Two of such patterns are the reversal pattern and the Ross Hook pattern. The pattern can be used to trade reversals on the forex charts. The pattern signals the end of a major trend and looks to catch trades on the reversal into a new trend. Just as it is with any other pattern, you would first need to know how to identify it before you can make any trades using it. The reversal pattern forms in three steps. Before we take a deep dive into the steps, recall that the pattern is used to trade trend reversals.

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So, if the market is currently in a downtrend, you would look to trade a reversal to the uptrend with the pattern. Conversely, if the market is in an uptrend, you would be on the lookout for a trend reversal to the downtrend. The first thing is to look for major trends. Typically, the stronger the trend, the bigger the reversal would be. Although you can still use the pattern on smaller trends, there are more fakeouts on these smaller trends and the reversals are usually not big enough to make a lot of profit.

We will use the High a reversal to the downtrend from an uptrend to explain the basics of the pattern. Is that anything that works for an uptrend will work for a downtrend in forex if you flip it on its head. You need to identify the highest point of the strong trend. The retracement from this point is your Pivot 1. A way to recognize the highest point is by drawing a support trend line beneath the trend. The highest point before the market breaks the support trend line is your first pivot.

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Make sure the trend line is following prices reasonably close enough, but not too closely. If the trend line is too close to the price, you may get faked out often. And if your trend line is not drawn tight enough, you may miss out of the several opportunities. A rule of thumb is to use the recent two or three support levels to draw your trend line. But it would help many beginners recognize many trend peaks. The second pivot in an uptrending market is the lowest point after the retracement from Pivot 1.

It is the point where the market hits a support level and goes back uptrend. Sometimes, Pivot 2 occurs on the same level as the previous low. Other times, it forms beneath the low. And in some cases, the retracement occurs even before the price reaches the level so the previous low. Whichever way, this second retracement is your Pivot 2. The third pivot is the final retracement in the downtrend direction. After the price goes through Pivot 2 and behaves like it's going back uptrend for a while, it makes a U-turn somewhere in between Pivot 1 and Pivot 2 back to the downtrend.

This pivot must be in between your first and second pivot.

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Otherwise, it is no longer a pattern. Those three pivots make up the high reversal pattern. For low, it's all about flipping the pivots on their heads. For instance, you look for a strong downtrend and wait to see a retracement from the lowest point of the trend. The retracement from that point gives you your Pivot 1.

The retracement from the short uptrend is your Pivot 2. Your Pivot 3 forms in between Pivot 1 and Pivot 2, when the market temporarily returns to the downtrend before making a final U-turn to the uptrend. You will find this pattern forming on your chart on any forex timeframe you use.

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These line studies include gold trading trend lines, Fibonacci retracement, support and resistance levels. This strategy uses three chart points to determine the break out direction of a gold trading instrument. The method uses a peak and a trough, these points forms point 1 and point 2, if market moves above the peak the signal is long, if it moves below the trough the signal is to short.

The break out of point 1 or point 2 forms the third point. Top Gold Broker Rankings. Forex Contest Limited Time. Investors use gold price action to try and predict where a gold trend direction might go.

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The gold trading market is either trending or ranging. It's good to come across a blog every once in a while that isn't the same old rehashed material. Fantastic read! You must be logged in to post a comment. Previous Next.

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Most of the pattern remain within the Bollinger Bands. The pattern is completed near the upper Bollinger Band or near the period moving average of the same indicator. The arrows indicate the market entry points, which are down the point 3 of the pattern. In this case, these entry points are located in a level before what is recommended by the classical strategy to trade with these price formarions.

In other words, this system uses Bollinger Bands to generate an early market entry based on the pattern. System rules The system rules are fairly simple. The only difficulty is that it takes practice to identify the pattern.