FOREX Pattern bow tie
pattern bow tie
Forex pattern bow tie is a nothing but an intersection of 3 moving average periods and type of which you'll learn in the further consideration of this forex strategy, in a certain order and although the best option to use a daily chart showing, but it can also be applicable to trade within the day.
As you know, trends in the forex never last forever, they often exhaust themselves and of themselves, and usually after that, a new trend, which is directed in the opposite direction of the previous one. But the well-established trends usually last garazdo longer than many traders to predict.
But oddly enough, the market always gives us a signal to that trend begins to unfold, but before the new trend will continue, usually occur small corrective movement.
Figure 1. Trading on the forex conversions. Should wait for a trend change, and then enter the market at the first corrective movement, if the new trend will make his confirmation.
One very interesting transitional pattern is the pattern "bow tie" (English - Bow Tie). This pattern is based on the forex a few simple and exponential moving averages to determine when a trend change in the market.
To determine this pattern uses a 10-day simple moving average (SMA), a 20-day exponential moving average (EMA), as well as the 30-day EMA. 10-day SMA, gives the trader a "true" average price over the past two weeks or 10 trading days.
For longer-term moving averages are usually ispolzuyutsya Exponential MA, since They "weigh" all of the data. While they take into account the long-term trend called arynke, but they are faster to keep up with changes in price, because a greater weight to give them an update.
consider the basic rules for making a deal to buy (to get the rights to make a deal to sell just need to develop "rules for buying "):
And so we use a simple 10-period SMA, EMA Exponential with 20 and EMA with a period of 30 (these moving averages in the trade terminal MT4 called Moving Averages):
1) These moving averages are due to come together and break up again, changing the order to the order inherent downtrend (10-SMA <20-EMA <30-EMA) on the order inherent in the rising price trend (10-SMA> 20-EMA> 30-EMA). In an ideal period of time it should happen in 3-4 trading days. That's right, and appears on the chart pattern of "bow tie", consisting of interlocking moving averages. How it looks like - see Figure 2.
2) price on the chart should form a lower low and lower high . In other words, the rollback should occur, at least one bar.
3) As soon as the conditions of paragraph 2 satisfied - we open trading position to buy when moving above the maximum , which was designated in paragraph 2. We place a pending order to buy above the current maximum, which is usually performed on the next trading day. If the market is below 20EMA 30EMA or you need to overestimate the bargain (it is not about to cancel the trading order, and on to analyze the situation on the foreign exchange market: Do not lost the momentum.) If the order is open, then we place a protective stop-loss - its size depends on the volatility of the chosen currency pair. Ideally, it should be rasspolozhen far from current prices to not work with recoils against a new trend, which tends to last up to several days, if the transition to a new trend from the old trend is not yet completed the final.
Look at the examples:
on the chart in Figure 3 we see the cross-rate New Zealand dollar against the Singapore Dollar (NZDSGD). Cross-long course was in an uptrend. All three moving averages used by us, which should form a pattern of "tie - a butterfly," were in the correct order, which corresponds to the upward price trend: 10SMA> 20EMA> 30EMA. Then they all came together at the point 1, crossing with each other and a few trading days have formed a new order, which are peculiar to the downward price trend. That way, the chart pattern forex born and "bow tie". The market has formed with much higher high and a much higher minimum as required by paragraph 2 of the rules of our trade pattern. After that the price has crossed the minimum level at point 2, which resulted in the firing of the trade entry signal at point 3.
on the chart in Figure 4 we observe how the three moving averages of the index S & P 500 have formed our pattern of "bow tie" in August 2006, as order medium was switched to the correct order of the rising price trend 10SMA> 20EMA> 30EMA. After that, the market suffered reversals, which resulted in the implementation of Condition 2. Entering the market was carried out as soon as the old high was broken (3). After such a poor start the trend was so strong that the S & P moved in an upward trend during the remaining months of 2006 and early 2007.
good example of the above chart gives shares of Regeneron Pharmaceuticals (REGN) - Figure 5. Pay attention to the fact that in May 2007, the stock market was formed small triple top, and then began to discard. Instead expect the formation of a pattern "bow tie", you can enter the market before, at the first pullback. Thus, you can enter the market garazdo earlier than the pattern is formed and get a little more profit.
Top transitions movements occur after long-term bull and bear trends. Once the market begins to turn, most FOREX traders are on the wrong side of the market. That is why the bow-tie patterns are formed after the foreign exchange market has formed a new primary maximum or minimum principal. Once this happens, your chances of catching a very strong emerging trend is increasing.