Micro-surgery

What are 9 ticks for the huge volatility of crude oil? Almost nothing. That's why it is relatively easy to catch them. No need to know what did the Iranians  in Ormuz. No need to anticipate and get the entire price movement (there are MANY, anyway, everyday). All I need is to cash in some ticks here and there, based solely on momentum. Today I had these 9 and 10 more a little bit earlier. It is relatively easy if you are not greedy. Like doing micro-surgery on an elephant.

Rusty

Back to trading after a loong time. I partially lost my reflexes and had to cope with fear. The fear was in the first and third trades when i closed them early. Fourth trade came close to my stop by 1 pip and then resumed up, I was lucky.

Common Chart Patterns Found on The Spot Forex

Introduction

This article shows examples of common consolidation and retracement patterns that occur frequently on the spot forex. When currency pairs are not moving they are consolidating.  When they consolidate they exhibit behavior patterns that occur frequently and are easily recognizable. Typically, currency pairs move in the London and US trading session then they consolidate after the first few hours of the US session. This pattern is repeated day after day. Currency pairs move, then they consolidate, then they move, then they consolidate and the pattern keeps repeating. The consolidation and retracement chart patterns will be discussed and illustrated in this article.

Conventional Chart Patterns

Some conventional chart patterns occur frequently on the spot forex. Forex traders need to focus on recognizing pennants, flags, double tops, double bottoms, ascending and descending wedges, and oscillations. These chart patterns are easy to recognize and occur frequently on the spot forex, they can also help to confirm your trend direction or in some cases a potential reversal.

This article is not filled with a lot of general information about charts or general chart patterns from all markets. The examples and illustrations in this article really do occur weekly on the spot forex week after week. If you look at various time frames across a lot of pairs  you will see all of them clearly over time.

As a starting point and to get any  forex trader familiar with some generalized chart patterns please check out Chartpatterns.com.  This website will get you started and give a forex trader a general feel about chart patterns and some generalized picture and sketches. 

Our objective, however, is to give you specific chart patterns that occur frequently on the spot forex, not some generalized chart course. Reviewing  Chartpatterns.com is only meant to get you oriented to  to the subject matter, specific forex chart patters that occur regularly are below.

Please Note …..!!

There is a difference between a chart pattern and a technical indicator.  A chart pattern is something you can see on a bare bar chart with no indicators added. A bare bar chart is an open high low close chart, without any indicators added at all. Examples are below.

As a matter of fact most technical indicators mask the bare chart patterns because most forex traders attach so many layers technical indicators to their charts you cannot see any basic chart pattern behind them.

Forex traders may have a double top right in front of them but cant see it because of all of the interference from the layers of technical indicators masking the bare chart pattern.

In the charts below with the black background there are some simple moving averages attached to the charts but the basic bar chart patterns are still very obvious.

Illustrations

This following illustrations have two kinds of  examples. Some of the illustrations and pictures and generalized examples or hand sketches of typical forex consolidations and chart patterns. Some of the pictures and illustrations with the black background are actual forex charts. 

CLICK ON ANY OF THE ILLUSTRATIONS

TO ENLARGE TO FULL PAGE

Bull Flag Without A Retracement

This is a very straightforward bull flag. Put the price alarm above the highs (1-2) and intercept the next move up. In this case the pair consolidates between points 1 and 2 but it does not retrace. This consolidation generally occurs in a trending market in both directions. Most often it occurs on intraday time frames line M5 and M15, although they can occur on any timeframe. This is a bull flag but there are also bear flags for downtrends.

Bull Flag With A Retracement

This is one form of a bull flag but the area from point 1 to 2 is a retracement.  Occurs on the intra-day time frames like M5 and M15 in a trending market but can occur on any time frame. The trend on this pair is up.

