How to Use a Forex Cheat Sheet

INTRODUCTION:

It is quite tricky to generate money on the forex market. In fact, it is tricky for any other exchange as well. So, if you are new at this, and looking for a sure-shot way to make money, then you definitely need to learn about chart patterns. They can be considered as a back-door way to anticipate price movements that will help you to act accordingly. Their job is to ensure that earning money from the forex market is made possible. Learning and understanding the different chart patterns guarantee that you are able to use a forex cheat sheet properly and accurately.

Using the forex cheat sheet for a newbie can be a confusing affair. Thus, next, some of the more useful reversal and continuation patterns have been outlined below in a forex cheat sheet. Do read on to become familiar with them to make better trades.

HEAD AND SHOULDERS:

Consisting of 3 peaks, the head and shoulder pattern happens to be a quite complicated formation. Out of the 3 peaks, the highest of the three is the center peak. This popular pattern resembles human anatomy; hence, the name.

Some vital information

* Type of signal – Reversal
* Forms during – Uptrend
* Next move – Down

Reading the pattern

* Suppose the market is steadily rising for some time now when suddenly the price hits a peak. This will allow a short consolidation. This creates the “left shoulder” of the chart pattern.
* The bullish advance will continue from the low point of the “left shoulder” and notably surpasses the previous high. The price will reach a new peak after some time. This will allow a more prolonged consolidation. This represents the “head” on the chart pattern.
* From the low of the head, a final advance starts. However, it fails quickly turning the market down. The “right shoulder” represents this which is kind of in line with the “left shoulder” and will be lower than the “head”.
* As the price breaks below the neckline, the pattern will become completed. This will be represented as the line that connects the low of both “shoulders”.

Here it should be mentioned that the neckline might slope in any direction. It is used to predicate the severity of the price decline. This chart pattern will allow you to project the height of the pattern to the neckline break, helping you to set your profit target accurately.

RISING WEDGE:

Also known as triangles, wedges happen to be a very common pattern seen on forex charts. The rising wedge is known for being a bearish pattern. However, you may need to read the pattern in an uptrend as well. You will witness this when price consolidation tends upward. After a long time of many higher lows and highs, the price will shoot below the trend line marked by the completion of consolidation.

Some vital information

* Type of signal – Continuation
* Forms during – Downtrend
* Next move – Down

Reading the pattern

* In a downtrend, this chart pattern is formed typically by overconfident buyers.
* Every time, after a drop, the market begins consolidating. During this time, the speculations of traders are heavy on a reversal. The market can be manipulated to be reversed if the involved traders are in the majority. However, in spite of being in the minority, traders considered as “contrarian” may enjoy gaining the upper hand.
* The reason behind this is the common sense to not short a market after a notable drop. Why take the risk of being stopped out via the imminent correction? This pattern will help you realize that it is best to wait until the correction occurs after which a trader can enter at a better price.
* The selling pressure will ease up if most traders realize this. This will allow buyers to bid up the price. However, as soon as the buyers have exhausted everything, the traders who have been on the sidelines will be able to influence the market with their shorts.

So, it is clear why in most cases, this chart pattern hints continuation in a downtrend. This chart pattern will help you to know the exact spot where there will be failure of “bull” run and sellers can influence back into trend for the forex market.

BULLISH PENNANT:

The chart pattern looks like two converging trend lines bounding a short triangle. You will notice it indicates at a price move that in the direction of the prior trend leg. It only appears in advancing markets. You should know that flags are pretty similar to pennants in their structure. So, understanding one will help you to understand the other pattern quicker and better.

Some vital information

* Type of signal – Continuation
* Forms during – Uptrend
* Next move – Up

Reading the pattern

* You will notice a strong upward move in case of this chart pattern that kind of looks like a flagpole.
* Once the upward move is witnessed, the market starts to consolidate as most buyers cease their activities. You need to pin-point this better as it will help you to differentiate between flags and pennants patterns.
* There will be less intensive effort for reversing the trend.

The best thing about pennant (both bearish and bullish) patterns is the fact that a forex trader can use the cheat sheet to catch the breakout from the pattern. This is possible because from a higher chart perspective, the chart pattern in question is often a simple impulse move towards the trend.

SOME OTHER CHART PATTERNS CHEAT SHEETS TO BE FAMILIAR WITH:

* Bullish and Bearish Rectangle.
* Inverse Head and Shoulders.
* Double Bottom and Top.
* Falling Wedge (both in an uptrend and downtrend).
* Bullish and Bearish Flag.
* Bearish Pennant.
* Descending and Ascending Triangle.
* Butter Pattern.
* Engulfing Pattern.
* Cup and Handle.
* Broadening Top.
* Rounding Bottom.
* Hammer.

TO CONCLUDE:

There you have it; this was some information about some of the popular chart patterns. These patterns act as one of the most popular tools of technical analysis. They have been mentioned above to ensure you know the accurate way to use a forex cheat sheet to your advantage.

It is advisable that you research more to figure out which chart pattern is the best fit for you and your trading goal. You should definitely mix the cheat sheet techniques learned here with your very own rules regarding the time frames you follow, the currency pairs your trade, the risks you take, and so on.