<p>The <strong>Bill Williams Accelerator Oscillator</strong> is an indicator that was developed by Bill Williams, a well-known technical analyst responsible for designing multiple commonly used trading tools. In fact, there is an entire Bill Williams section of indicators included with Metatrader 4.&nbsp;</p> <p>&nbsp;</p> <p>In this particular indicator, the indicator looks at momentum and when that changes. This can quite often lead to a change in price shortly thereafter. After all, if the momentum in an uptrend is starting to slow down, that could suggest that there is less interest in that financial asset. This typically will lead to profit-taking and even selling. In the inverse, momentum to the downside will start to slow down before buyers come in and pick the market up or simple short covering happens.&nbsp;</p> <p>&nbsp;</p> <p>The indicator will not only suggest when the direction of momentum starts to change, but it also looks at whether there is an acceleration in the change of momentum. This is very useful information because it can lead to an opportunity to close out a trade that is profitable, or perhaps open up a new one relatively early in the trend change.&nbsp;</p> <h2 dir="ltr">How to add Bill Williams Accelerator Oscillator to MetaTrader 4&nbsp;</h2> <p>Adding the Bill Williams Accelerator Oscillator to your Metatrader platform is simple. You simply need to click on <em><strong>Insert</strong></em>, followed by <em><strong>Indicators</strong></em>, followed by <em><strong>Bill Williams</strong></em>, and then finally choose <em><strong>Accelerator Oscillator.</strong></em>&nbsp;It&rsquo;s worth pointing out that the Bill Williams set of indicators is included in all platforms, so there is no need to download anything else.&nbsp;</p> <p>&nbsp;</p> <p><img alt="Adding the Bill Williams Accelerator Oscillator to Metatrader" src="https://k13-dev.thinkmarkets.com/TMXWebsite/media/TMXWebsite/BW-Accelerator-image-1.jpg" /></p> <p>&nbsp;</p> <p>Once you choose the indicator, the dialog box will pop up with a couple of different choices. The <strong>Value Up</strong>, and the <strong>Value Down</strong>&nbsp;are both available to change as far as colors are concerned, and then you can change the <strong>Fixed minimum</strong>&nbsp;and <strong>Fixed maximum</strong>.For the purposes of this article, we will be using the default settings, but if you choose to experiment, you can easily do so on a <a href="https://portal.thinkmarkets.com/account/individual/demo" target="_blank">demo account</a> without risking any of your trading capital.</p> <h2>How the Bill Williams Accelerator Oscillator is calculated</h2> <p>The indicator is calculated like most oscillators are, using a couple of moving averages. As usual, this oscillator will have a faster moving average and a slower moving average. The Accelerator Oscillator ends up showing a histogram that is a moving average that is the fast moving average calculation minus the slow <a href="https://k13-dev.thinkmarkets.com/en/trading-academy/forex/sma-indicator">moving average</a>.&nbsp;</p> <p><br /> In other words, it takes the difference between the two input moving averages and creates a third moving average representing part of the final equation. This calculation ends up being the <em><strong>AO</strong></em>&nbsp;which then has a <em><strong>Forming moving average</strong></em>&nbsp;subtracted from it in order to smooth out the results. It should be noted that the <em><strong>AO</strong></em>&nbsp;is actually the Awesome Oscillator that Bill Williams also has developed. This is simply a more complex version of that indicator itself.</p> <p>&nbsp;</p> <p>&nbsp;<strong>The calculation works like this:&nbsp;</strong></p> <ul> <li>&nbsp;Fast moving average minus slow moving average to end up with &ldquo;AO&rdquo;</li> <li>&nbsp;Forming moving average used as a smoothing tool</li> <li>&nbsp;AC equals AO minus forming moving average for indicator output</li> </ul> <h2>How to Use the Bill Williams Accelerator Oscillator strategy</h2> <p>The Bill Williams Accelerator Oscillator is an indicator that measures whether momentum is likely to continue. When you add the indicator, it opens up a window at the bottom of the platform, like most other oscillators. It has a zero line, showing whether it&rsquo;s going to be easier for acceleration or deceleration to increase in momentum. The Accelerator Oscillator c<em>rossing above or below the zero level doesn&rsquo;t necessarily mean that there is a trade</em>, but it does suggest that traders <strong>need to pay attention to the patterns</strong> that they are looking for in price before making a trade.&nbsp;</p> <p>&nbsp;</p> <p>For example, if the Accelerator Oscillator is above the zero line and printing green bars, this suggests that it&rsquo;s going to be easier for acceleration to continue going to the upside. On the other hand, if red bars are being printed below the zero level, then it suggests that deceleration in speed and momentum is likely to continue or even expand. <em>That of course is a very bearish sign.