I was giving a webinar on chart patterns for InstaForex yesterday and we went over 13 different charts and ended with some live examples from EUR/USD. As a follow-up, I will show the 4-hour EUR/USD chart as I have used as an example multiple time already. For the final part of the movement since December 28 till today, I have added the 30-minute chart adding the different chart patterns, starting with a S/H/S top playing out from January 5 to January 7. Once the S/H/S neckline broke at 1.2280, the price of EUR/USD went into a triangle consolidation before moving lower towards the S/H/S target at 1.2201. The descending price action struggled a bit after breaking down from the triangle consolidation and went into a Diamond consolidation - One of the more rare chart patterns as they can both be a topping and a continuation pattern. In this case, it was a continuation pattern as the price broke out to the downside to hit the S/H/S target at 1.2201 and the diamond target at 1.2149. Once the diamond target was hit, the price of EUR/USD went a bit lower before entering a sideways consolidation - a rectangle - which broke to the upside to test the triangle-resistance near 1.2222 before turning lower again to complete the decline at 1.2052 or the 50% corrective target of the rally from 1.1825 to 1.2296.
Once the low was in place, we saw the first S/H/S bottom grow into an even bigger S/H/S bottom with a target at 1.2266. As long as the price move higher from 1.2052 follows the path of higher highs and higher lows the short-term trend will be up as is the longer-term trend from 1.0736.
A day trader would follow the 30-minute chart or maybe even a shorter time-frame, while a medium-term trader would follow the 4-hour chart to stay with the trend for as long as possible.
Pattern recognition is one of the fundamental stepping stones for the technician to navigate the price action. and the targets that can be derived from the chart patterns are good guidelines for the possible next price target, but they are only guidelines as all patterns can exceed the price target or they can fail and miss the derived target.
Remember that the trend and patience are your friends
*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.
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