Pennon Pattern

Flag and pennant are two short-term patterns that usually form during a brief pause in a strongly trending market. A moderate movement in the opposite direction to the main trend characterizes the pattern. Again, using bar charts, this period can last from three to seven days before a sharp breakout in the direction of the original trend is seen.

Example of an ascending "pennon"

Example of a descending "pennon"

A pennant is very similar to a flag, but instead of the sluggish pullback, market volatility decreases and price movement remains in line with the trend showing no evidence of retracement. Two points to note are 1) the pennant phase may last longer than the flag and 2) the pennant may take the form of triangles.

Pennant Pattern

Similar to the Flag chart formation, the pennant continuation pattern is guided by almost the same principles. The only difference between the two is that the support and resistance lines converge, which makes this continuation pattern to appear as a pennant.

Pennants can be either bullish or bearish. A chart pattern of a bullish pennant is observed when the original trend is bullish as well. On the other hand, a bearish pennant is observed under the conditions of a going down original trend. In both cases it is vital that the movement of the price preceding the pennant formation be a solid, steep move.

The pennant direction is not that important as is the case of the flag pattern, though generally the pennant is flat.

The pennant continuation pattern is considered complete when the breakout of the price is in the same direction of the steep price movement prior the formation. Additionally, there has to be heavy market volume during the breakout in order to confirm the chart pattern.

Flag Pattern

Shaped like a flagpole with a pennant, this formation is characterized by an upward movement with a large slope followed by a period of consolidation. It is considered a bullish pattern overall, as the pattern is expected to continue rising.

Example of an ascending "flag"

Example of a descending "flag"

Head and Shoulders

A pattern resembling two peaks (the shoulders) with a higher peak between the two shoulders (the head). The neckline, or the bottom boundary that both shoulders reach, is regarded as a key point traders can use to enter/exit positions.

This is probably the most famous of all chart patterns; however, its reliability is sometimes more reliable than others. When it works, it will always be seen as a reversal pattern and consists of four phases.

The first phase is the formation of a small peak (point A, which is the left shoulder). Then it retraces it. Next, more aggressive buying follows it, which in turn creates the head. Eventually, it retraces and tests the support (known as the neckline). Finally, it is followed by another attempt at a rally, which does not produce a peak as high as the head (point C). This is then followed by another test of the neckline.

Points B, D is the local minima.

This particular pattern is seen as a reversal, in which a break of the neckline is expected and the move should be in the amount equivalent from head to neckline.

The unreliability of this move result from the fact that the final test of the neckline does not always result in a break and the move continues in the same direction as before. This means a definite break of the neckline (e.g. 15-25 pips) should be seen before action is taken. Based on momentum, the momentum should be higher during the formation of the left shoulder than the right shoulder to confirm that this pattern is taking place and that buying pressure is decreasing.

Example of a "Head-shoulders" figure

The turned figure "Head-shoulders" does not require the description as its development is similar about accuracy up to on the contrary.

Example of a turned "Head-shoulders" figure

symmetrical triangle

This is also referred to as a coil and it usually forms during a trend as a continuation pattern. It contains at least two lower highs and two higher lows. At the time these points are conjoined, the lines converge as they are extended and the symmetrical triangle takes shape. One can also think of it as a contracting wedge, wide at the beginning and narrowing over time.

Example of a symmetric triangle

What is Pip in FOREX Trading?

It is very important that you understand what a pip is in the Forex trading because you will be using pips in calculating your profits and losses. A “pip” stands for “Percentage in Point”. A pip is the smallest price movement of a traded currency. It is also referred to as a “point”.

For most currencies a pip is 0.0001 or 1/100 of a cent. You may think it is a ridiculously low value. However, take into account that most currencies are traded in lots of $100 000. For that amount a pip is $10.

When a currency moves from a value of 1.4511 to 1.4514, it moved 3 pips. When a pip has a value of $10, you have gained $30.

There is an exception for quotations for Japanese Yen against other currencies. For currencies in relation to Japanese Yen a pip is 0.01 or 1 cent. Then if you are trading USD/JPY in $100 000 lots, one pip will be equivalent to $1000.

Understanding “Lots”

A lot is the minimal traded amount for each currency transaction. For the Regular Accounts one lot equals 100 000 units of the base currency. You can also open a Mini Account and trade in mini lot sizes that are 10 000 units of the base currency.

Understanding the Pip Spread

The spread is closely associated with the pip and has a major importance for you as a trader. It is the difference between the selling and the buying price of a currency pair. It is the difference in the bid and ask price. The ask is the price at which you buy and the bid is the price at which you sell.

Suppose the EUR/USD is quoted at 1.4502 bid and 1.4505 ask. In this case the spread is 3 pips.

