Common trading mistakes: part two

Common trading mistakes: part two

free forex signals presents special offer

 open trading account with one of the best forex brokers and GET FREE forex Signals via SMS, Email and WhatsApp  

SIGN UP FOR A FREE TRIAL To Access FREE Forex Signals in the Members Area  START FREE 30 DAYS TRIAL on https://www.freeforex-signals.com/

 

Overreliance on software

Most people use some form of technology to assist their trading.

 

For example, you might study chart patterns or use automated alerts and algorithms as prompts to trade.

 

But, as useful as all of these tools are, it is important to remember that they are only tools, and must be employed wisely.

 

Just as your satnav can occasionally direct you to drive into a deep torrent of water because it doesn't know the river has flooded, trading technology isn't something to follow blindly. You still need to keep your eyes open and react intelligently to the signs you see.

 

Car

So when using technology, such as charting software or other analysis tools, it's important that you understand the underlying concepts and the reasons behind what the charts are telling you. This will allow you to see the bigger picture and avoid unnecessary mistakes.

 

Lack of record keeping

Do you remember your first trade? What about the third, or the fifth?

 

If you're new to trading, the details may still be clear in your memory. But in a few months' time will you still be able to describe each step and decision in detail?

 

Unless you keep a trading log or diary, the chances are that this information will be lost. And if you can't remember what you did right, how can you replicate it? Similarly, if you don't know where you went wrong you could easily make the same mistakes again.

 

Your trading diary will let you look back at your experiences with the value of hindsight and learn from them. So what should you record in it?

 

Question

Which of the following is NOT worth putting in your trading diary?

A

Why you decided to trade

B

What you were wearing at the time

C

Where you placed your stops or limits

D

How you felt at the time you opened and closed the trade

 

Reveal answer

Bad timing

Timing is not only the art of good comedy - it's also central to good trading.

 

In the same way that a stand-up artist needs to deliver the punchline at exactly the right moment, you need to time your entry and exit from a market perfectly to maximise any profit or minimise any loss.

 

Timing mistakes are common among new traders. So how can you avoid them? Although getting your timing right isn't an exact science, there are a few tools that will help you to act at the right moment:

 

Chart analysis will help you forecast potential scenarios by revealing market patterns

A trading plan will help you to define your strategy, meaning you're more likely to avoid impulsive actions

Stops and limits will allow you to go about your business without having to monitor the markets constantly

summary

Remember the limitations of software and use it intelligently

Keep a trading diary and reflect on the strategies that have worked well (or not so well)

Use tools such as charts, stops and limits to help you get your timing right when opening and closing positions

Controlling emotions that cloud your judgment

Controlling emotions that cloud your judgment

free forex signals presents special offer

 open trading account with one of the best forex brokers and GET FREE forex Signals via SMS, Email and WhatsApp  

SIGN UP FOR A FREE TRIAL To Access FREE Forex Signals in the Members Area  START FREE 30 DAYS TRIAL on https://www.freeforex-signals.com/

 

Some types of emotion can affect the clarity of your thinking, and so impact any trading decisions you make.

Anger

A losing trade can make you furious - often simply with yourself, for making a bad decision.

 

But we all make mistakes - it's an important way to learn. If it happens to you, as it inevitably will one day, put it down to experience and make a mental note about what to do differently next time.

 

One common impulse in moments of anger is to try and 'get back at the market' by placing another trade. This sort of knee-jerk reaction - or 'hair-trigger trade' - is nearly always a bad idea. Alternatively, you might just start buying anything and everything indiscriminately. This is known as 'shotgun trading'.

 

Take a moment to sit back and breathe deeply, then consider objectively whether your proposed trade really makes sense and is in line with your overall trading strategy.

 

Relax

Regret

Another common source of annoyance is missing an opportunity - something that's easy to do in the fast-moving world of financial markets.

