Hi everybody! This is my first post on babypips forum. I’m a college student who wants to learn how to trade forex so your educational platform is an amazing source for me as a beginer, so thank you very much .
Curently, I am learning the most common chart patterns and I have been facing a…let’s say “problem” on Double Top pattern and Head and Shoulders pattern. My question is : Can these patterns provide relevant signals in a downtrend? They are presented as “reversal patterns” that occur in an uptrend, so could them be considered continuation patterns in this particular situation? The same for the Double Bottom pattern and Inverse Head and Shoulders pattern in an uptrend.
Thank you!
PS: Sorry for my english! I’m not a native speaker.
Yes, if I was trading the pattern I would consider a reversal ONLY if the reversal is at a higher time frame reversal. You cannot just trade them vanilla. You need to check the left side.
That was my first opinion on these patterns aswell…but then i saw the rising/falling wedge pattern, which is a bearish/bullish pattern by itself regardless of the trend on which is found, so…I have started to question the other patterns too .
Thank you for your answear! It helped me a lot.
Yep - that’s the key - think of the ‘why’ price behaved as it did.
A wedge often suggests a breakout - so figure why price moved into a smaller range - usually a range tightens because the market is stalling on some news up ahead and players are reluctant to take up positions.
Learn the cause of the stall, then form an understanding of what is likely to happen up ahead - the breakout direction.
Cosmin, my post above is kinda bland without an example - you will have to check back a few posts to put into context - the chart below is a classic wedge - it’s Eur/Usd daily and you can see how price moved into a smaller range.
The reason was there was market discussion re a EU recovery fund - there was much argument as to whether the plan would ever come to fruition - there were some nay-sayers on this forum - but when you learn how the EU works you get a sense of where these argument usually end.
So mostly guys who were watching the ‘wedge’ took up positions based on the likely result, and there were others who were just aware that price was kinda contracting and took up positions without even noticing the ‘wedge’.
Thank you! I don’t have problems regarding fundamentals, especially in EU (i’m living there)…but i’m struggling trying to understand well every major technical pattern…your exemple was very helpful. I think i will get to know those patterns by the time…practicing them on live action, not just reading.
Yep - best way to learn is forward - patterns are simply a reflection of how the market marked price H&S usually reflects levels and how players acted or reacted at those points - fundamentals and technicals are not separate - for example many times you will encounter GBP move up against the FA merely to form a DT and so on.
There is a good argument for keeping a watch for the failures of patterns, so if a pattern indicates a probable upward price direction but price falls, then the market forces leading to this must have been extremely powerful. This makes for a good trading opportunity.
But often it is the context which makes the failure of a pattern into an opportunity. In this specific case, a head-and-shoulders in a downtrend indicates nothing so its success is about as probable as its failure.