Increasing Tops and Bottoms

Increasing tops and bottoms in an uptrend. The down cycles are consolidations and at the bottom of each down cycle a relative low is formed. Each relative low is the trough of the cycle and are all entry points when they turn back up. When you see this on a H1 time frame or larger, trade it!!!
Please remember that this can happen in reverse within a downtrend, decreasing tops and bottoms.

Choppy Market

The  illustration is a currency pair in a tight choppy range, the bottom illustration is a currency pair in a wider choppy range or support/resistance cluster. When a currency pair is choppy in a tight range or wide range essentially this is essentially a consolidation.

You are better off placing a straddle price alarm on this pair outside of the range of the choppiness than messing around trading the choppiness, just move onto another pair or wait one or two days. Why does the choppiness occur ??  Because, for example, if this is the AUD/USD either all of the AUD pairs or USD pairs are choppy or in support or resistance clusters.

Oscillations

An oscillation is a really a consolidation because there is no net movement. Another way to view it is that the tops and bottoms of the oscillation cycles are also consolidations. Oscillations can occur on any time frame but for a potential trade you would look for the  H4 time frame charts or larger to be oscillating so there is more pip potential. This occurs frequently when market is not trending or after very large moves over weeks and weeks. If a currency pair is not trending it is likely oscillating in some fashion.

Pennant/Ascending Triangle

This is an ascending triangle or pennant, each down cycle is a consolidation and retracement. Buyers keep coming in until the top resistance is broken. Eventually the pair breaks out to the upside. Can occur on small or large time frames. Pennants occur frequently and signal a trend continuation to the upside. Downward descending triangles also occur.

Head and Shoulders

The right half of the chart is also two decreasing tops, which is bearish. You can also have inverted head and shoulders, which is bullish.  Head and shoulders occur very rarely on the spot forex. Do not look at the charts to try to manufacture one or force one into your thinking.

Flags

The hand drawings of flags at the top of the illustrations are a more accurate depiction of what actually occurs on the spot forex. You will occasionally see flags that occur that look more like this but the two flags at the top of the illustrations are much easier to trade.

Ascending Triangle

Increasing bottoms and steady resistance tops. Trend direction is up indicated by the the red arrow. Breakout point and price alarm above resistance.

Descending Triangle

Decreasing tops  and steady resistance bottoms. Trend direction is down indicated by the the red arrow. Breakout point and price alarm below support.

Descending Wedge

The general profile of a descending wedge is three downward cycles  with contracting ranges. The first sell off is the largest followed by two more sell offs with smaller down cycles. Big sell off,  medium sell off,  small sell off, in order. One likely scenario is a reversal at the end of the third down cycle. The trader who sees this would take action by setting a straddle alarm above and below the possible inflection point (black dot) at the bottom right.

You can also have an ascending wedge. Ascending and descending wedges can occur on a fairly strong trending pair but we do not see these very frequently.

Ideal Double Top

This is a hand sketch of an ideal double top on a currency pair. There is a long upward move, sometimes for a few weeks, followed by a double top and reversal back down. Most pronounced double tops are on H4 time frames or larger. The larger the time frame the larger the reversal. Double bottoms also occur. 

Double tops and bottoms can occur on any pair. Double tops and bottoms occur frequently, more frequently on exotic pairs and quite frequently on the JPY exotics. Double tops and bottoms signal reversals after a long move and are fairly reliable reversal indicators.

Bull Flag 

Actual bull flag example of the USD/CAD within the context of an uptrend. The price alarm and breakout point in the direction of the trend should be placed just above the top of the flag for the trend continuation on this high probability trade and bullish chart pattern.

Double Bottom

Actual chart of a double bottom on the CHF/JPY W1 time frame. This is a major time frame and represents a very large reversal.  Double bottoms indicate reversals back to the upside and a new major trend to the upside has started on this pair with no resistance.  A very valuable chart pattern.

Double Top

This is an actual forex chart of the CHF/JPY on the H4 time frame. The double top occurs after along move of hundreds of pips  to the upside and indicates a reversal back down. As you can see the reversal is already starting.