</em></p> <p>&nbsp;</p> <p><img alt="The Bill Williams Accelerator Oscillator on a chart" src="https://k13-dev.thinkmarkets.com/TMXWebsite/media/TMXWebsite/BW-Accelerator-image-2jpg.jpg" /></p> <p>&nbsp;</p> <p>Bill Williams himself suggested that if you are buying above the zero line then you are trading along with the overall momentum. He also suggested that if you are selling below the zero line you are doing much the same. He said that you only need to see two bars in a row in order to see enough agreement with the oscillator to open up a new trade in that direction.</p> <p>&nbsp;</p> <p>He also said&nbsp;that if you are buying below the zero line, you need to see three green bars in a row to buy the asset below that level. Alternatively, if you are looking to short a market but the Accelerator Oscillator is above the zero line, you need to see three consecutive red bars print before doing so.</p> <p>&nbsp;</p> <p>Take a look at the chart below. There are multiple red arrows on it suggesting areas that someone using the Bill Williams Accelerator Oscillator would be interested in selling. You&rsquo;ll notice that at the top of the chart there were <a href="https://k13-dev.thinkmarkets.com/en/trading-academy/forex/japanese-candlesticks">several candlesticks</a> that went back and forth in order to suggest a flattening market. Below there and in the Accelerator Oscillator window you can see that the indicator was forming several red bars in that region. You should also notice that the print just above the zero line that formed to green bars was very short in length.</p> <p>&nbsp;</p> <p>This suggests that momentum is shifting over a longer term as well, as it spends almost all of its time underneath the zero line regardless of color. Later on, you can see that price had been rallying and forming several green bars in a row.&nbsp;</p> <p>&nbsp;</p> <p>This technically was a buying opportunity in the short term, but more importantly notice that after four green bars the indicator started printing red bars again, albeit above the zero level. It should be noted that momentum is dropping rapidly, as not only is deceleration increasing, but the length of the bars in the indicator are starting to drop towards the zero level again.</p> <p>&nbsp;</p> <p><img alt="The Accelerator Oscillator in action" src="https://k13-dev.thinkmarkets.com/TMXWebsite/media/TMXWebsite/BW-Accelerator-image-3.jpg" /></p> <p>Bill Williams Accelerator Oscillator as an Early Warning System</p> <p>One of the great aspects of the Bill Williams Accelerator Oscillator is that it can function as an early warning system. For example, if you start to see price rising but the Accelerator Oscillator rolling over, that can be the first sign of trouble. It functions very much like divergence in any other oscillator, when momentum is moving opposite of price.</p> <p>&nbsp;</p> <p>When trading, most of the time you are looking to go with the overall trend. However, when you can find out that the trend is about the end or at least there is going to be a significant pullback, you can save a considerable amount of your trading capital by taking profits at that point. At the very least, it gives you an opportunity to move your stop loss closer to the current price of the financial asset that you are trading.&nbsp;</p> <p>&nbsp;</p> <p>Take a look at the chart below. The Australian dollar/New Zealand dollar pair on the weekly timeframe is shown. You will notice that on the far left-hand side there is a pair of blue arrows that shows a market that was clearly in a downtrend, but the Accelerator Oscillator was starting to rise. In fact, it had formed a couple of green bars. This was a sign that the downtrend was running out of momentum.</p> <p>&nbsp;</p> <p><img alt="Accelerator Oscillator as a early warning system" src="https://k13-dev.thinkmarkets.com/TMXWebsite/media/TMXWebsite/BW-Accelerator-image-4.jpg" /></p> <p>&nbsp;</p> <p>A little while later, you can see that the market had clearly been in a strong move to the upside but notice how by the time the first red arrow on the chart is pointed out, the histogram in the Accelerator Oscillator formed a &ldquo;<em>lower high</em>.&rdquo; Beyond that, the histogram also started to turn red while price was still rising slightly. This was the beginning of the end for the buyers, and as you can see not only could a buyer have taken profit, but short-sellers could have been looking for an opportunity to sell which did in fact present itself shortly thereafter.&nbsp;</p> <p>&nbsp;</p> <p>And even later on the chart, you can see that price was rising again, but this time the histogram in the indicator didn&rsquo;t rise above the previous time. Price did, but the momentum did not and that is classic divergence. Notice how the indicator started to drop from that level, forming several red bars. Furthermore, it ended up dropping below the zero line and eventually the markets fell rather significantly. What&rsquo;s interesting about these examples is that you had several candlesticks to react. In this case, that means several weeks. The same principle would of course apply to a five minute chart, so timeframe is rather irrelevant, but it does suggest that you have time to make a decision or at least look for confirmation of that potential scenario.&nbsp;</p> <p>&nbsp;</p> <p>All of this shows that the Accelerator Oscillator can function on several fronts, not only as a confirmation of a potential set up but also has the ability to tell you when to exit a trade or trend. This makes it extraordinarily valuable, even though it&rsquo;s not one of the more well-known indicators. It should also be noted that quite often Bill Williams has suggested that some of his other indicators should be used in congruence with this one, but it&rsquo;s crucial that you understand how this indicator functions on its own, and thereby you can choose to build a system based upon some of his others.</p>

