do your calculations and this is where you set your target price moving down it's just the opposite if you're coming off of a downtrend and the calculations are just in the opposite direction okay then you go to the very very important one the more complicated these are the less times they appear and the more valid they are when they do appear and that's a triple top and a triple bottom this is when it hits those support and resistance 3 times the W or say it's two V's or W plus a V so it's the same exact thing but when that happens a third time and then you have a breakout that breakout is very very vital and very important and you still have the same formula okay it's in this case when you have a triple is the target is the support line - the resistance line so an important measure of the quality of a pattern is the trend that precedes it it does not matter where the trend is bullish or bearish but the consistency and the duration of the initial trend partly determines the well formas of the pattern in other words if it's a short term uptrend and it's not very steep in this pattern exists you might get the breakout but it's not going to be about if you have a very strong uptrend and it's been continuing for quite a while the more likely these patterns will be very accurate in their decision so in other words here you can see the strong initial trend it was moving up then a down form and formed the channel I hear you had a slightly weak uptrend and it just moved into this channel but it also tells you that even though it breaks out it might even not not have the momentum to go that far or it might not even have enough momentum to carry it forward so the pattern is said to have broke it out once it is either across the support or the resistance line if the pattern broke out in the same direction as the preceding trend it is called a continuation pattern so in other words if the price breaks out if you're in an uptrend and the price breaks out towards up it is considered a continuation if it breaks out and goes downward or the opposite direction of the trend it is then considered a reversal pattern so anothers markets moving up the breakout is up continuation market is moving up breakout is down reversal same thing in the opposite direction if it's a downtrend moving into these now there are six simple format you have falling wedges bullish triangles bullish pennants rising wedges bullish triangles and bearish tenants when you have these correctly and you know in binary options you don't set your stop loss and take profit points but when you trade the simplified CFD and Forex on our platform you do and this will give you your a specific entry level it will tell you where to take your stop loss and where to set your profit levels when you are trading it each one of these helps you make those determinations so you have retracement reversals continuations and breakouts now also we have so we talked about continuations and reversals okay as they are how the pattern moves in a chart a pattern is just simply a series of data that repeats in a recognizable way we don't want to over complicate it we're just looking for something we can recognize it can be identified in the history of an asset being evaluated or other assets with similar characteristics patterns often include the study of volume as well as price because volume as I said to you earlier should support the movement if you see a trend moving up or down if the volume is consistent with that trend and then you have a shift in volume either strong or volume or lower volume where volume Falls the means the market traders are leaving the market when volume increases they're supporting that move and it's important to be able to look at that together now the other thing is a very good way to trade these patterns combined with Fibonacci retracements the fibonacci retracement will help you learn what level these prices should bounce back to where there's a 37 whether at 31 or 23 or 61 a 50% retracement level to help you predict levels because retracements are very very important so what exactly a retracement they are price reversals that are produced temporarily within a larger movement there are most important features they do not last for long before price presumes it original direction you need to know how to distinguish price retraces from the more serious and permanent reversals so like you see here in this chart we had price moving up a steady uptrend we had to swing low we had a reversal we had a retracement and all it means is it was retracing where it had been okay it hit a level here and then reversed and went back into its previous uptrend this can be very good trading here this could be a very good entry point here and you can combine these with specific tools especially Fibonacci levels to determine where these will be we travel you should expect to have the recovery and the reaction but you have to be able to determine what is a retracement and what is a trend reversal because they are quite different trend reversal means you're moving into a new downtrend the buyers have now been exhausted the sellers are taking control of the market and they're pushing price down a retracement is just the buyers or easing battle we a little bit they haven't lost control of the markets so retraces are temporary price reversals that take place within a larger trend the key here is that the price reversals are temporary and do not indicate a change in the larger trend the importance of recognizing retracement it is important to know how to distinguish a retracement from reversal there are several key differences between the two that you should take into account when classifying a price movement now Fibonacci retracement help you determine if you actually have a retracement and where these are no Fibonacci numbers we're developed by a mathematician in the 12th century but they can be put on a chart very easy and the significant levels are 61 850 and 38.2 and these are measurements of where price would retrace itself based on the length of the previous trend so in other words if price was in an uptrend and the uptrend started here and ended here your retracement levels would be here here here and here this is 61.8% of the previous move this is 50% of the previous move this is 38.2 and this is an important moment is the twenty three six level of the prior previous move so if we're in a retracement we would expect price to come down here and then retrace if it doesn't come here one of these levels is where we would expect it to retrace because like I said the Bears have not taken domination of the market the Bulls are just resting here okay and that is the biggest difference because it is a short-term movement within a longer-term trend so Fibonacci replacements were designed to forecast the scope of Corrections which friends are prevalent the most common retracement levels can be achieved at 61 850 and 38.2 now next month we have a class on Fibonacci retracement and we'll teach you how to put them on chart but this is the why do they work and what why is it important distinguish between retracements and reversals this is because traders have to contend with difficult decisions whatever reversals occur for it is should they hold their position open but the risk of a serious luscus and prices moving against them alternatively when it's just a retracement you'd want to hold on to your position because it's going to it's going to retrace and come back to where it was ultimately they could sell at the first sign of a drop and then rebuy at a more favorable discount however then they risk a chance of losing larger gains if the price should suddenly surge back in its original direction so common technical indicators we use to monitor retracement or Fibonacci retracements trend lines and support and resistance lines there are several key differences in distinguishing a temporary price change and a summary trace retracement from a long-term trend reversal reversals are defined as a change in the overall trend of the price when it uptrend switches to a downtrend a reversal occurs when a downtrend switchin an uptrend a reversal occurs so these are the difference these are who's controlling the market and where price should go and you have to learn how to see these and you need to see these with taking other indicators in mind at the same time so whatever a price reverses most traders and investors are faced with a tough decision do they hold do they sell do they sell and rebuy so they have to properly identify these so you can have in an overall trend several retracement okay but when price hits a swing high and then turns around and moves down it's not a retracement then it becomes a downtrend so you have to be able to identify what the difference is so a triangle help you identify because remember you have a triangle breakout that's a continuation and a triangle breakout that's a reversal okay and these patterns will help you determine what to expect and on that note we're going to end this class and we're going to pick up next month on we have a class on support and resistance so we can learn how to judge these breakouts and the levels we also have a class from Fibonacci next month and next month we have a whole new class on trading simplified forex on the binary options platform and we have a one-hour class next month in trading ladder and using ladder trading with patterns and breakouts can be very beneficial to making a lot of profit using ladders to determine where price should go to so have a very good night now thank you very much for joining us and thank you for being part of the 23 traders family have a good evening now

Channel: Barry Norman's Investors Education Webinars

Views: 677,571

Rating: 4.9215326 out of 5

Keywords: finance, investing, financial education, analysis, forex. cfd, trading, charts, trends, forex, cfd, stocks, make money, strategies, technical analysis, barry norman

Id: dhE7Sn42LDg

Length: 38min 5sec (2285 seconds)

Published: Mon Feb 13 2017