HOW TO ANALYSE FOREX MARKET FOR BEGINNERS
إِنْ
الْحُكْمُ إِلاَّ لِلَّهِ عَلَيْهِ تَوَكَّلْتُ وَعَلَيْهِ فَلْيَتَوَكَّلْ
الْمُتَوَكِّلُونَ
$ DOLLAR $
Dollar ($) is the name of more than 20 currencies, including those of Australia, Canada, Hong Kong, Jamaica, Liberia, Namibia, New Zealand, Singapore, Taiwan, and the United States. The U.S. dollar is the official currency of East Timor, Ecuador, El Salvador, the Federated States of Micronesia, the Marshall Islands, Palau, the Caribbean Netherlands, and for banknotes, Panama. Generally, one dollar is divided into 100 cents.
FOREX MARKET
The foreign exchange market (Forex, FX, or currency market) is a global decentralized or over-the-counter (OTC) market for the trading of currencies. This market determines the foreign exchange rate. It includes all aspects of buying, selling and exchanging currencies at current or determined prices. In terms of trading volume, it is by far the largest market in the world, followed by the Credit market.
MAIN PARTICIPANTS
The main participants in this market are the larger international banks. Financial centers around the world function as anchors of trading between a wide range of multiple types of buyers and sellers around the clock, with the exception of weekends. Since currencies are always traded in pairs, the foreign exchange market does not set a currency's absolute value but rather determines its relative value by setting the market price of one currency if paid for with another.
UNIQUE MARKET
The foreign exchange market is unique because of the following characteristics:
- Its huge trading volume, representing the largest asset class in the world leading to high liquidity.
- Its geographical dispersion;
- Its continuous operation: 24 hours a day except weekends, i.e., trading from 22:00 GMTon Sunday (SYDNEY) until 22:00 GMT Friday (New York);
- The variety of factors that affect exchange rates.
- the low margins of relative profit compared with other markets of fixed income; and
- The use of leverage to enhance profit and loss margins and with respect to account size.
As such, it has been referred to as the market closest to the ideal of perfect competition, notwithstanding currency intervention by central banks.
FOREX TRADING
All you need to get started is a computer with internet access and a trading account with a FOREX broker. On the FOREX market one currency is exchanged for another. The single most important thing on the FOREX market is the exchange rate between two currencies (a currency pair).
AVERAGE DAILY TRADING VOLUME:
Forex Market:
Daily turnover of FOREX MARKET is 5.6 Trillion Dollars.
New York Stock Exchange:
Daily turnover of New York stock exchange is 22.4 Billion Dollars.
TOKYO Stock Exchange:
Daily turnover of TOKYO stock exchange is 18.9 Billion Dollars.
LONDON Stock Exchange:
Daily turnover of London stock exchange is 7.2 Billion Dollars.
Different Views of people about Forex.
- · Casino
- · Lucky Draw Scheme
- · Game (Buying and selling)
- · Blind Market
- · Tense Market
- · Professional Business
- · Life Time earnings.
A Common Ratio of Forex Market:
· Loser Traders 90%.
· Profitable Traders 10%.
Who is 90% losers ?
· Casino:
Many People are doing as Gambling.
· Lucky Draw Scheme:
A person wants to be a Millionaire.
· Game:
Not knowing what they are doing.
· Blind Market:
Trade without learning and knowing.
· Tense market:
Nervous about Profit and Loss.
Who is 10% winners ?
- · Forex is a professional business.
- · They know working as professional traders.
- · They know all RULES and REGULATIONS of this market.
- · Always follow Market Rules and Regulations.
- · EARNS LIFETIME FROM FOREX TRADING.
REALITY OF LEARNING
· If you learn you have to do it.
· Risk and Loss come from not knowing what we are doing.
