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Trading Popular Chart Patterns

Do famous Chart Pattern work?

Chart Pattern Manipulation

It is more important to understand Stop running and Forex Market Manipulation than popular and famous chart pattern formations. A trader should be careful by analyzing famous chart patterns. Very often, technical chart trading patterns are used to fool traders into bad trading setups as market often reverses after the breach of the neckline or the confirmation of the chart pattern particular with popular chart patterns like the Head and Shoulders formation.

However, a trader should know these kind of famous chart patterns but also be cautious while employing them in forex trading like the EUR/USD, EUR/GBP GBP/USD and in other Forex Majors. Very often it is profitable to go with the market price manipulation and to search for a false breakout signal or price rejection of popular, very obvious and famous chart patterns. This for example might be a false price breakout/ price rejection of a neckline break of an obvious Head and Shoulders pattern.

Famous Trading Chart patterns and Forex Market Price Manipulation

The Ending Diagonal Pattern and the Three Drives Pattern (below) as a kind of exhaustion trend pattern fits well with the market price manipulation in Forex because the succeeding lower lows or succeeding higher highs of these Chart patterns fool many breakout traders/ trend continuation traders to go with the price breakout whereby the market price is always returning back into the prior price range.

Finally when the accumulation/ distribution phase/ Forex manipulation is over market price is breaking through the opposite market boundary hence clearing the stops of the fooled breakout traders and leaving not much chances to successfully participate in the fast price reversal.

The same market manipulation principles of fooling Breakout Traders/ Stop Runs and also relatively low chances of successfully participating in the price reversal are the key points of the Butterfly buy/ sell pattern.

Overall, the major price reversal is often occurring after market price made a final false price breakout before strongly changing the market direction. This simply guaranties that the Market Price Manipulation fools as much Forex traders as possible through stop runs and false price breakouts. The finally sudden price reversal after the stop run reassures a low participation rate of traders in the major price move. These characteristics of many popular chart patterns mirrors the depth of the market manipulation in Forex.

In general I would not recommend to focus mainly on famous price chart patterns. These popular chart patterns are most often the consequences of the market price manipulation in Forex, so to understand the structure of the hidden market price manipulation behind these chart patterns is more recommended.

The famous Head and Shoulders pattern

Head and Shoulder pattern
Head and Shoulders pattern

Head and Shoulders pattern on the 5 min chart. Market took out the neckline (brown line) and the Euro found some support at the 100 % Fibonacci extension at 1.2918 from the a-b wave moved to the c point plus the prior low (1.2919) before the market finally went down further (gap).

The general target of the Head and Shoulders pattern is the 100 % Fibonacci extension from the Head to the Shoulder, which is farther away moved to the break of the neckline (not shown).

Here you can find a complete Market Report about the developing of a Head and Shoulders pattern, the triggering of the neckline and the final Head and Shoulders price target.

Some other Examples:
Head and Shoulders pattern

Inverse/ Inverted Head and Shoulders pattern:

Inverted Head and Shoulder
Inverse/ Inverted Head and Shoulders

Ending Diagonal pattern

Ending Diagonal pattern
Ending Diagonal pattern

Ending Diagonal on the 5 min chart (C-Wave)  at the beginning of the US session.

The Ending Diagonal (Elliott Wave pattern) consists of 5 waves, whereby the third wave should not be the shortest (three waves in trend direction/ two waves against it/ retracing. The Ending Diagonal is a kind of exhausting trend pattern, whereby the momentum of the trend is fading away. Usually the Ending Diagonal is going to be retraced completely.

The Ending Diagonal ended at the 61.80 % fib extension of  wave A at 1.2983 (5 min chart) and the internal waves down of wave C lost strength and got shorter. The minimum target of this pattern is the beginning of the Ending Diagonal (point B).

Very often the Ending Diagonal occurs at the 5th wave but also at the C-wave of a ABC correction.

IMO the Ending Diagonal is a special form of the Three-Drives pattern below.

Three-Drives pattern (three rising tops)

Three-Drives pattern/ Butterfly pattern

Three-Drives pattern/ Butterfly pattern

Three consecutive higher high/ lows whereby the momentum is fading (smaller/ shorter swing length) with every new high/ low. After termination of the Three-Drives pattern market often reverses sharply.

Butterfly Sell pattern

Butterfly sell pattern
Butterfly Sell pattern

Another Butterfly sell pattern (EUR/USD Market Recap 2012-10-03)

Butterfly sell pattern

Butterfly Sell pattern

Another Butterfly Sell Chart Pattern

Butterfly sell pattern
Butterfly pattern

Butterfly Buy pattern

Butterfly buy pattern
Butterfly buy pattern

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