Price patterns tend to appear in general "flavors." The first and most frequent type are consolidation patters like flags and pennants. The second and more dramatic type are reversal patterns like head-and-shoulders and double tops.
Identifying a technical pattern is part of the job when conducting a technical analysis of a particular currency pair, however, creating an estimate for where prices may go after the breakout is the just as important. Here are a couple ways to approach the problem of estimating price targets.
1. To create a price target following a breakout from a consolidation pattern measure the distance from the start of the last major move to the beginning of the price pattern. Project that same distance beyond the breakout point and that is your initial target.
In the video you will learn more about how to identify the major move that is the basis of the projection distance. You will also learn more about how to find price patterns in charts within the MetaTrader4 trading application.
2. When projecting prices from a reversal pattern the height or depth of the pattern is used in a similar way that you may use the major move in a consolidation pattern.
For example, if a head and shoulders pattern emerges following a strong uptrend on a currency pair you would measure the height of the pattern from the neckline to the top of the head and project that distance down from the neckline breakout.
In the video you will learn how to create price targets for both consolidation and reversal patterns. You will also learn how to find reversal patterns on the charts within MetaTrader4.
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