 

When this happens, it's easy to give yourself a hard time about it, repeating things like 'I should have bought there' or 'I knew that was going to happen'. But this sort of mentality can lure you into traps capable of undoing all your hard work at a stroke.

 

You might, for example, be tempted to place a belated trade anyway, or to risk placing a number of trades in quick succession - known as overtrading - to set things right. You might even 'go on tilt', a particular state of mind which means you make irrational decisions, rather than those based on the merit of what's right in front of you.

 

That's why, if the moment has passed, you need a few tricks to remain clear-headed until the next signal comes along.

 

Fortunately, those tricks are as simple as taking a break, casting an eye over your original trading plan and exercising a positive mentality - remember, missing a move is not the end of the world.

 

Sentimentality

Suppose you've traded gold several times, and each time you've made a healthy profit. It might be tempting to start believing (perhaps subconsciously) that 'gold is your friend', and that it will reward you in the same way every time.

 

Gold

Once this conviction grows, there's a danger that you'll open further positions in gold without properly considering the current situation.

 

Unfortunately, the fact that a particular instrument has been profitable in the past is no guarantee that it will continue to perform for you. But likewise, if you've had a bad experience with a certain asset that's no reason to shy away from any future opportunities it offers.

 

Stress

There are times in all of our lives when events beyond our control affect our ability to think clearly.

 

It could be divorce, family illness, bereavement, or just moving house or changing jobs. All of these things will distract you from trading and could cloud your judgment.

 

The world of financial trading can be hectic, demanding your undivided attention. So when you're going through stressful periods, it's often safest to put your trading on hold until you can commit the necessary time and energy to it again.

 

summary

Don't beat yourself up about poor decisions or missed opportunities. Learn from your mistakes and look forward to getting it right next time

To avoid going on tilt when things go wrong, take a break, remind yourself of your trading plan, and wait until you're back in a positive state of mind

Remember that sentimentality and superstition have no place in trading. No market is your friend or enemy, and every opportunity should be assessed on its merits

When you're suffering from stress in other areas of your life, it may be wise to put your trading on hold

Controlling emotions that hold you back

 

Controlling emotions that hold you back

free forex signals presents special offer

 open trading account with one of the best forex brokers and GET FREE forex Signals via SMS, Email and WhatsApp  

SIGN UP FOR A FREE TRIAL To Access FREE Forex Signals in the Members Area  START FREE 30 DAYS TRIAL on https://www.freeforex-signals.com/

 

So far, we've explored many different aspects of the financial markets and the techniques of trading. But there's one key component that affects the success of every trade you make, and that's you.

 

No matter how strong or level-headed you can be, you are a human being, so you have emotions. And naturally your feelings can influence your thinking and your behaviour as a trader.

 

Controlling emotions

Trading is an exciting and absorbing activity that can bring you moments of euphoria when things are going well, while equally it can be psychologically tough if markets turn against you. By understanding the emotions you're likely to experience at every point in the trading process, you can mentally prepare yourself to handle them effectively. That way, your feelings won't get in the way of your decision-making or harm your potential profits.

 

In this course, we'll look at some of the emotions you may need to deal with when you trade.

 

Anxiety and doubt

It's great to be cautious and considered in your trading, but if your worries are crippling you that's counter-productive.

 

The transition to a live trading account after using 'play' money in a demo environment is one step that worries some traders. It's a bit like doing a parachute jump: you've learned the theory and done all the preparation, but making that leap still takes courage.

 

Live and demo

There are, however, things you can do to make it a little less daunting:

 

Reflect on the lessons you learned while using the demo account

Apply the same strategies that brought you success in demo trades

Follow a trading plan

Start by trading in small sizes until you feel comfortable

Use risk-management tools, such as stop-losses

As long as you trade sensibly, use the skills and knowledge you've already gained and keep your positions modest, there's every reason to expect success. Of course you will make mistakes - we all do - but by managing risk carefully you'll minimise your losses.

