Did you know that majority of traders analyze the charts using forex chart patterns? This is a popular way of predicting the movement of the market. However, this can be a very time-consuming way as well. Do you really have to learn all forex chart patterns? Let’s dive into the pros and cons of doing so to help us make this decision:
Benefits of Forex Chart Patterns
Since a lot of traders use forex chart patterns as part of their daily technical analysis, there is obviously a reason for doing so. This strategy must hold a ton of benefits which is why it is very popular among traders. Many of these traders have learned all the forex chart patterns. Here are some benefits of forex chart patterns:
Candlestick charts depict the price activity that took place in the market in greater depth than traditional bar charts do. Traditional bar charts don’t provide much information on their own. Thus, candlestick charts are used instead.
Pattern analysis gives Forex traders the ability to assess the probability of future movement based on the price action of a currency pair over time by looking at the price motion over time. After only a little amount of practice over a period of time, candlestick chart pattern analysis has the potential to become an indispensable part of a Forex trader’s day-to-day routine.
Trading in foreign currencies is frequently impacted by emotions such as greed, fear, and hope. In order to gain an understanding of these psychological aspects, therefore, technical analysis is required. This is one way of ensuring that you don’t let emotions get in the way of your trading. If you’re too focused on watching the market for patterns, your brain will be distracted enough to the point where it won’t let your emotions take over and perform trading for you.
Therefore, including the examination of candlestick patterns as an essential component of your technical analysis will make it possible for you to interpret the shifts in the way the market determines value, free from the effect of any of the human limitations that were previously described. Investor sentiment is another name for this concept.
Candlestick charts do this by portraying the interaction between buyers and sellers, which frequently manifests in price movement. This is one way that price movement may be shown by candlestick charts. Therefore, if you learn all forex patterns and use them daily, you would be saving yourself a ton of emotional distress when trading.
Visually, candlestick patterns offer a clear and straightforward collection of patterns that are straightforward and easy to understand. These patterns are extremely accurate. You will have no trouble seeing patterns in the market if you combine the use of candlestick charts with some fundamental technical analysis. When you trade, you may also start making money by recognizing these trends and capitalizing on them.
Drawbacks of Forex Chart Patterns
Despite this being a popular method of technical analysis, forex chart patterns do have their drawbacks as well. These drawbacks are the reason why there are traders who don’t learn all of the chart patterns. Some of the drawbacks are as follows:
Time Frame Discrepancies
On one timeframe, a candlestick pattern may seem to have developed precisely, but on another timeframe, the pattern may seem entirely different. When using several periods, it is because of this reason that it is difficult to put complete faith in the information sent by a candlestick pattern.
Because of this, it might make it difficult for traders to make decisions and carry out their deals. It is possible for the candlestick to show on many timescales. However, this is a rare occurrence. This is only the case if the candlestick is of adequate magnitude.
Trading with candlestick charts can have an effect on risk management if proper precautions are not taken. The majority of Forex traders wait until the end of a candle to initiate a trade, and they position their stop loss below the lowest point of the candlestick.
The fact that you won’t be able to predict where the candle will finish its journey presents a challenge. As a result, it makes pre-planning a deal difficult and has an effect on the risk management of a trader.
As a new forex trader, the last thing you would want is unpredictability. You need to ensure that whatever you’re doing in the market, you’re doing with absolute certainty. The last thing you would want is to blow your entire account because you weren’t too sure of a position, and it ended up going into significant losses. Risk management is an essential part of trading and needs to be part of your precautionary methods as well.
Due to the fact that the majority of Forex traders wait until the end of a candle before placing a trade, the candlestick pattern used in technical analysis is considered a lagging indicator. This has a number of limitations, the most significant of which is that trailing indicators just record the outcomes. This gives the trader space to determine or speculate on the subsequent price fluctuations.
So what does this mean? It means that by the time most traders figure out what chart pattern is going on in the market, it’s usually too late to enter the trade. The pattern would have been coming to an end, making it impossible to profit off of the position at the time. This makes forex chart patterns lagging indicators since they don’t provide valuable information on time, making it hard to use them as a good and reliable trading strategy.
Do you Really Have to Learn All Forex Patterns?
There is no doubt that forex chart patterns come with their fair share of pros and cons. So do you really have to learn all the forex chart patterns? That depends on you. You have to weigh the pros and cons for yourself, and if you believe that the pros outweigh the cons for you, then learning all the patterns may be a good idea. However, if you believe the cons are more heavy, maybe experiment with other forex strategies as well.