TRUTH OF FOREX
· RISK
· PROFIT
· LOSS
HOW TO LEARN ABOUT FOREX
CURRENCY PAIRS
The quotation EUR/USD 1.2500 means that one euro is exchanged for 1.2500 US dollars. Here, EUR is the base currency and USD is the quote currency (counter currency). This means that 1 Euro can be exchangeable to 1.25 US Dollars. The most traded currency pairs in the world are called the Majors
PIP (price interest point):
A pip is a standardized unit and is the smallest amount by which a currency quote can change. It is usually $0.0001 for U.S.-dollar related currency pairs, which is more commonly referred to as 1/100th of 1%, or one basis point. This standardized size helps to protect investors from huge losses.
TWO types of pip:
Ø Green pip:
Profit gain
Ø Red pip:
Loss gain
EXAMPLE:
= subtract
And closed trade at = 1.1896
Total PIPS = 5
You earned 5 green pip
LOT SIZE
A standard lot is the equivalent to 100,000 units of the base currency in a Forex trade. A standard lot is similar to trade size. It is one of the three commonly known lot sizes; the other two are mini-lot and micro-lot.
· Types of trading account:
There are three types of trading account.
ü Standard Account (1,00,000 unit size)
ü Mini Account (10,000 unit size)
ü Micro Account (1000 unit size)
CALCULATE MAXIMUM LOT SIZE
First you multiple the 2 numbers of the lot size, in the example of 100 X 185 the lot size works out to 18,500 square feet. An acre is 43,560 square feet, so this would equal 0.42 acre, or just under 1/2 acre. To determine acreage simply divide square feet/43,560=acres
MARGIN LEVEL
The Forex margin level is the percentage value based on the amount of accessible usable margin versus used margin. In other words, it is the ratio of equity to margin, and is calculated in the following way:
Ø FORMULA:
Margin level = (equity/used margin) x 100.
FREE MARGIN
Available funds to trade on an account. These funds are not being used as collateral in trades on the Forex financial market. These funds can be used in any operation, including their withdrawal or to open a new position.
FORMULA
The formula to calculate Free Margin is Free Margin = Equity – Margin.
LEVERAGE
Leverage involves borrowing a certain amount of the money needed to invest in something. In the case of Forex, that money is usually borrowed from a broker. Forex trading does offer high leverage in the sense that for an initial margin requirement, a trader can build up, and control, a huge amount of money
LEVERAGE WORK
When a trader decides to trade in the Forex market, he or she must first open a margin account with a Forex broker. ... Standard trading is done on 100,000 units of currency, so for a trade of this size, the leverage provided is usually 50:1 or 100:1. Leverage of 200:1 is usually used for positions of $50,000 or less.
BEST LEVERAGE FOR FOREX TRADING
The usual leverage used by professional Forex traders is 100:1. What this means is that with $500 in your account you can control $50K. 100:1 is the best leverage that you should use. The most important thing is how much of your account equity you are willing to lose on a trade.
TRAILING STOP
A sell trailing stop order sets the stop price at a fixed amount below the market price with an attached "trailing" amount. As the market price rises, the stop price rises by the trail amount, but if the stock price falls, the stop loss price doesn't change, and a market order is submitted when the stop price is hit.
MONEY MANAGEMENT
Money management can mean gaining greater control over outgoings and incomings, both in personal and business perspective. Greater money management can be achieved by establishing budgets and analyzing costs and income etc.
In stock and futures trading, money management plays an important role in every success of a trading system. This is closely related with trading expectancy:
“Expectancy” which is the average amount you can expect to win or lose per dollar at risk. Mathematically:
Expectancy = (Trading system Winning probability * Average Win) – (Trading system losing probability * Average Loss)
So for example even if a trading system has 60% losing probability and only 40% winning of all trades, using money management a trader can set his average win substantially higher compared to his average loss in order to produce a profitable trading system. If he set his average win at around $400 per trade (this can be done using proper exit strategy) and managing/limiting the losses to around $100 per trade; the expectancy is around:
Expectancy = (Trading system Winning probability * Average Win) – (Trading system losing probability * Average Loss) Expectancy = (0.4 x 400) - (0.6 x 100)=$160 - $60 = $100 net average profit per trade (of course commissions are not included in the computations).