 

Fear of loss

Another time that you might experience fear is when a position is moving against you and you begin to see a growing loss.

 

Example

Imagine you've bought EUR/USD because your analysis strongly suggests it's about to rise. You've considered the risk involved and set a stop-loss.

However, as time passes the currency pair seems to be stuck in a downtrend. It hasn't hit your stop, but the rise you predicted remains elusive. You start to feel nervous: should you close the position now and cut your losses? Should you adjust your stop closer?

Before taking any action, ask yourself:

Was my original analysis flawed?

Have circumstances affecting this market changed since I opened my trade?

Did I place my stop at the wrong level?

If everything suggests your original analysis is still valid, and if you've positioned your stop correctly to protect yourself against unacceptable loss, there's no reason to alter or kill your trade. Have confidence in your original judgment and let things play out - your loss could turn into a profit.

summary

Your emotional state can have a strong influence on the bottom line of your trading, so it's important to learn how to manage your feelings

Don't allow doubts and fears to paralyse you. Markets move swiftly, and hesitation can lead to missed opportunities

By following a plan, trading in small sizes and using risk management tools, you'll feel more secure and confident in your trading decisions

What is forex?

What is forex?

free forex signals presents special offer

 open trading account with one of the best forex brokers and GET FREE forex Signals via SMS, Email and WhatsApp  

SIGN UP FOR A FREE TRIAL To Access FREE Forex Signals in the Members Area  START FREE 30 DAYS TRIAL on https://www.freeforex-signals.com/

 

What is forex?

If you've ever gone on holiday and exchanged say, pounds for euros, then you've participated in the forex market. Simply put:

 

Forex is how individuals and businesses convert one currency to another.

 

Forex

Forex, also known as foreign exchange, FX or the currency market, is the largest financial market in the world. On average over $5 trillion worth of transactions take place every day. That's around 100 times more than the New York Stock Exchange (NYSE) - the world's biggest stock exchange.

 

As well as being traded by individuals and businesses, forex is also important for financial institutions, central banks, and governments. It facilitates international trade and investment by allowing companies that earn money in one currency to pay for goods and services in another.

 

Who trades forex?

There are a huge number of market participants looking to trade forex at any particular time, from individual speculators wanting to turn a quick profit, to central banks trying to control the amount of currency in circulation.

 

However, by far the most significant players in the forex market are the major international banks. Between them, Citigroup, Deutsche Bank, Barclays, JPMorgan and UBS account for around 50% of global forex trade.

 

Euromoney FX Survey

Why do people trade forex?

Individuals and businesses participate in the forex market for two main reasons:

 

Speculation

The vast majority of forex transactions are made simply to make money. This means the person or institution making the trade has no plans to take delivery of the currency, they are just looking to turn a profit on movements in the market.

 

With major financial institutions always looking to profit from small changes in forex prices, many large trades can occur throughout the day. This activity means currency rates are some of the most consistently volatile financial markets in the world - which in turn provides more opportunity for speculators to make money.

 

Purchasing goods or services in another currency

Every time a transaction is made between two entities in different regions, a foreign exchange transaction needs to take place to pay for the goods or services exchanged. Transactions such as this happen globally, every second of every day.

 

Despite the number of transactions, the amount of currency traded is often very small compared to trades made by large speculators. Therefore commercial trading tends not to have such a big effect on short-term market rates.

 

How do you trade forex?

Unlike share trading, forex is an over-the-counter (OTC) market. This means that currencies are exchanged directly between two parties rather than through an exchange.

 

The forex market is run electronically via a global network of banks - it has no central location, and trades can take place anywhere via a forex broker of your choice. This also means that you can trade forex at any time, so long as it's during trading hours in any one of the four major forex trading centres (London, New York, Sydney and Tokyo).

 

Forex trading hours: April-October (UK time)

Forex Trading Hours

In practice, that means you can trade most forex pairs from around 21:00 or 22:00 (UK time) on Sunday to 21:00 or 22:00 (UK time) on Friday, every week. The exact times can vary due to daylight saving time changes in the UK, USA and Australia.

