FOREX TRADING FOR BEGINNERS LEVEL 3

FOREX MASTERY ACADEMY @ZW

Leading vs. Lagging Indicators

There are two types of indicators: leading and lagging. A leading indicator gives a signal before the new trend or reversal occurs. These indicators help you profit by predicting what prices will do next. Leading indicators typically work by measuring how “overbought” or “oversold” something is. A lagging indicator gives a signal after the trend has started. Lagging indicators work well when prices move in relatively long trends. They don’t warn you of any upcoming changes in prices though, they simply tell you what prices are doing (rising or falling) so that you can trade accordingly. You would “catch” the entire trend every single time IF the leading indicator was correct every single time. But it won’t be. When you use leading indicators, you will experience a lot of fakeouts. Leading indicators are notorious for giving bogus signals which could “mislead” you.

✅The general approach is that you should use lagging indicators during trending markets and leading indicators during sideways markets.

Chart Patterns

•Double Top and Double Bottom
•Head and Shoulders and Inverse Head and Shoulders
•Rising and Falling Wedges
•Bullish and Bearish Rectangles
•Bearish and Bullish Pennants
•Triangles (Symmetrical, Ascending, and Descending)

Double Top
A double top is a reversal pattern that is formed after there is an extended move up. The “tops” are peaks which are formed when the price hits a certain level that can’t be broken. After hitting this level, the price will bounce off it slightly, but then return back to test the level again. If the price bounces off of that level again, then you have a DOUBLE top!

The double bottom 

is also a trend reversal formation, but this time we are looking to go long instead of short.
These formations occur after extended downtrends when two valleys or “bottoms” have been formed.Remember, just like double tops, double bottoms are also trend reversal formations.

You’ll want to look for these after a strong downtrend.

Head and Shoulders Pattern
A head and shoulders pattern is also a trend reversal formation.
It is formed by a peak (shoulder), followed by a higher peak (head), and then another lower peak (shoulder). A “neckline” is drawn by connecting the lowest points of the two troughs. The slope of this line can either be up or down. The head is the second peak and is the highest point in the pattern. The two shoulders also form peaks but do not exceed the height of the head. With this formation, we put an entry order below the neckline.

Wedge Chart Patterns
Wedges signal a pause in the current trend. When you encounter this formation, it signals that forex traders are still deciding where to take the pair next. Wedges could serve as either continuation or reversal patterns.

Rising Wedge
A rising wedge is formed when price consolidates between upward sloping support and resistance lines. Here, the slope of the support line is steeper than that of the resistance. This indicates that higher lows are being formed faster than higher highs. This leads to a wedge-like formation, which is exactly where the chart pattern gets its name from! With prices consolidating, we know that a big splash is coming, so we can expect a breakout to either the top or bottom. If the rising wedge forms after an uptrend, it’s usually a bearish reversal pattern.On the other hand, if it forms during a downtrend, it could signal a continuation of the down move.

Falling Wedge
Just like the rising wedge, the falling wedge can either be a reversal or continuation signal. As a reversal signal, it is formed at a bottom of a downtrend, indicating that an uptrend would come next. As a continuation signal, it is formed during an uptrend, implying that the upward price action would resume. Unlike the rising wedge, the falling wedge is a bullish chart pattern. In this example, the falling wedge serves as a reversal signal. After a downtrend, the price made lower highs and lower lows.

Rectangle Chart Patterns
A rectangle is a chart pattern formed when price is bounded by parallel support and resistance levels. A rectangle shows a period of consolidation or indecision between buyers and sellers as they take turns throwing punches but neither has taken over. The price will “test” the support and resistance levels several times before eventually breaking out. From there, the price could trend in the direction of the breakout, whether it is to the upside or downside.We just have to wait until one of these levels breaks and go along for the ride!

Bearish Rectangle
A bearish rectangle is formed when the price consolidates for a while during a downtrend.
This happens because sellers probably need to pause and catch their breath before taking the pair any lower.

Bearish rectangle after a downtrend
In this example, price broke the bottom of the rectangle chart pattern and continued to shoot down.
If we had a short order just below the support level, we would have made a nice profit on this trade.