TREND IN FOREX
TREND IS YOUR FRIEND
A trend of any direction can be classified as a long-term trend, an intermediate trend or a short-term trend. For Forex trading, a long-term trend is composed of several intermediate trends.
TECHNICAL ANALYSIS:
Technical analysis is the framework in which Forex traders study price movement. The theory is that a person can look at historical price movements and determine the current trading conditions and potential price movement.Technical analysts use charts because they are the easiest way to visualize historical data!
There are many types of technical indicators in Forex Trading. Some are given below:
- · Support and Resistance.
- · Moving Averages.
- · R.S.I (Relative Strength Index)
- · A.T.R (Average True Range)
- · Stochastic
- · Bollinger Bands
- · MACD
- · A.D.X
- · Parabolic SAR
SUPPORT AND RESISTANCE:
The concept of support and resistance forms the basis of Forex technical analysis. Forex traders look to buy at or near areas of significant levels of potential support in an uptrend. Forex traders look to sell at or near areas of significant levels of potential resistance in a downtrend.
Support and resistance. In stock market technical analysis, support and resistance is a concept that the movement of the price of a security will tend to stop and reverse at certain predetermined price levels. These levels are denoted by multiple touches of price without a breakthrough of the level
MOVING AVERAGES:
A Forex trader can create a simple trading strategy to take advantage trading opportunities using just a few moving averages (MAs) or associated indicators. Moving averages are a frequently used technical indicator in Forex trading, especially over 10, 50, 100, and 200 periods.
The moving average (MA) is a simple technical analysis tool that smooths out price data by creating a constantly updated average price. The average is taken over a specific period of time, like 10 days, 20 minutes, 30 weeks or any time period the trader chooses.
R.S.I (Relative Strength Index)
The relative strength index (RSI) is most commonly used to indicate temporary overbought or oversold conditions in a market. An intraday Forex trading strategy can be devised to take advantage of indications from the RSI that a market is overextended and therefore likely to retrace.
GOOD R.S.I:
Developed by J. Welles Wilder, the Relative Strength Index (RSI) is a momentum oscillator that measures the speed and change of price movements. RSI oscillates between zero and 100. Traditionally, and according to Wilder, RSI is considered overbought when above 70 and oversold when below 30.
A.T.R (Average True Range):
ATR (Average True Range) is an easy to read technical indicator designed to read market volatility. When a Forex trader knows how to read ATR, they can use current volatility to gauge the placement of stop and limit orders on existing positions.
USE:
Use This Volatility Measure to Improve Order Placement and Market Analysis. Average true range (ATR) is a volatility indicator that shows how much an asset moves, on average, over a given time frame. The indicator has multiple uses for day traders.
STOCHASTIC:
The stochastic oscillator is a momentum indicator that is widely used in Forex trading to pinpoint potential trend reversals. This indicator measures momentum by comparing closing price to the trading range over a given period.
· WORK:
The stochastic oscillator is a momentum indicator comparing the closing price of a security to the range of its prices over a certain period of time. The sensitivity of the oscillator to market movements is reducible by adjusting that time period or by taking a moving average of the result.
BOLLINGER BANDS:
Bollinger Bands are popular with technical analysts and traders in all markets, including Forex. ... Bollinger Bands help by signaling changes in volatility. For generally steady ranges of a security, such as many currency pairs, Bollinger Bands act as relatively clear signals for buying and selling.
· WORK:
As Bollinger puts it, moves that touch or exceed the bands are not signals, but rather “tags”. On the face of it, a move to the upper band shows strength, while a sharp move to the lower band shows weakness. Momentum oscillators work much the same way. Overbought is not necessarily bullish.
MACD:
MACD is an acronym for Moving Average Convergence Divergence. This tool is used to identify moving averages that are indicating a new trend, whether it's bullish or bearish. After all, our top priority in trading is being able to find a trend, because that is where the most money is made.