The pip spread is your cost of doing business here. In the case above it means you sustain a paper loss equal to 3 pips at the moment you enter the trade. Your contract has to appreciate by 3 pips before you break even. The lower the pip spread the easier is it for you to profit.

Generally the more active and bigger the market, the lower the pip spread. The smaller and exotic markets tend to have a higher spread. Most brokers will be offering different spreads for different currencies. Smaller accounts will generally have higher spreads than bigger regular accounts.

From the profitability point of view it is important to find a broker offering a lower pip spread, however the low spread is not everything. Be sure you choose a reputable broker.

What is forex?

The simple sense of Forex (Forex currency exchange, Foreign Exchange) is simultaneous purchase and sale of the currency or the exchange of one country's currency for the one of another country. The world currencies do not have a fixed exchange rate and are always fluctuating, since each are traded in the currency pairs like Euro/Dollar, Dollar/Yen and others. 85% of daily trades are taken by major currencies trading.

Investments usually deal with 4 major pairs: Euro against US dollar, US dollar against Japanese yen, British pound against US dollar, and US dollar against Swiss franc or EUR/USD, USD/JPY, GBP/USD, and USD/CHF used to sign these pairs accordingly. These major pairs are considered as the Forex market's "blue chips.” You will not receive any dividends on the currencies. Well known "buy low - sell high" gives the profit for currency trades.

In case you have a forecast that one currency would get higher to another, you can exchange the second one for the first one and wait for the profit. If you are lucky to see the trades following your forecast you can make an opposite transaction and to exchange currencies back gaining the profit.

Forex brokerage companies, also known as major banks dealers, carry out Forex transactions. Forex market is worldwide and your European colleagues may make a transaction with Japanese traders when it is time for you to sleep in the North America. There are 3 shifts for the major institutions to work in due to 24-hours a day activity of the Forex market. It's possible to ask for overnight execution for take-profit and stop-loss orders of the client.

Prices in the Forex market fluctuate without any dramatic changes unlike stock market where considerable gaps are likely to be seen. There isn't any problems entering and exit the market due to its daily turnover of about $1.2 trillion. Forex market can never be forced to stop. The transactions were carried out even in 2001, on September 11th.

Foreign exchange market (also called Forex of FX to shorten the name) is the oldest market in the world. It is also seen to be the largest one. Since currencies' primary market work 24-hours a day, Forex is also the largest market with highest liquidity. This is an interbank market carrying out spot (or cash) transactions. The currency futures market, to be compared with Forex is traded only 1% as much.

Forex market does not have any exchange center unlike the stock market. Forex trading seem to go after the sun around the world, from banks of the United States to other parts of the world like Australia, New Zealand, the Far East or Europe and back to the US some time later.

High minimum amount of transaction and strict financial requirements used to make this interbank market unavailable for small speculators. The only dealers of currency markets were banks, huge-amount speculators, and largest currency dealers. They had an ultimate access to this market dealing with lots of primary exchange rates of the world currencies, the market with an extremely high liquidity along with an unusually strong nature of trends.

Nowadays small traders have an opportunity to purchase the small lots (units), because of the large inter-bank units being split by market maker brokers like FX Solutions, at the amount they like.

The traders of any size like small companies and individual speculators have an access to the market at the same price fluctuations and exchange rates, which only large players used to enjoy recently. Market makers monitor the rates so that produce their profit on the difference of rates at which the currency was bought and sold.

Foreign Exchange Market has an acronymic name Forex. It has the largest size and the liquidity throughout the world nowadays. Forex daily transactions are carried out at the common amount from 1 to 3 trillion dollars. No stock market is able to deal with a comparable amount of money.

This enormous market is like the dangerous sea where you can meet lots of sharks and dangerous waters but at the same time, it is the only one where two weeks of trading can hypothetically bring you $1,000,000 out of $1,000 of initial investment.

This is certainly hypothetically because many newbie traders deal with their trades as gambling, that surely bring them to having nothing in the end. You should always keep the phrase "be careful!" in your mind. This market would give you its profit possibilities only if you learn the basic things hard and make lots of demo trading.

The statistics is that as much as 95% of traders come to losing their money at Forex, 5% have profit, and less than 1% of traders make large fortune at Forex. You should not produce, sell, or advertise anything trading at Forex. Your assets are your knowledge, experience and a small amount of cash.

This market is a platform for banks, transnational corporations, and individual traders to change the currencies they possess into other ones. This is the spot Forex market. In this market, you can trade with up to 1:400 leverage. This means you will receive $400 (to your account) for each dollar invested. Therefore, you can trade with the $400,000 sum having invested $1,000 onto your account.

Still, there are lots of experienced traders who consider such leverage to be dangerous and will not proceed forward. Nevertheless, if you know how to use such high leverage, it will only do you good. However, this is the place to stop speaking about the basic things. Keep reading these articles if you want to be aware of how this market has occurred and some of its historical matters.