Pennant/Ascending Triangle

This is an actual forex price chart of a pennant/ascending triangle, a near textbook case.  We would expect a continuation of the trend, which is up. This pattern can occur on almost any time frames but in this case the illustration is for an M30 (30 minute) time frame on the EUR/GBP. This represents about a two day consolidation to build the pattern. Set a price alarm above the short term highs.

How to Find These Forex Chart Patterns 

Simple, just use multiple time frame analysis every day to “drill down” the charts. Educating yourself about multiple time frame analysis of the spot forex is easy, just start by reading. When looking at the various time frames across many pairs and you will start to spot these chart patterns weekly.

Conclusions

If you check the charts on the forex daily you can spot theses common chart patterns. Chart patterns do not provide you with a thorough analysis or entry points into trades, but can play a role in an overall forex market analysis. They can assist you with locating trend continuations as well as reversals when combined with simple trend indicators and multiple time frame analysis

Trading Oscillations on The Spot Forex

Introduction

When analyzing the spot forex across multiple time frames and drilling down the charts on a lot of different currency pairs sometimes you can spot currency pairs that are oscillating, or ranging between support and resistance, that can be easily traded. I have been telling forex traders for many years that:

“All currency pairs are either trending or oscillating”

Sometimes the market is not trending but it is oscillating or consolidating in a wide range and then at some point the pairs finally break out of their ranges and start to trend again.

Spotting forex pairs that are oscillating and planning trades for the oscillations is fairly easy. Here are some hand sketches of four different types of oscillations numbered 1, 2, 3 and 4 below.


1. Steady tops and bottoms hitting the same support and resistance

2. Increasing tops and bottoms

3. Decreasing tops and bottoms, and

4. Ragged oscillations, probably best not to trade these or be very careful.

The smooth oscillations shown in sketch 1-3 are much easier to trade.

Forex Oscillations and Time Frames

Remember once again that all currency pairs are trending or oscillating. After a long trending period when the forex market stalls it generally starts to oscillate.

Oscillations can be smooth and clear, trade-able cycles or ragged and choppy like sketch number 4 above. Look at the hand sketches of oscillations above. It is best to not trade a choppy currency pair oscillation like number 4, or be very careful.

Sketches 1, 2 and 3 are smooth oscillations, sketch number 4 is messy and choppy and on the spot forex it can actually be much worse than this illustration. Your goal is to identify the clear oscillations and only trade those for safety.

Example 1 has support and resistance areas that repeat. Examples 2 and 3 have increasing tops and bottoms and decreasing tops and bottoms, respectively.

Basically you just wait for one cycle to finish and wait for the next move in the opposite direction with oscillations. The timing of the trade entry ans cycles are now somewhat predictable. In the case of increasing tops and bottoms its better to wait for a down cycle to finish because if you buy it as it breaks to the upside off of support it could breakout of the oscillations to the upside at the top and start trending up.

In the case of decreasing tops and bottoms its better to wait for an up cycle to finish because if you sell it as it breaks to the downside off of resistance it could breakout of the oscillation to the downside at the bottom and start trending down. Entry points on oscillations are when a new cycle starts up or down when the red and green trend indicators are crossing.

Oscillations on the H4 and higher time frames are strongly recommended. Never trade oscillations on less than an H4 time frame, if you go to a time frame lower than this there is not enough pips to justify the entry and your money management ratio goes way wrong……or else do not trade at all. Actively looking for oscillations across alot of different pairs will result in a forex trader finding a lot of oscillations and potential trades on the H4 time frames and larger, especially in a non trending market.

Trading oscillations on the smaller time frames is not even necessary if you are looking at alot of different currency pairs. If you look across about 28 pairs the oscillations on the H4 time frames will be much more frequent, generating more trading scenarios and potential pips. Also eliminating the need for trading the smaller time frames.

