Trade the trend. You must trade the trend to make money. So goes the popular saying in the forex. While you can make money trading against the trend or trading with no trend at all, the foreign exchange moves in a single direction more often than any other market in the world. So why not take advantage of it? But how do you know if a trend will continue or if it is completely done?
Candlestick continuity patterns can tell you this. Let's look at my favorite ones:
1. Symmetrical triangles
Symmetrical triangles are formed when the price is squeezing together like an accordion. Higher lows and lower highs are putting pressure on the market causing the price to almost stall. Symmetrical triangles indicate that the price will eventually break in the direction of the trend.
Now symmetrical triangles can be bearish or bullish – just depends on which way the market is moving. Wait for the market to break out of this pattern, and then enter your trade.
2. Ascending triangles
Ascending triangles are a bullish continuation pattern. They are formed when the market is making higher lows but is forming a resistance line above. Again this indicates market pressure, and generally price will break that resistance and move upward.
3. Descending triangles
Descending triangles are a bearish continuation pattern. They are the reverse of ascending formulas and indicate that the market will fall. Wait for the market to break its support and then go short.
Candlestick rectangle patterns are created when the market has begun changing – it can not break through resistance or support, so it just builds between them. When the market ranges after a strong trend, usually the price continues in the direction of the trend.
If the price were to reverse (ie the trend end), you would see a strong reaction forcing the price the other way. When you see the market changing instead, this means that buyers and sellers are comfortable with the current price, and they are just waiting for the right time to continue the trend.