Chart patterns are commonly found for almost any price charts. It is more visual when view using a line chart than candlesticks or price bar chart.
As each price bar forms, it may give the chartist a perspective in relation to the formations showed by the historical bars.
Today, we shall dissect a 4 Hourly chart of CHFJPY to understand how patterns can form and perhaps to take advantage of the formations for trading.
As shown above, it is evident that CHFJPY has finished a Head and Shoulders Pattern which is a Bearish Reversal of the previous Up trend. The Up trend happens to be at the ‘armpit’ of the Left Shoulder and Price break down the trendline, indicating the Head is formed. With the falling price, buyers wanted for an entry and attempted to push the price higher, thus forming a pullback.
But it goes to show that more are keen to sell than buy, and after several attempts to break above the up trend line, there is a sharp plunge which is forming the Right Shoulder.
On the same chart with the Head and Shoulders pattern, the keener eye might find more patterns within the Head and Shoulders!
- Left Shoulder was a Double Top formation and Price found a support line to bounce off and overcome the top of the Left Shoulder to form a Higher High (Head).
- After the attempt to make the Higher High, a bearish engulfing candlestick pattern formed resulting a possible price fall as seen on the chart.
- A support / resistance line provide another bounce back with price forming a rising wedge pattern, it also an attempt to test the up trendline and to break it to the bullish side. Along with the evening star candlestick formation, the bearish reversal was like a quick runaway to sell down CHFJPY.
- After a break below the support line, it seem to consolidate and wanted to move up above the support line, yet, the failed attempt results another dive for CHFJPY.
It is easy when we analysis charts in hindsight, when the formations were already there. It is a challenge for us to make sense of the charts as the days goes by. But after knowing a possible formation is underway, you can be sure many chartists who see it will want to ride it.
What we see for CHFJPY is on a 4 Hourly chart, which the above patterns were forming as the weeks goes by. It also shows that when the bullish sentiments of the Big Boys faded, the bearish reversal can last for a long time before another big move comes.