The reason most forex traders move to the smaller time frames looking for oscillations to scalp is that they only follow one or two pairs so defaulting to the smallest time frames becomes a way of life as they seek to “manufacture a trade” or scalp the smallest time frames. At the same time H4 oscillations are clearly there on many other pairs in the eight major currency families if traders would just look for them they would find them frequently.

Volatility and Pip Ranges

Some pairs are not as volatile as others, so the ranges between the top and bottom of the oscillation cycles (amplitude) can be different on two different pairs on the same time frame. Amplitude is just the number of pips between the top and bottom of the oscillations cycles. This is the pip potential of each cycle to estimate your pip potential for the trade cycle and money management ratio. Amplitudes between different currency pairs are contrasted below.

Look at the illustration/sketch above. This is an H4 time frame oscillation cycle example with two exponential moving averages. How many pips will it move up and down??

The H4 oscillation cycle on a less volatile pair like the NZD/USD might only be 100 pips from the top to the bottom of the cycle. The H4 oscillation cycle on a much more volatile pair like the GBP/CHF might be 250 pips from the top to the bottom of the cycle, substantially more pip potential because the pair is more volatile.

On the higher time frame oscillations it could be hundreds or even over 1000 pips from top to bottom of the oscillation cycle. Know your pairs and know the difference so you know the pip potential of each move before you enter. If you move to even higher time frames the pip potential on oscillating pairs is huge and your money management ratio is excellent.

Combining Oscillations with Parallel and Inverse Analysis

If the USD/CHF is oscillating and the hitting support you can check the EUR/USD to see if it is oscillating and hitting resistance on the same time frame. This means that the USD is getting ready to strengthen and you have verified the trade with two different pairs.

This is entry verification and trade planning with two pairs, For more confident entries you can verify entries on pairs with up to 10 pairs using The Forex Heatmap® from Forexearlywarning.com

Here is a snapshot of The Forex Heatmap®, a real time visual map of the spot forex. On the USD/CHF and EUR/USD example you could set a buy alarm on the USD/CHF and when the alarm goes off check the Forex Heatmap® for USD strength and entry verification.

Up until now we have used hand sketches to illustrate our points. Now we will present a series of charts showing oscillations on the spot forex using two charting packages.

One charting package is the red and green light software which has a unique chart characteristic called a pacman, when you combine this with with parallel and inverse pair analysis it can easily confirm an oscillation on the next set of smaller time frames and you can plan your oscillation entries better.

When you see pacman on one of the larger time frames start to look for oscillations on the smaller time frames immediately to the left. Illustrations of “pacman” are below with more detailed explanation.  The second charting package is a set of exponential moving averages, which are available at no cost to any forex trader on the Forexearlywarning.com homepage and can be easily set up by any forex trader. The moving averages do not have a “pacman” type of chart pattern.

Now that we have described both charting packages we will present a picture of a pacman below on the red and green light software.

The pac-man on the left (1) has the green line on top. This means that the currency pair with the pac-man just moved up (in the direction of the green line) and should oscillate back down next on the smaller time frames to the left..

The pac-man on the right (2) has the green line on the bottom. This means that the currency pair with the pac-man just moved down (in the direction of the green line) and should oscillate back up next on the smaller time frames to the left. Pretty simple.

Now we will present a package of eight images below showing currency pairs oscillating on two different charting packages. Clearly, any forex trader who is willing to drill down the time-frames can spot a lot of pips in the forex looking for oscillations. The images are below.

Summary and Conclusions

When analyzing the forex charts across different pairs and drilling down the charts across multiple time frames you should always be looking for clear oscillations and potential trades if the forex market is not trending. Compare the oscillations you find with charts of other pairs in the the same individual currency families for confirmation. You can then prepare a forex trading plan and get solid entry verification from tools like The Forex Heatmap® from Forexearlywarning.com

The forex market is not always trending. If you combine trading oscillations with the pips you can make in a trending forex market across a lot of different pairs you will see that there are a lot of pips to be made in the forex market month after month and you can adapt to changing market conditions..