Forex Chart Patterns Analysis
Here is a nice break down of how forex chart patterns are used to compress the supply and demand zones of the market. Understanding where retail forex traders put their stops is essential to determining how the banks are trading or will trade at any given point. This video shows some past examples of forex market manipulation, and the true purpose of it. In general as retail forex traders we are not privy to actual bank order flow. The next best thing however is having a in depth understanding of how most retail traders will respond when common patterns occur. Why is that important?
Knowing how the average retail trader will respond is essential information for one key reason. Where the orders are is where the banks will likely take the market. It is a simple matter of supply and demand. If you desire to buy a large amount of apples you must find someone or a group of people willing to sell a large amount of apples. Without someone will to sell them to you, you cannot buy. The same is true for the banks.
With positions that are extremely large the must find an equal amount of orders to not only enter their positions but to exit them as well. Understanding where the orders are is not a “bonus” or a “plus” for them, rather it is a necessity. Being that it is a necessity means that they will repeat the same process to assure they have this supply to meet their demand required to enter and exit such large positions. Therefore, understand how the banks will benefit from a given forex chart pattern will help us understand with a higher degree of certainty the next direction in the market.