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Forex Market Patterns

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Forex Market Patterns

There are several patterns in the Forex market that allow predicting price movement in one direction or another. Forex patterns are often recurring events that cause a similar rate reaction. Almost all of them are based on the postulates of Charles Doe:

The price moves along the trend until there is a clear unambiguous signal to change the trend;
History repeats itself;
Each trend has three phases.
Based on these postulates, several characteristic patterns of the Forex market were identified, which should be considered by every trader:

The strength of a trend directly affects the likelihood of a trend reversal. At the same time, the strength of the trend depends on supply and demand and takes into account trading volumes.

The flat state is replaced by a sharp price movement. This is often caused by the release of significant news.

The market cannot be in one state for a long time. The price moves constantly into the overbought or oversold zone. This helps to find the entry points to the trade.

Session time factor. The trader must consider what session he is trading during. The most liquid are the American and European sessions. It is on them that price movements backed by liquidity take place. During the Asian session, the price of instruments changes to a lesser extent and often without significant support from trading volumes, that is, without long-term consolidation as a trend. The Asian session is also more focused on local currencies.

Price always fills the gap. During weekends and holidays, price gaps sometimes occur, when the closing and opening prices differ sharply from each other. This often happens as a result of important news releases during this period. As a rule, price gaps form in the stock market due to the limited trading time of the stock market instruments and the low liquidity of some instruments. At the same time, in whatever direction the trend is directed, the price will fill the gap with the maximum probability.

A sharp price movement is necessarily followed by a rollback (correction). Moreover, the stronger and longer the movement was, the stronger the correction. This situation can often be observed when important news is released.

The price moves within a certain range. The price usually moves within certain ranges and forms a price channel. Price movement is often limited to significant highs and lows. The more often the price approached them from one side or the other, the more likely it will push off from them.

Excessively high volatility always causes the broker's spread to rise. Such a situation is often observed before big holidays or weekends, as well as with low liquidity for the instrument. Sometimes, the spread increases during the night period.

The market always takes into account forecasts and expectations. Waiting for news also affects the course as well as the release of the news itself. Therefore, the price will move in the direction indicated by the forecast. A sharp change in movement is possible in the event of a discrepancy between the forecast and actual data.

Seasonal fluctuations. Currency rates are subject to seasonal trends. Therefore, the movement of the rate can be predicted by the behavior of the instrument in the same month of the previous year. This pattern is often used when trading on Non-Farm payrolls.

The patterns of the Forex market serve as a signal not only for opening deals, but also for closing them. For example, when trading on news, you should take into account the mandatory corrective market movement.