Chart Patterns -Powerful Scalping Setups

Every market is made up of humans, including the forex market. This fact is often forgotten by many. For every price movement there is a person or group of people that created the move. When you think about this you can gather facts that can be used to trade price action profitably. Noting this fact when you see short term price patterns, this is not only seen by you but by others as well. These traders just like you recognize certain well established scalping setups and time tested chart patterns and thus these patterns become self fulfilling prophecies, and create reliable moves in the forex market. Often chart patterns are simply dismissed as to simple to be profitable and therefore are often overlooked. Many people feel that something so simple can’t be profitable, can’t be reliable, but with practice these patterns can be all you need.

First lets examine some short term chart patterns that can be used to day trade in the forex market. One notable setup is that of triangle chart patterns. There are three main triangles ranging from ascending triangles, to descending triangles, as well as symmetrical triangles. A descending triangle is formed when the price makes a low and continues to make lower highs while maintaining the same low. As the price continues to “pinch’ towards the low it signals that soon, the price more often than not will break that low and continue down in the direction of the first move, the opposite being true for ascending triangles. Symmetrical triangles are similar in that the price continues to have a smaller range but unlike descending and ascending, symmetrical triangles make lower highs AND higher lows in a symmetrical fashion. Triangles in any form are important signals that a move in the market is on the way and often tell the direction of the move with high probability. If nothing else, they simply signal that the price is going to break one direction soon and can still be used as a break out type setup.

Another important and profitable forex chart pattern is that of double tops and double bottoms (DT/DB). Lets go back to the fact that the forex market is made up of humans placing orders and thus moving the price around. How does this apply to DT and DB’s? Lets examine that a little further. When the market hits a price and turns around at an area of support or resistance and then makes it back to that area this is seen by all. Human psychology dictates that once the price hits or gets in that area again its will be viewed as a turning point and therefore, once again, the price turns more often than not. Often times in our live trading room support and resistance is at the heart of every live trades entry as well as exit.

An important key factor to these charts patterns is the timeframe they are seen and used on. As with any other setup in the forex market, chart patterns on smaller time frames such as five minute charts are not respected as much as those on hourly, 4 hour, and or daily charts. Although smaller time frame chart patterns are not respected as frequently they can still be used successfully. Often times they are used to signal that the price is going to move and used to signal a breakout rather than direction, which is still a valuable tool. Without a doubt almost every night in the live trading room we place a trade in part or in whole based on short term price setups. Although I dont recommend using strictly a triangle formation or a DT/DB to trigger a trade, if used in combination with each other and another entry/exit strategy they are extremely reliable.

If you’ve tired of the other 99% of all other forex trading systems that use complicated indicator setups or other sources for market direction and trade entries that just don’t work, and want to understand basics, then price action based chart patterns are for you. Without a doubt chart patterns are king when it comes to scalping and trading short term price action in the forex market.

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