Reading Chart Patterns Part 3

Copyright © 2007 Stephen Margison www.sm-forex.com

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Reading Charts 3

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The Forex Codes Moving Averages

– Shows the trend in a smoothed fashion

– Used as moving levels of Support and Resistance

– No good in sideways, tight-ranging markets

– It is a “lagging” indicator. It follows price action





• On all our charts we use:

1. 10 DAY EMA

2. 200 period EMA/SMA

3. 5 WMA

4. One or more other EMAs depending upon timeframe used






The Forex Codes – Chart Pattern

• Chart Pattern is one KEY to trading success

• It is a Market “Fingerprint” or “CODE”

• Use only the most basic and obvious chart patterns just like the Pros do!

• Others will have spotted them hence more probability of success


The Forex Codes Continuation Patterns

• These occur when the prevailing trend pauses

• The next move usually in the same direction as the Trend

• Higher the timeframe the more powerful the pattern

• There are always exceptionsCopyright © 2007 Stephen Margison

www.sm-forex.com

The Forex Codes Flags and Pennants

• Very powerful patterns to trade. Very reliable.

• Brief pauses in a dynamic market move

• Must be preceded with a sharp and almost straight line move

• After the pause the trend resumes on a burst of trading activityCopyright © 2007 Stephen Margison

www.sm-forex.com







The Forex Codes Reversal Patterns

• Higher the timeframe the more powerful the pattern

• Can be more risky because you are going against the trend

• Must have a prior trend

• It may only be a short-term reversal of trend

• First sign may be the breaking of an important trendline


The Forex Codes Reversal Patterns - Double Tops

• Very frequent and easily recognised

• Top is often referred to as an “M”

• Ideal DT has two prominent peaks at about the same price level

• It is a bearish pattern at the top of an uptrend

• Good for bounce trading off a high








The Forex Codes Reversal Patterns - Double Bottoms

• Very frequent and easily recognised

• Top is often referred to as an “W”

• Ideal DB has two prominent troughs at about the same price level

• It is a bullish pattern

• Good for bounce trading off a low






The Forex Codes Reversal Patterns – Where Could a Reversal Occur

• At a Key “Cluster” Level

• At a Pivot Level

• At a break of solid Trendline

• At a Fibonacci level

• At strong Support or Resistance

• With MACD DivergenceCopyright © 2007 Stephen Margison www.sm-forex.com

The Forex Codes Reversal Patterns – MACD

• MACD is a simple momentum indicator

• Can help us spot trend reversals

• I use it for spotting “Divergence” only

• Must be used in combination with other tools and never on its own










The Forex Codes



“IT’S TIME TO GET MORE OUT OF LIFE”

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Reading Charts 3

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Reading Chart Patterns Part 3