 

How does a forex trade work?

Forex prices are always quoted in pairs such as AUD/EUR, which stands for the Australian dollar versus the euro. This is because if you want to purchase Australian dollars you need to buy them with another currency, like euros.

 

When trading forex you are simultaneously BUYING one currency while SELLING another.

 

 

Lesson summary

Forex is how individuals and businesses convert one currency to another

The main players in the market are major international banks

Speculation accounts for the vast majority of transactions

It's an over-the-counter (OTC) market, where trades take place directly between two parties rather than through an exchange

Forex is traded in pairs - you are simultaneously buying one currency while selling another

The first currency in every pair is the base or primary currency. The second is the quote or counter currency

How to become a successful trader

How to become a successful trader

free forex signals presents special offer

 open trading account with one of the best forex brokers and GET FREE forex Signals via SMS, Email and WhatsApp  

SIGN UP FOR A FREE TRIAL To Access FREE Forex Signals in the Members Area  START FREE 30 DAYS TRIAL on https://www.freeforex-signals.com/

 

To become a successful trader, you need a clear system that helps you to stay consistent and handle negative market movements. You must also guard against becoming over-emotional. There is no magic formula to becoming a successful trader, but there are a few steps you can take to make sure you’re mastering both the basics and complexities of trading:

Do your research

Create a trading plan

Practise your trades

When you’re ready to take on the markets, you can open a live trading account.

Do your research

Improving your knowledge of financial markets is the first step to becoming a successful trader. Start by researching the different markets available to trade and to build your trading skills. Remember that you can never know too much; if you want to be a successful trader, you must always aim to improve your knowledge.

Create a trading plan

A trading plan is a blueprint for how you are going to trade. It is driven by your trading strategy, helping you to quantify your goals and motivation. Your trading plan also covers your risk management strategy and preferred analysis method.

 

Learn how to create a successful trading plan

Practise your trades

If you want to put your trading plan into practice, you can start trialling your trades on demo account. With a demo account, you can develop your skills without risking your capital right away. Practising your trades will also help you to refine your trading strategy and learn from any mistakes.

Symmetrical Triangle

Symmetrical Triangle

 

The symmetrical triangle, which can also be referred to as a coil, usually forms during a trend as a continuation pattern. The pattern contains at least two lower highs and two higher lows. When these points are connected, the lines converge as they are extended and the symmetrical triangle takes shape. You could also think of it as a contracting wedge, wide at the beginning and narrowing over time.

 

Trend: In order to qualify as a continuation pattern, an established trend (at least a few months old) should exist. The symmetrical triangle marks a consolidation period before continuing after the breakout.

 

Four (4) Points: At least 2 points are required to form a trend line and 2 trend lines are required to form a symmetrical triangle. Therefore, a minimum of 4 points are required to begin considering a formation as a symmetrical triangle. The second high (2) should be lower than the first (1) and the upper line should slope down. The second low (2) should be higher than the first (1) and the lower line should slope up. Ideally, the pattern will form with 6 points (3 on each side) before a breakout occurs.

 

Volume: As the symmetrical triangle extends and the trading range contracts, volume should start to diminish. This refers to the quiet before the storm, or the tightening consolidation before the breakout.

 

Duration: The symmetrical triangle can extend for a few weeks or many months. If the pattern is less than 3 weeks, it is usually considered a pennant. Typically, the time duration is about 3 months.

 

Breakout Timeframe: The ideal breakout point occurs 1/2 to 3/4 of the way through the pattern's development or time-span. The time-span of the pattern can be measured from the apex (convergence of upper and lower lines) back to the beginning of the lower trend line (base). A break before the 1/2 way point might be premature and a break too close to the apex may be insignificant. After all, as the apex approaches, a breakout must occur sometime.