WORK:
Moving average convergence divergence (MACD) is a trend-following momentum indicator that shows the relationship between two moving averages of prices. ... A nine-day EMA of the MACD, called the "signal line", is then plotted on top of the MACD, functioning as a trigger for buy and sell signals.
A.D.X (Average Directional index):
ADX stands for Average Directional Movement Index and can be used to help measure the overall strength of a trend. The ADX indicator is an average of expanding price range values. The ADX is a component of the Directional Movement System developed by Welles Wilder.
Trading in the direction of a strong trend reduces risk and increases profit potential. The average directional index (ADX) is used to determine when the price is trending strongly. In many cases, it is the ultimate trend indicator.
· A.D.X IN TECHNICAL ANALYSIS:
The average directional index (ADX) is a technical analysis metric. Analysts use it to determine the relative strength of a trend, with the direction of the trend either upwards or downwards.
PARABOLIC SAR:
Developed by Welles Wilder, the Parabolic SAR refers to a price-and-time-based trading system. Wilder called this the “Parabolic Time/Price System.” SAR stands for “stop and reverse,” which is the actual indicator used in the system. SAR trails price as the trend extends over time.
SAR IN TECHNICAL ANALYSIS:
The parabolic SAR, or parabolic stop and reverse, is a popular indicator that is mainly used by traders to determine the future short-term momentum of a given asset. ... One of the most interesting aspects of this indicator is that it assumes a trader is fully invested in a position at any point in time.
CANDLESTICK PATTERN:
A candlestick chart (also called Japanese candlestick chart) is a style of financial chart used to describe price movements of a security, derivative, or currency. Each "candlestick" typically shows one day, thus a one-month chart may show the 20 trading days as 20 "candlesticks".
In technical analysis, a candlestick pattern is a movement in prices shown graphically on a candlestick chart that some believe can predict a particular market movement.
Candlestick charts are a type of financial chart for tracking the movement of securities. ... Each candlestick usually represents one day's worth of price data about a currency rates. Over time, the candlesticks group into recognizable patterns that investors can use to make buying and selling decisions.
TYPES:
There are two types of candle sticks.
- ü Bullish Candlestick
- ü Bearish Candlestick
BULLISH CANDLESTICK PATTERN:
There are several types of Bullish Candlestick pattern. Some are given below:
- · Bullish Engulfing
- · Morning star
- · 3 white soldiers
- · 3 outside up
- · Bullish Kicker
- · Bullish Harami
Bullish Engulfing:
A bullish engulfing pattern is a candlestick chart pattern that forms when a small black candlestick, showing a bearish trend, is followed the next day by a large white candlestick, showing a bullish trend, the body of which completely overlaps or engulfs the body of the previous day's candlestick.
Morning Star:
A morning star candlestick pattern is seen by technical analysts as a bullish sign following a downward trend. The pattern consists of three candles and investors watch closely for it in order to capitalize on a trend reversal to the upside.
A morning star Candlestick pattern is comprised of three bars: the first bar is a tall red candlestick occurring within a well-defined downtrend; the second bar is a small red or white candle closing below the first tall red bar, and the third bar is a tall white candle with a price opening above the middle candle and closing approximately half way up the first bar.
Three white soldiers:
Three white soldiers is a bullish candlestick pattern that predicts the reversal of a downtrend. The pattern consists of three consecutive long-bodied candlesticks that open within the previous candle's real body and a close that exceeds the previous candle's high.
The three white soldiers candlestick pattern suggests a strong change in market sentiment. Without any significant shadows, the market opens slightly lower, the bulls take over the rally all session and close near the high of the day. The pattern may appear during periods of consolidation or following a prolonged downtrend, but the latter represents the most attractive opportunity for traders to take long positions. In addition, the pattern may be preceded by other candlestick patterns suggestive of a reversal, such as a doji.
Three Outside up:
The three outside up is a bullish candlestick pattern with the following characteristics:
- The market is in a downtrend.
- The first candle is black.
