How to recognize and trade different Forex chart patterns

The very first look at a newly opened chart usually gives traders a little or no clue what the market is currently doing.

It usually appears like that wavy indefinite graph you see below.

A trader must «reorganize» it into a very clear picture to be able to trade.

Analysis usually starts with defining the trend.

It may be needed to switch to a bigger time frame (hourly, daily) to see where exactly the market price is heading: up or down.

Having done that a trader can plot a trend line.
Note the rule of placing trend lines for uptrend and downtrend.


For uptrend a trend line is plotted below the price action to indicate a support level.

For downtrend — above the price action to mark the level where resistance occurs.

For more information about trend lines visit here


«Always trade with the trend»... or at least try to — the gold rule in trading. That's why we want to find a direction of the trend.

Price can form channels. A channel is a corridor with parallel lines in between which the price moves.
The longer the price stays in a channel the stronger the channel becomes.

Trading strategy: watch for the price attempting to trade out of a channel. Once the first bar is closed outside the channel it is time to execute a trade in the direction where this break-through has occurred.


Sourcing:
http://www.forex-charts-book.com