There are thousands of ways by which you can trade the Forex market. Some people prefer to use the lower time frame and some trades in the higher time frame. And when it comes to trading strategies, no one can say that the market can be traded with fixed sets of rules. Among different kinds of trading methods, the chart pattern trading strategy is one of the most prominent ones.
In this post, we are going to teach you the exact way by which you can trade the major chart patterns in the Forex market. But make sure you trade in the demo account while learning the art of chart pattern trading.
Select the major currency pairs
Being a new chart pattern trader, you should not try to trade the cross currency pairs. Select the major currency pairs so that you can make better decisions at trading. Things might seem very challenging at the initial stage but if you learn to pick your asset wisely, the overall hassle will be reduced. Once you have selected the asset, closely analyze the chart and look for the prominent patterns like the rectangle, triangle, head, and shoulder, etc. Once you have identified the pattern, wait for the breakout.
Breakout in the chart pattern
After the pattern is formed, the trades are usually taken after the breakout. The breakout can be traded in two different ways. You can either execute trades right after the breakout or ride the market momentum. But if you intend to use a conservative method like the professional traders at Saxo markets, you should wait for the closing of the candle. For a bullish breakout, the candlestick must have a closing above the resistance level. And for the bearish breakout, the closing of the candle should stay below the support level.
Use of the candlestick pattern
Using the closing price to identify the quality of the breakout is not that advanced technique. To trade the market in an advanced way, you should learn about the basic price action signals. Once you learn about the price action confirmation signal, you should be able to execute the trades with much more confidence. Though learning a price action trading strategy is a tough task, you can take advantage of the free paper trading account. Use the practice trading account to develop your price action trading skills so that you can trade with confidence.
Avoid trading the reversal pattern
The novice traders should never start with the reversal pattern. For instance, if they spot a head and shoulder pattern, they should avoid it. Though it is a powerful bearish reversal pattern, trading against the trend requires some expertise. First of all, the trader should learn to use the continuation chart pattern. Once they become skilled in analyzing the continuation chart pattern, they can start learning about the reversal chart pattern.
Use of indicators
You may also use the indicators as a trader filter tool. For instance, if you take the short trade, you may use the moving average or Bollinger band indicator to identify the market movement. In a downtrend, the moving average should have a negative slope. On the contrary, if the market is in bullish mode the moving average should have a positive slope. But remember, the use of the indicator doesn’t give you the guarantee that you will make a profit from a certain trade. You need to trade the market with low-risk exposure since you never know what will result from the trades.
Risk management factors
Smart traders always trade with low-risk factors. They never trade the market with high risk since they know taking the high risk can significantly increase the risk exposure. Being a chart pattern trader, try to risk 2% of your account balance in each trade. If necessary, you can trade the market with 1% risk. And always try to look for the chart pattern in the higher time frame as it gives a much more accurate reading.