 

Breakout Direction: The future direction of the breakout can only be determined after the break has occurred. Sounds obvious enough, but attempting to guess the direction of the breakout can be dangerous. Even though a continuation pattern is supposed to breakout in the direction of the long-term trend, this is not always the case.

 

Breakout Confirmation: A break should be on a closing basis for it to be considered valid. Some traders apply a price (3% break) or time (sustained for 3 days) filter to confirm validity. The breakout should occur with an expansion in volume, especially on upside breakouts.

 

Return to Apex: After the breakout (up or down), the apex can turn into future support or resistance. The price sometimes returns to the apex or a support/resistance level around the breakout before resuming in the direction of the breakout.

 

Price Target: There are two methods to estimate the extent of the move after the breakout. First, the widest distance of the symmetrical triangle can be measured and applied to the breakout point. Second, a trend line can be drawn parallel to the pattern's trend line that slopes (up or down) in the direction of the break. The extension of this line will mark a potential breakout target.

 

free forex signals presents special offer

 open trading account with one of the best forex brokers and GET FREE forex Signals via SMS, Email and WhatsApp  

SIGN UP FOR A FREE TRIAL To Access FREE Forex Signals in the Members Area  START FREE 30 DAYS TRIAL on https://www.freeforex-signals.com/

 

Bump and Run Reversal

Bump and Run Reversal

The pattern was originally named the Bump and Run Formation, or BARF. Bulkowski decided that Wall Street was not ready for such an acronym and changed the name to Bump and Run Reversal. Bulkowski identified three main phases to the pattern: lead-in, bump, and run. We will examine these phases and also look at  Forex Signals  volume and pattern validation.

 

1.      Lead-in Phase: The first part of the pattern is a lead-in phase that can last 1 month or longer and forms the basis from which to draw the trend line. During this phase, prices advance in an orderly manner and there is no excess speculation. The trend line should be moderately steep. If it is too steep, then the ensuing bump is unlikely to be significant enough. If the trend line is not steep enough, then the subsequent trend line break will occur too late. Bulkowski advises that an angle of 30 to 45 degrees is preferable. The size of the angle will depend on the scaling (semi-log or arithmetic) and the size of the chart. It is probably easier to judge the soundness of the trend line with a visual assessment.

2.     Bump Phase: The bump forms with a sharp advance, and prices move further away from the lead-in trend line. Ideally, the angle of the trend line from the bump's advance should be about 50% greater than the angle of the trend line extending up from the lead-in phase. Roughly speaking, this would call for an angle between 45 and 60 degrees. If it is not possible to measure the angles, then a visual assessment will suffice.

3.     Bump Validity: It is important that the bump represent a speculative advance that cannot be sustained for a long time. Bulkowski developed what he calls an “arbitrary” measuring technique to validate the level of speculation in the bump. The distance from the highest high of the bump to the lead-in trend line should be at least twice the distance from the highest high in the lead-in phase to the lead-in trend line. These distances can be measured by drawing a vertical line from the highest highs to the lead-in trend line. An example is provided in the chart below.

4.     Bump Rollover: After speculation dies down, prices begin to peak and a top forms. Sometimes, a small double top or a series of descending peaks forms instead. Prices begin to decline towards the lead-in trend line, and the right side of the bump forms.

5.     Volume: As the stock advances during the lead-in phase, volume is usually average and sometimes low. When the speculative advance begins to form the left side of the bump, volume expands as the advance accelerates.

6.     Run Phase: The run phase begins when the pattern breaks support from the lead-in trend line. Prices will sometimes hesitate or bounce off the trend line before breaking through. Once the break occurs, the run phase takes over, and the decline continues.

7.     Support Turns Resistance: After the trend line is broken, there is sometimes a retracement that tests the newfound resistance level. Potential support-turned-resistance levels can also be identified from the reaction lows within the bump.

