Technical analysis in the form of figures on the chart allows the trader to make a prediction about the movement of the price of the asset. At the heart is a graphical pattern of key levels: support and resistance. It is impossible to achieve an exact repetition of models, but the principles are the same.
The attitude of traders to such analysis is ambiguous: someone successfully uses and considers it an effective tool, while others doubt the usefulness of such analysis. The advantage of this analysis:
- Use to find shapes enough to use trends and levels, no additional tools are required;
- The shapes are clearly visible, allowing the trader to develop the experience of quickly recognizing them on the chart. This important skill will allow you to see the formation of the figure in the first stages and make the right decision to conduct their trade.
- the formation of shapes takes place according to certain rules and signals, which is an undeniable advantage of technical analysis, the absence of at least one immediately excludes the existence of it on the chart.
To be successful in this way, you need to develop your own experience. In theory, everything looks simple, but in practice, traders see the same chart differently, sometimes find completely different shapes. This is due to the individual thinking of the person and often depends on the accumulated experience in reading the schedule.
Classification of graphic analysis figures
On the basis of general characteristics, a classification of the figures of graphic analysis of Forex has been created. In the direction of the movement is divided into trend and reversal.
Designs that indicate that the asset is at its peak, and this is sure to be followed by a reversal of the trend:
- The model of the head and shoulders consists of three peaks, with the third above the others, formed at the top or at the bottom of the chart. The signal to the deal is a neck line breakdown;
- the diamond is formed during the period of weakening of the trend movement. The price is suspended, after which the vibrations gradually increase, within the part of the flowing triangle, then there is a return movement and as a result a diamond is formed. After breaking the edge of the diamond, you can enter the position.
- The double and triple top/bottom occurs within the price range. The breakdown of the signal line indicates the entrance to the transaction. To confirm, it is advisable to wait for testing by the signal line after crossing it.
- The wedge is formed at highs and lows, looks like a triangle with a top, when the boundary line breaks, you can open a position, taking into account the direction.
These are not all figures of this group, there are different modifications that indicate a change of trend.
Models are created during the consolidation period, when one part of the trend ends and the market is in the accumulation phase. These models include:
- The pennant is a horizontal triangle in which there is a fading price movement with reduced volume.
- A flag is a rectangle that is usually deployed in the opposite direction. The boundaries of the figure are almost parallel, and the changes in oscillations are not too wide.
These are not all models that predict a reversal or continuation of the trend, but these are the most common and popular. A closer look at this type of analysis will boost the market outlook.