The currency pair you‘re watching crashed and quickly reverses. You don’t know if it is safe to enter just yet. You stay on the sidelines while many of your friends are making money trading the same currency pair.To get more news about <b>WikiFX</b>, you can visit wikifx official website.
You would want to be in the trade earlier than most participants to make more money and have boasting rights. When the crowd starts entering the same trade, you can smile at them because you have been in the green for a while now.
The question is how can you enter before the crowd？ How do you know when to enter to avoid getting wiped out？ Look out for the head and shoulderschart pattern. When you spot it, you can be confident that a reversal is on its way.
Lets use the most traded (also my favorite) currency pair as a case study – EUR/USD.Besides the market structure, volume is also critical in assessing the chart patterns validity. It has to be declining at the right shoulder which is shown in the charts below.
The neckline of the head and shoulders chart pattern can be horizontally or sloping.
Knowing the above, what should this pattern look like？
At market bottoms, you‘ll see an inverted head and shoulders chart pattern instead. It is exactly the same as the head and shoulders chart pattern discussed above, just that it’s flipped upside down.
It pays to wait for prices to form a pattern before entering after a crash because the first few rallies are usually deceiving.
When a currency pair is rallying and at a significant top, wait for a pattern to be formed to save you from all the agony and losses from buying the top.