The Bump and Run Reversal pattern can be applied to  Forex Signals  daily, weekly or monthly charts. As stated above, the pattern is designed to identify speculative advances that are unsustainable for a long period. Because prices rise very fast to form the left side of the bump, the subsequent decline can be just as ferocious.

free forex signals presents special offer

 open trading account with one of the best forex brokers and GET FREE forex Signals via SMS, Email and WhatsApp  

SIGN UP FOR A FREE TRIAL To Access FREE Forex Signals in the Members Area  START FREE 30 DAYS TRIAL on https://www.freeforex-signals.com/

 

The Rounding Bottom

The Rounding Bottom

The Rounding Bottom is a long-term reversal pattern that is best suited for weekly charts. It is also referred to as a saucer bottom, and represents a long consolidation period that turns from a bearish bias to a bullish bias.

 

Prior Trend: In order to be a reversal pattern, there must be a prior trend to reverse. Ideally, the low of a rounding bottom will mark a new low or reaction low. In practice, there are occasions when the low is recorded many months earlier and the security trades flat before forming the pattern. When the rounding bottom does finally form, its low may not be the lowest low of the last few months.

Decline: The first portion of the rounding bottom is the decline that leads to the low of the pattern. This decline can take on different forms: some are quite jagged with a number of reaction highs and lows, while others trade lower in a more linear fashion.

Low: The low of the rounding bottom can resemble a “V” bottom, but should not be too sharp and should take a few weeks to form. Because prices are in a long-term decline, the possibility of a selling climax exists that could create a lower spike.

Advance: The advance off of the lows forms the right half of the pattern and should take about the same amount of time as the prior decline. If the advance is too sharp, then the validity of a rounding bottom may be in question.

Breakout: Bullish confirmation comes when the pattern breaks above the reaction high that marked the beginning of the decline at the start of the pattern. As with most resistance breakouts, this level can become support. However, rounding bottoms represent long-term reversal and this new support level may not be that significant.

Volume: In an ideal pattern, volume levels will track the shape of the rounding bottom: high at the beginning of the decline, low at the end of the decline and rising during the advance. Volume levels are not too important on the decline, but there should be an increase in volume on the advance and preferably on the breakout.

A rounding bottom could be thought of as a head and shoulders bottom without readily identifiable shoulders. The head represents the low and is fairly central to the pattern. The volume levels throughout the pattern mimic those of the head and shoulders bottom; confirmation comes with a resistance breakout. While symmetry is preferable on the rounding bottom, the left and right side do not have to be equal in time or slope. The important thing is to capture the essence of the pattern.

free forex signals presents special offer

 open trading account with one of the best forex brokers and GET FREE forex Signals via SMS, Email and WhatsApp  

SIGN UP FOR A FREE TRIAL To Access FREE Forex Signals in the Members Area  START FREE 30 DAYS TRIAL on https://www.freeforex-signals.com/

 

Rising Wedge and forex signals

Rising Wedge and forex signals

The Rising Wedge is a bearish pattern that begins wide at the bottom and contracts as prices move higher and the trading range narrows. In contrast to symmetrical triangles, which have no definitive slope and no bullish or bearish bias, rising wedges definitely slope up and have a bearish bias.

 

While though this article will focus on the rising wedge as a reversal pattern, the pattern can also fit into the continuation category. As a continuation pattern, the rising wedge will still slope up, but the slope will be against the prevailing downtrend. 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.

 

Prior Trend: In order to qualify as a reversal pattern, there must be a prior trend to reverse. The rising wedge usually forms over a 3-6 month period and can mark an intermediate or long-term trend reversal. Sometimes the current trend is totally contained within the rising wedge; other times the pattern will form after an extended advance.

 

Upper Resistance Line: It takes at least two reaction highs to form the upper resistance line, ideally three. Each reaction high should be higher than the previous high.

 

Lower Support Line: At least two reaction lows are required to form the lower support line. Each reaction low should be higher than the previous low.

