Technical analysis consists primarily of a variety of technical studies, each of which can be interpreted to predict market direction or to generate buy and sell signals. Many technical stud- ies share one common important tool: a price-time chart that emphasizes selected characteristics in the price motion of the underlying security. One great advantage of technical analysis is its “visualness.”
FOREX-IDENTIFYING PRICE FORMATIONS
In forex trading, proper identification of an ongoing trend can be a tremendous asset to a trader. However, the trader also must learn to recognize recurring chart patterns that disrupt the continuity of trend lines. Broadly speaking, these chart patterns can be categorized as reversal patterns and continuation patterns.
FOREX-REVERSAL PATTERNS
In forex trading, reversal patterns are important because they inform the trader that a market entry point is unfolding or that it may be time to liq- uidate an open position.
FOREX-CONTINUATION PATTERNS
In forex trading, continuation pattern implies that while a visible trend was in progress, it was interrupted temporarily and then continued in the direction of the original trend.
The proper identification of a continuation pattern may prevent a trader from entering a new trade in the wrong direction or from exiting a winning position too early.
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