Now it is time to speak about the strategies and the way of making money at Forex some traders use. First, we should say that the things that work in one case do not certainly work in another. The fact is that currency trading surely means risk. Still, there are a number of strategies for the newbie to use to be the winner.

Forex trading may seem very easy but it is not. Your high today earnings may turn into considerable losses even of your starting capital tomorrow. Newbie traders are likely to make the same mistakes several times. Here is a list of such typical mistakes.

1. There is no use of searching the "Holy Grail"

This phrase is to think for those who are scared of losses or being too greedy does his best to get rich in no time. You can surely make lots of money some of the time and there isn't a necessity of producing and advertising anything but a huge homework is required to learn first. You have to know how this market works and which factors can take the exchange rate up or down. You should also be aware of the effective management for your money not to lose everything.

The majority of traders starting at Forex, look for their ultimate strategy that will cause no losses and will bring only profit. The desire of such people is to make a strategy that guarantees stable profit and millions of earnings in a short time without any losses for them to quit and enjoy their fortune and the new huge house. This will never bring any success.

No strategy will give you only profit and such research is only waste of time. High profits of trading are caused by high risk, and you will not earn a fortune without being on the knife-edge. Do not be sure that every trade will close in advantage to you. You will always feel uncertain and there is no way to vanish it. It means that you should always be ready to the possibility of your strategy failing even if it is thought as perfect.

You will save a plenty of time and nerves by avoiding the search for the perfect strategy of earning millions. Even if you find this strategy, you will not ever need it. You will see why later.

2. Apply fundamental and technical analysis.

At the beginning of my trading, I relied only on the money management on which I wanted to base my strategy and saw no sense of these analyses. However, money management, which is still very important, does not worth omitting them. You can forecast the direction of the market basing on your technical and fundamental strategies to see their effectiveness.

You'll be able to make forecasts of price movements by applying the past data of the prices and graphs to the technical analysis methods. You can predict future prices with the level of accuracy dependent on your technical analysis skills using the graphs of the rates you observe.

Trading with some brokers you can see technical indicators along with the graphs. You can apply it to your demo account and estimate your prediction skills necessary for planning trading decisions.

It is impossible to choose the most effective indicator among lots of various ones. Each trader has to decide for himself which indicator is best for him. You cannot find any magic formula; you just see the graphs, make your forecasts and find out whether they come true seeing the values in the news later.

Your decisions form this formula along with your knowledge that occurs out of the practical experience. Starting trading with an online broker it is best for you to trade with yourself on the sheet of paper rather than invest real money at once.

There are many technical analysis indicators available but here are the ones that are the most widespread: the Moving Average Convergence Divergence (MACD), the Bollinger Bands, Pivot Points, RSI, Stochastic, Fibonacci, EMA, and Elliot Waves.

The broker's software will automatically make all the necessary calculations when you add the technical analysis indicator to the graph so that you will see some facts, which are unavailable without using these indicators. It is even possible for you to build your own technical systems basing on these indicators. Fundamental analysis is another tool that maximizes your profit and minimizes your losses on the trades. Some traders prefer only one kind, but the majority prefers both.

Fundamental analysis means trading following the news (e.g. telling about the economies or unemployment rate) in the countries of the currencies you trade. They can also tell about the events that can have a strong influence on the currencies' exchange rate.

You can make forecasts on the market direction by following the news as well. That is why various trading software of the brokers like www.oanda.com offer a link to the page containing important news.

• www.bloomberg.com
• www.businessweek.com
• www.economist.com
• money.cnn.com
• markets.ft.com
• www.reuters.com
• www.fxstreet.com

3. Use the strategies of money management.

Money management strategies let you win or lose. You should use them to be in a profit. Many traders make too vast investments in every trade and this is not always rational and reminds of a saying: "Expect to make too much and you will make too little, expect to make little and you will make a lot." It means that even if you invest much trying to get a lot on every trade you can lose all and even if you make small investments looking for a small reward you can make a lot in some period.

1% of the total sum of your account is the maximum sum of the potential risk. This is the first rule of the money management. Stop loss and limit orders may help you to follow this rule. This may be the reason of the small profit, especially if you have small initial investments. However, by compounding a part of your profit or the entire amount, you can get an exponentially growing income.

This strategy of compound profits is the one that helped to make millions on financial market instead of gambling that results in losing all investments quickly.

Here is the example of the opposite tactics that many traders follow. Imagine that you have an initial investment of $5,000. You are lucky to possess the trading account and you enter a $1,000 trade. In case the market trends down and you lose your $1,000, then your assets become $4,000. Keep following your strategy and enter a $1,500 trade. Just make sure the market is at its low and remain hopeful that you get your $1,000 back on top of an earned extra $500. Then the market keeps moving against you leaving you with $2,500 on your account, which is only one-half of your starting capital. This is a very difficult situation to recover from.