- The second candle is white with a long real body and fully contains the first candle.
- The third candle is white with a higher close than the second candle.
The first candle continues the bearish trend, with the close lower than the open indicating strong selling interest while increasing bear confidence. The second candle opens lower but reverses, crossing through the opening tick in a display of bull power. This price action raises a red flag, telling bears to take profits or tighten stops because a reversal is possible. The security continues to post gains, lifting price above the range of the first candle, completing a bullish outside day candlestick. This increases bull confidence and sets off buying signals, confirmed when the security posts a new high on the third candle
Bullish Kicker:
A kicker pattern is a two-bar candlestick pattern that is used to predict a change in the direction of the trend for an asset's price. This pattern is characterized by a very sharp reversal in price over the span of two candlesticks; traders use it to determine which group of market participants is in control of the direction. The pattern points to a strong change in investors' attitude surrounding a security. This usually occurs following the release of valuable information about a company, industry or an economy.
To identify a Bullish Kicker candlestick pattern, look for the following criteria: First, the first candle needs to be a black or bearish candlestick. Second, the second candle (which is white or bullish) must open above the close of the first candle, forming a gap.
Bullish Harami:
A Bullish Harami is a candlestick chart indicator that a bearish trend may be coming to end. Some investors may look at a bullish harami as a good sign that they should enter a long position on an asset.
A candlestick chart is a type of chart used to track the performance of a security, named for the rectangular shape depicted in the chart, with lines protruding from the top and bottom, which resembles a candle and wicks. A candlestick chart typically represents the price data of stock on a single day, including opening price, closing price, high price and low price. Over time, a group of candlestick charts can be a recommended way for investors to glimpse overall market sentiment at a glance.
BEARISH CANDLESTICK PATTERN:
There are several types of Bullish Candlestick pattern. Some are given below:
- · Bearish Engulfing
- · Evening star
- · 3 Black crows
- · 3 Inside down
- · Bearish Kicker
- · Bearish Harami
Bearish Engulfing:
The Bearish Engulfing Candlestick Pattern is considered to be a bearish reversal pattern, usually occurring at the top of an uptrend. The pattern consists of two Candlesticks: Smaller Bullish Candle (Day 1) Larger Bearish Candle (Day 2).
A bearish engulfing pattern is a technical chart pattern that may portend a future bearish trend. The pattern consists of a small white candlestick with short shadows or tails followed by a large red candlestick that eclipses or "engulfs" the small green one.
Evening star:
An evening star demonstrates the following characteristics: the first bar is a large green candlestick located within an uptrend; the middle bar is a small-bodied candle, red or white, that closes above the first white bar; and, the last bar is a large red candle that opens below the middle candle and closes near the center of the first bar's body. This pattern is used by traders as an early indication the uptrend is about to reverse.
Three Black Crows:
Three black crows is a bearish candlestick pattern that is used to predict the reversal of the current uptrend. This pattern consists of three consecutive long-bodied candlesticks that have opened within the real body of the previous candle and closed lower than the previous candle. Oftentimes, traders use this indicator in conjunction with other technical indicators or chart patterns as confirmation of a reversal.
The three black crows pattern occurs when bears overtake the bulls during three consecutive trading sessions, where an uptrend is reversed by three bearish long-bodied candlesticks with short shadows. During each session, the bulls open modestly higher than the previous close, but the price is quickly pushed lower and closes near the session low. Traders often interpret that pattern to indicate the start of a bearish downtrend.
Three Inside down:
The three inside down is a bearish reversal pattern with the following characteristics:
1. The market is in an uptrend.
2. The first candle is a white candle with a large real body.
3. The second candle is a black candle with a small real body that opens and closes within the real body of the first candle.
4. The third candle is a black candle that closes below the close of the second candle.
Bullish energy grows on the first candle, with a wide range rally posting new highs and discouraging bears while bulls grow confident. The second candle opens within the prior bar's trading range, rather than following through to the upside, and holds below the prior high into the closing bell. This price action raises a red flag, telling longs to take profits or tight stops. The third candle completes a bearish reversal, trapping remaining bulls while setting off selling signals.