 

Contraction: The upper resistance line and lower support line converge as the pattern matures. The advances from the reaction lows (lower support line) become shorter and shorter, which makes the rallies unconvincing. This creates an upper resistance line that fails to keep pace with the slope of the lower support line and indicates a supply overhang as prices increase.

 

Support Break: Bearish confirmation of the pattern does not come until the support line is broken in a convincing fashion. It is sometimes prudent to wait for a break of the previous reaction low. Once support is broken, there can sometimes be a reaction rally to test the newfound resistance level.

 

Volume: Ideally, volume will decline as prices rise and the wedge evolves. An expansion of volume on the support line break can be taken as bearish confirmation.

 

The rising wedge can be one of the most difficult chart patterns to accurately recognize and trade. While it is a consolidation formation, the loss of upside momentum on each successive high gives the pattern its bearish bias. However, the series of higher highs and higher lows keeps the trend inherently bullish. The final break of support indicates that the forces of supply have finally won out and lower prices are likely. There are no measuring techniques to estimate the decline – other aspects of technical analysis should be employed to forecast price targets.

 

free forex signals presents special offer

 open trading account with one of the best forex brokers and GET FREE forex Signals via SMS, Email and WhatsApp  

SIGN UP FOR A FREE TRIAL To Access FREE Forex Signals in the Members Area  START FREE 30 DAYS TRIAL on https://www.freeforex-signals.com/

 

Falling Wedge

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. In contrast to symmetrical triangles, which have no definitive slope and no bias, falling wedges definitely slope down and have a bullish bias. However, this bullish bias cannot be realized until a resistance breakout occurs.

While this article will focus on the falling wedge as a reversal pattern, it can also fit into the continuation category. As a continuation pattern, the falling wedge will still slope down, but the slope will be against the prevailing uptrend. As a reversal pattern, the falling wedge slopes down and with the prevailing trend. Regardless of the type (reversal or continuation), falling wedges are regarded as bullish patterns.

 

Prior Trend: To qualify as a reversal pattern, there must be a prior trend to reverse. Ideally, the falling wedge will form after an extended downtrend and mark the final low. The pattern usually forms over a 3-6 month period and the preceding downtrend should be at least 3 months old.

 

Upper Resistance Line: It takes at least two reaction highs to form the upper resistance line, ideally three. Each reaction high should be lower than the previous highs.

 

Lower Support Line: At least two reaction lows are required to form the lower support line. Each reaction low should be lower than the previous lows.

 

Contraction: The upper resistance line and lower support line converge to form a cone as the pattern matures. The reaction lows still penetrate the previous lows, but this penetration becomes shallower. Shallower lows indicate a decrease in selling pressure and create a lower support line with less negative slope than the upper resistance line.

 

Resistance Break: Bullish confirmation of the pattern does not come until the resistance line is broken in convincing fashion. It is sometimes prudent to wait for a break above the previous reaction high for further confirmation. Once resistance is broken, there can sometimes be a correction to test the newfound support level.

 

Volume: While volume is not particularly important on rising wedges, it is an essential ingredient to confirm a falling wedge breakout. Without an expansion of volume, the breakout will lack conviction and be vulnerable to failure.

 

As with rising wedges, the falling wedge can be one of the most difficult chart patterns to accurately recognize and trade. When lower highs and lower lows form, as in a falling wedge, a security remains in a downtrend. The falling wedge is designed to spot a decrease in downside momentum and alert technicians to a potential trend reversal. Even though selling pressure may be diminishing, demand does not win out until resistance is broken. As with most patterns, it is important to wait for a breakout and combine other aspects of technical analysis to confirm signals.

free forex signals presents special offer

 open trading account with one of the best forex brokers and GET FREE forex Signals via SMS, Email and WhatsApp  

SIGN UP FOR A FREE TRIAL To Access FREE Forex Signals in the Members Area  START FREE 30 DAYS TRIAL on https://www.freeforex-signals.com/