Bullish Rectangle
Here’s another example of a rectangle, this time, a bullish rectangle chart pattern. If you answered up, then you’re right! Check out that nice upside breakout right there! Notice how the price moved all the way up after breaking above the top of the rectangle pattern. If we had a long order on top of the resistance level, we would’ve caught some pips on the trade! Just like in the bearish rectangle pattern example, once the pair breaks, it will usually make a move that’s AT LEAST the size of its previous range.

Bearish and Bullish Pennants

Similar to rectangles, pennants are continuation chart patterns formed after strong moves. After a big upward or downward move, buyers or sellers usually pause to catch their breath before taking the pair further in the same direction. Because of this, the price usually consolidates and forms a tiny symmetrical triangle, which is called a pennant. While the price is still consolidating, more buyers or sellers usually decide to jump in on the strong move, forcing the price to bust out of the pennant formation.

Bearish Pennants

A bearish pennant is formed during a steep, almost vertical, downtrend. After that sharp drop in price, some sellers close their positions while other sellers decide to join the trend, making the price consolidate for a bit. As soon as enough sellers jump in, the price breaks below the bottom of the pennant and continues to move down. As you can see, the drop resumed after the price made a breakout to the bottom. To trade this chart pattern, we’d put a short order at the bottom of the pennant with a stop loss above the pennant.

Bullish Pennant
Bullish pennants, just like its name suggests, signals that bulls are about to go a-chargin’ again. This means that the sharp climb in price would resume after that brief period of consolidation, when bulls gather enough energy to take the price higher again. In this example, the price made a sharp vertical climb before taking a breather. I can hear the bulls stomping and revving up for another run! Just like we predicted, the price made another strong move upwards after the breakout. To play this, we’d place our long order above the pennant and our stop below the bottom of the pennant to avoid fakeouts. Like we discussed earlier, the size of the breakout move is around the height of the mast (or the size of the earlier move). You see, pennants may be small in size but they could signal huge price moves so don’t underestimate them!

A triangle chart pattern involves price moving into a tighter and tighter range as time goes by and provides a visual display of a battle between bulls and bears.The triangle pattern is generally categorized as a “continuation pattern”, meaning that after the pattern completes,  it’s assumed that price will continue in the trend direction it was moving before the pattern appeared. A triangle pattern is generally considered to be forming when it includes at least five touches of support and resistance. For example, three touches of the support line and two for the resistance line. Or vice versa. Just like there are three little pigs, there are three types of triangle chart formations: symmetrical triangle, ascending triangle, and descending triangles 

Symmetrical Triangle
A symmetrical triangle is a chart formation where the slope of the price’s highs and the slope of the price’s lows converge together to a point where it looks like a triangle. What’s happening during this formation is that the market is making lower highs and higher lows. This means that neither the buyers nor the sellers are pushing the price far enough to make a clear trend. If this were a battle between the buyers and sellers, then this would be a draw. This is also a type of consolidation.

Ascending Triangle
An ascending triangle is a type of triangle chart pattern that occurs when there is a resistance level and a slope of higher lows. What happens during this time is that there is a certain level that the buyers cannot seem to exceed. However, they are gradually starting to push the price up as evidenced by the higher lows. In the chart above, you can see that the buyers are starting to gain strength because they are making higher lows. They keep putting pressure on that resistance level and as a result, a breakout is bound to happen.

✅Many charting books will tell you that in most cases, the buyers will win this battle and the price will break out past the resistance. However, it has been our experience that this is not always the case. Sometimes the resistance level is too strong, and there is simply not enough buying power to push it through. Most of the time, the price will, in fact, go up. The point we are trying to make is that you should not be obsessed with which direction the price goes, but you should be ready for movement in EITHER direction.