Bearish Kicker:
The Bearish Kicker Candlestick Chart pattern is one of the most powerful candlestick reversal pattern. Its reliability is very high when it is formed at the uptrend or at a possible resistance or formed in an overbought area.
Bearish Harami:
A bearish harami is a two bar Japanese candlestick pattern that suggests prices may soon reverse to the downside. The pattern consists of a long white candle followed by a small black candle. The opening and closing prices of the second candle must be contained within the body of the first candle. An uptrend precedes the formation of a bearish harami.
DIVERGENCE:
Oscillator divergence can be used to identify Forex reversals. Traders will look for indicators to separate from price to pinpoint diverging markets. Traders can take advantage of divergence, by using a variety of trend based strategies.
In technical analysis, most indicators can give three different types of trading signals: crossing over a major signal line, crossing over a center line and indicator divergence. ... Divergence occurs when an indicator and the price of an asset are heading in opposite directions.
TWO TYPES OF DIVERGENCE:
- · Bullish Divergence
- · Bearish Divergence
Bullish divergence:
A bullish divergence occurs when prices fall to a new low while an oscillator fails to reach a new low. This situation demonstrates that bears are losing power, and that bulls are ready to control the market again—often a bullish divergence marks the end of a downtrend.
Bullish divergences have two types:
- · Regular Bullish divergence
- · Hidden Bullish divergence
Regular Bullish divergence:
If price is making lower lows (LL), but the oscillator is making higher lows (HL), this is considered to be regular bullish divergence. This normally occurs at the end of a DOWNTREND.
Hidden Bullish Divergence:
Regular divergence can be either positive (bullish) or negative (bearish). Positive Divergence is bullish and occurs in a down trend when the price action prints lower lows that are not confirmed by the oscillating indicator. This indicates a weakness in the down trend as selling is less urgent or buyers are emerging.
Bearish divergence:
A bearish divergence between the price and a technical indicator is a moderately useful tool for detecting a coming reversal in the bullish trend. Bearish divergence in gold is therefore a moderately bearish signal for the gold market
A situation in a Bear cycle when two technical indicators moves in opposite directions and signal a term turning point in the trend. Technicians often watch for divergence between the price of a security and its relative strength index.
Hidden Bearish Divergence:
Negative Divergence is bearish occurs in an uptrend when the price action makes higher highs that are not confirmed by the oscillating indicator. This indicates a weakness in the uptrend as buying is less intense and selling or profit taking is increasing.
MOTIVATIONAL QUOTE FOR TRADERS
“When I get hurt in the market, I get the hell out. It doesn’t matter at all where the market is trading. I just get out, because I believe that once you’re hurt in the market, your decisions are going to be far less objective than they are when you’re doing well… If you stick around when the market is severely against you, sooner or later they are going to carry you out.”
CHART PATTERNS:
A chart pattern or price pattern is a pattern within a chart when prices are graphed. In stock and commodity markets trading, chart pattern studies play a large role during technical analysis. ... Chart patterns are used as either reversal or continuation signals.
There are three types of chart patterns are given below:
· Bullish chart patterns
· Bearish chart patterns
· Reversal chart patterns
Bullish Chart Patterns:
Three types of bullish chart pattern.
- · Bullish Pennant
- · Bullish Rectangle
- · Falling Wedge
Bullish Pennant:
A pennant is a continuation pattern in technical analysis formed when there is a large movement in a security, known as the flagpole, followed by a consolidation period with converging trend lines, the pennant, followed by a breakout movement in the same direction as the initial large movement, which represents the second half of the flagpole.
Bullish Rectangle:
The rectangle graphical price pattern serves for existing trend confirmation. The bullish version is usually formed in an uptrend and signals the trend's direction will prevail after its occurrence on the chart.
