This article will explore some of the key Forex patterns that every professional trader should know about. This article will discuss the importance of trading patterns, and it will investigate several trading patterns in detail, such as the ABCD pattern, the Master Candle, the Three Drives pattern, and more!
Forex patterns are the core of successful price action trading. The key principle of any Forex trading is to keep trading simple. These patterns make use of peculiar market movements, and highlight the chart with different price structures which traders use to trade with. There are multiple trading methods that make use of these patterns in price to find entries, targets, and stop levels. We will discuss simple and effective Forex patterns that have been proven to work throughout Forex trading history.
Charting the ABCD pattern
Each turning point (A, B, C, and D) represents a significant high or a significant low on a price chart. These points define three consecutive price swings, or trends, which make up each of the three pattern "legs." These are referred to as the AB leg, the BC leg, and the CD leg. AB and CD are known as legs, while the BC is known as a retracement (correction).
We need to use a Fibonacci tool on leg AB (from left to right) and then we will get a BC retracement level. Additionally, one of the best performing ABCD patterns is AB=CD, whereby the length of the AB line should be equal to the length of the CD line. Retracement followed by an extension suggests a higher probability for another retracement to occur. Optionally, the time it takes for the price to go from A to B should be equal to the time it takes for the price to move from C to D.
The Three Drives
The Three Drives pattern is a 6-point reversal pattern characterised by a series of higher highs or lower lows that complete at a 127%, or a 161.8% Fibonacci extension. It signals that the market is exhausted, and that a reversal is likely to happen.
This pattern is a strong day trading with short-term price pattern, but it is also used as a swing trading pattern. The three-drive pattern is a lot like the ABCD pattern, except that it has three legs (now known as drives) and two corrections or retracements. This pattern is known to be one of the foundations for Elliot Waves.
Charting the Three Drives Pattern
One of the more successful Forex patterns that might precede a big market movement is a Five 0 or 5-0 pattern. The 5-0 is both a day trading and a swing trading chart pattern that possesses only two numbers – the 50% retracement of the BC leg, and the Reciprocal AB=CD. The pattern incorporates 5 points within the structure (X, A, B, C, D), and the starting point of the structure (0) can be the beginning of any extended price move. These patterns are profitable both in Forex trading and stock trading.
Charting the Five 0 Pattern
The Master candle concept is a candlestick charting breakout concept The primary advantage of the master candle is that it is completely bias free, and it allows breakouts without paying attention to the main trend.
Charting the Master Candle
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By identifying and trading with these classic chart patterns, you should see more opportunities in almost any market and timeframe. The highest-probability trade setups occur at the completion of the pattern at the confluence, with other important price action tools such as pivot points, and historical levels of support and resistance.
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