Descending Triangle
As you probably guessed, descending triangles are the exact opposite of ascending triangles (we knew you were smart!). In descending triangle chart patterns, there is a string of lower highs which forms the upper line. The lower line is a support level in which the price cannot seem to break. In the chart above, you can see that the price is gradually making lower highs which tell us that the sellers are starting to gain some ground against the buyers. Now most of the time, and we do say MOST, the price will eventually break the support line and continue to fall. However, in some cases, the support line will be too strong, and the price will bounce off of it and make a strong move up. The good news is that we don’t care where the price goes. We just know that it’s about to go somewhere. In this case, we would place entry orders above the upper line (the lower highs) and below the support line.

Reversal Chart Patterns
Reversal patterns are those chart formations that signal that the ongoing trend is about to change course. If a reversal chart pattern forms during an uptrend, it hints that the trend will reverse and that the price will head down soon. Conversely, if a reversal chart pattern is seen during a downtrend, it suggests that the price will move up later on.

Continuation Chart Patterns
Continuation chart patterns are those chart formations that signal that the ongoing trend will resume. Usually, these are also known as consolidation patterns because they show how buyers or sellers take a quick break before moving further in the same direction as the prior trend. Trends don’t usually move in a straight line higher or lower. They pause and move sideways, “correct” lower or higher, and then regain momentum to continue the overall trend.

Bilateral Chart Patterns
Bilateral chart patterns are a bit more tricky because these signal that the price can move EITHER way. A bilateral signal. This is where triangle formations fall in. To play these chart patterns, you should consider both scenarios (upside or downside breakout) and place one order on top of the formation and another at the bottom of the formation. If one order gets triggered, you can cancel the other one. Either way, you’d be part of the action. The only problem is that you could catch a false break if you set your entry orders too close to the top or bottom of the formation.

Small summary of the Chart Patterns

Forex Pivot Points

Simply put, a pivot point and its support/resistance levels are areas at which the direction of price movement can possibly change. The reason why pivot points are so enticing? It’s because they are OBJECTIVE. Unlike some of the other indicators that we’ve taught you about already, there’s no discretion involved. In many ways, forex pivot points are very similar to Fibonacci levels. Because so many people are looking at those levels, they almost become self-fulfilling. The major difference between the two is that with Fibonacci, there is still some subjectivity involved in picking Swing Highs and Swing Lows. With pivot points, forex traders typically use the same method for calculating them. Many traders keep an eye on these levels and you should too.

Here is an example of pivot points on a graph

The simplest way to use pivot point levels in your forex trading is to use them just like your regular support and resistance levels. Just like good ole support and resistance, the price will test the levels repeatedly. The more times a currency pair touches a pivot level then reverses, the stronger the level is. Actually, “pivoting” simply means reaching a support or resistance level and then reversing. If you see that a pivot level is holding, this could give you some good trading opportunities. If the price is nearing the upper resistance level, you could SELL the pair and place a stop just above the resistance. If the price is nearing a support level, you could BUY and put your stop just below the level.

✅Pivot points can be used by range, breakout, and trend traders. Range-bound forex traders will enter a buy order near identified levels of support and a sell order when the pair nears resistance. Pivot points also allow breakout forex traders to identify key levels that need to be broken for a move to qualify as a strong momentum move. Sentiment (or trend) forex traders use pivot points to help determine the bullishness or bearishness of a currency pair. The simplicity of pivot points definitely makes them a useful tool to add to your trading toolbox. It allows you to see possible areas that are likely to cause price movement. You’ll become more in sync to market movements and make better trading decisions. Using pivot point analysis alone is not always enough. Learn to use pivot points along with other technical analysis tools such as candlestick patterns, MACD crossover, moving averages crossovers, the stochastic, RSI, etc. The greater the confirmation, the greater your probability of a successful trade!

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 Congrats for reaching this far by completing beginners trading last level. Coming next is Advanced trading level 1  where we will be discussing about;

1) Heikin Ashi
2) Elliott Wave Theory
3).Rules of the Elliott Wave Theory
4).Using the Elliot Wave Theory
5).Harmonic Price Patterns
6).The ABCD
7).Three-Drive
8).The Gartley Pattern
9).The Crab
10).The Bat
11).The Butterfly
12).Trading Harmonic Price Patterns

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