Falling wedge:
The Falling Wedge is a bullish pattern that begins wide at the top and contracts as prices move lower. This price action forms a cone that slopes down as the reaction highs and reaction lows converge. ... As a reversal pattern, the falling wedge slopes down and with the prevailing trend.
Bearish Chart Patterns:
Three types of Bearish chart pattern.
· Bearish Pennant
· Bearish Rectangle
· Rising Wedge
Bearish Pennant:
Bearish pennants are continuation patterns that mark a pause in the movement of a price halfway through a strong downtrend, offering you an opportunity to go short.
They occur just after a sharp drop in price and resemble a triangular flag as the price moves sideways, making gradually lower highs and higher lows. The downtrend then continues with another similar-sized fall in price.
Bearish Rectangle:
The bearish rectangle is a continuation pattern that occurs when a price pauses during a strong downtrend and temporarily bounces between two parallel levels before the trend continues.
The bearish rectangle is a continuation pattern that occurs when a price pauses during a strong downtrend and temporarily bounces between two parallel levels before the trend continues.
In this lesson, we will show you how to identify the bearish rectangle and use it as a possible selling opportunity.
Rising wedge:
The Rising Wedge is a bearish pattern that begins wide at the bottom and contracts as prices move higher and the trading range narrows. ... As a reversal pattern, the rising wedge will slope up and with the prevailing trend. Regardless of the type (reversal or continuation), rising wedges are bearish.
A rising wedge is a reversal pattern frequently seen in bear markets. This pattern shows up in charts when the price moves upward with pivot highs and lows converging toward a single point known as the apex.
Reversal chart patterns:
A reversal is a change in the direction of a price trend, which can be a positive or negative change against the prevailing trend. On a price chart, reversals undergo a recognizable change in the price structure. A reversal is also referred to as a trend reversal, a rally or a correction.
Three types of Reversal Chart Pattern:
· Double top
· Triple top
· Head and Shoulder
Double top:
The double top pattern is one of the most common technical patterns used by Forex traders. It's certainly one of my go-to methods of identifying a potential top. Just as the name implies, this price action pattern involves the formation of two highs at a critical resistance level.
A double top is a chart pattern, characterized by two consecutive peaks in price that signals a potential bearish reversal of an uptrend.
Triple top:
The triple top pattern is a type of chart pattern used in technical analysis to predict the reversal of a long-term uptrend. The pattern occurs when the price of a security creates three peaks at nearly the same price level.
The three consecutive tops make this pattern visually similar to the Head and Shoulder Pattern, but in this case the middle peak is nearly equal to the other peaks rather than being higher. The pattern is also very similar to the Double top pattern, whereby the security only rises to re-test its prior highs one time before breaking down. The key difference between the double top and triple top is that the double top pattern doesn't have enough bearish volume following the second peak, which leaves room for bulls to make another attempt to breakout to new highs.
Head and Shoulder:
The Head and shoulders formation occurs when a market trend is in the process of reversal either from a bullish or bearish trend; a characteristic pattern takes shape and is recognized as reversal formation.
A head and shoulders pattern is comprised of three component parts:
1. After long bullish trends, the price rises to a peak and subsequently declines to form a trough.
2. The price rises again to form a second high substantially above the initial peak and declines again.
3. The price rises a third time, but only to the level of the first peak, before declining once more.
The first and third peaks are shoulders, and the second peak forms the head. The line connecting the first and second troughs is called the neckline.
Head and shoulders patterns can also signal that a downward trend is about to reverse into an upward trend. In this case, the stocks price reaches three consecutive lows, separated by temporary rallies. Of these, the second trough is the lowest (the head) and the first and third are slightly shallower (the shoulders). The final rally after the third dip signals that the bearish trend has reversed and prices are likely to keep moving up.
ALLHAMDULILAH FOR EVERYTHING
FIRST YOU LEARN
THEN YOU REMOVE THE “L”.
Written By:
Ifham Ahmed Jadoon
Email:
ifhamkh23@gmail.com
Contact No
03319559111
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