Forex education has evolved throughout the years with new strategies being taught on a frequent basis. However, there are still concepts that apply today in the same way they have applied years ago. One of those concepts is trading chart patterns and candlestick formation variations. That it, in order for a trade to be successful a chart pattern or a candlestick formations does not have to be exact.
In your Forex education programme you will be taught what chart patterns such as flags, pennants or double bottoms look like. You will also be taught how to identify various candlestick formations such as the engulfing pattern, dark cloud cover or the piercing pattern. More importantly, you will be taught how to interpret those patterns and formations and decide whether they qualify as an opportunity to trade. As you continue to learn Forex trading, you will come across numerous charts that include patterns and formations that look 100% identical to those that you have seen in books and other ducational documents. However, you will also find chart patterns and formations that are not 100% identical but certainly have the characteristics of those you have been taught.
Rather than throwing these types of charts in the bin as they are not 100% identical, try and spot trading opportunities within them they are there. To start with, place them in a group of charts you are simply watching, identify your target and see if the trade will go your way. By no means should you place real money on this trade but simply pretend to trade it as you would normally. The actual patterns and formations to not have to be exact but if you identify the correct variations, they can deliver great profits.
Simply put, choosing the trade variation that is right for you can be really subjective. For example, if your trade has a resistance level of $10, do you simply stop yourself out of the market when the price reaches $10? If not, do you wait for the market to close above $10 before you exit the market? If you do wait, how far up are you willing to see the price go until you decide you do not want to be in this trade? Similarly, if you are trading a channel on a daily basis, does it become exempt if the support or resistance have been penetrated intra day? Do you still view the channel as an opportunity when the candlestick opens below the support line and closes above it? The answers to these questions will come with experience, practice and the aggressiveness of your trading style. Nevertheless, bear in mind that variations in trading patterns and candlestick formations appear on a regular basis and it is up to you to find them and trade them appropriately.
However, do not make the mistake of ‘making exceptions’. Your Forex education should have taught you that a pattern or a formation can only be so much different in order to be considered as an approachable variant. If you identify a currency pair chart that is just that little bit ‘too different’; walk away from it. If you decide to give it the benefit of the doubt you are destined to fail. To confirm it is the wrong trade have a look at what the market has been doing prior to this point, what the indicators are doing or what news has been released on the Forex or your currency pair in particular. There is a very fine line between success and failure when trading chart or candlestick variations but if you get it right, the profit opportunities are fantastic.