<p><strong>Continuation candlestick patterns, </strong>which form the basis of<strong>&nbsp;</strong>one of the most popular strategies used by traders on a daily basis,&nbsp;signal that the prevailing trend is likely to continue after a temporary pause is finished and the breakout is confirmed.&nbsp;Continuation formations&nbsp;are the opposite of&nbsp;reversal patterns.&nbsp;<br /> <br /> In this blog post, we will look at five main continuation candlestick patterns - triangles, flags, pennants, rectangles, and the&nbsp;cup and handle. Our goal is to look at the structure of these patterns, how they work, what the message that they are sending is, and share a simple but effective trading strategy based on the continuation patterns.</p> <h2>The features of continuation patterns</h2> <p>The underlying idea behind the continuation pattern is that the likelihood of the trend continuing in the same direction is higher than the chance of a reversal taking place. For instance, the buyers are in control of the price action as long as the uptrend is taking place i.e. there is a series of the higher highs and higher lows.&nbsp;<br /> <br /> Hence, the side that has been in control so far has a higher chance of winning the upcoming matches than the side that has been on the losing side.&nbsp;After a strong move to one of the two sides, the price action starts to move sideways i.e. on a temporary pause. This period is ended once there is a confirmed breakout in the direction of a previous trend.&nbsp;<br /> <br /> We divide continuation patterns in bullish and bearish continuation formations. The<em> bullish continuation pattern</em> occurs when the price action consolidates within a specific pattern after a strong uptrend. The continuation of a trend is secured once the price action breaks out of the consolidation phase in an explosive breakout in the same direction as the prevailing trend.&nbsp;<br /> <br /> The <em>bearish continuation pattern</em> works in the same fashion, with the difference being in the price action trading in a downtrend. The <strong>consolidation phase</strong> usually appears midway through the downtrend, after the sellers take a breather before continuing in the same direction.</p> <p>&nbsp;</p> <p><img alt="Continuation patterns - an illustration" src="/TMXWebsite/media/TMXWebsite/Continuation-Patterns-structure.jpg" /></p> <p>&nbsp;</p> <p>The <strong>temporary pause</strong> - which can appear in the form of a triangle, rectangle, flag, a cup and handle, or a pennant - helps us to determine the activation of a specific pattern, and therefore identify the entry, stop loss and take profit.<br /> <br /> If, on the other hand, the breakout takes place, but the price action reverses afterwards and returns to the inside of the rectangle, pennant, flag, or a triangle, we have registered a failure to continue in the same direction, the so-called <em>&ldquo;failed breakout&rdquo;</em>.</p> <p>For this reason, it is important to follow the following list of steps to minimize the chance of getting on the wrong side of a trade.&nbsp;<br /> &nbsp;</p> <ul> <li><strong>Strong trend</strong> - In order for a continuation pattern to be activated there should be a strong trend identified in the first place.&nbsp;</li> <li><strong>Temporary pause</strong> - As outlined above, this pause can take form in many different ways, but the most popular are flags, pennants, rectangles, and triangles.&nbsp;</li> <li><strong>Breakout</strong> - Arguably the most important feature of a pattern. Without a strong breakout in the same direction as a prevailing trend, the continuation pattern is not activated. It also helps us determine the entry, take profit and stop loss.&nbsp;</li> </ul> <h2>The benefits of continuation patterns</h2> <p>The continuation patterns help us <em>format</em> our trade. You may be sure that the price action will continue in the same direction after the temporary pause, however, the continuation pattern helps us identify the exact entry, take profit, and stop loss. The stronger the trend before the pause was, the stronger the breakout should be.<br /> <br /> It&#39;s also important to note that not all continuation patterns will result in the extension of the same trend. Nothing is fully certain in trading and you will witness many patterns that look like continuation, but end up as reversal formations. If the trend reverses and breaks out of the consolidation phase without a breakout in the same direction as the overall trend, our pattern was in a <em>draft mode</em> and it never got activated.<br /> <br /> Hence, the failure to move in the same direction is also the biggest limitation of these types of patterns. For this reason, it&#39;s important to consult other technical indicators to make sure that multiple sources are indicating that the trend is very likely to continue soon.&nbsp;</p> <h2>Types of continuation patterns</h2> <p>As outlined earlier, we divide continuation patterns into bullish and bearish formations. Many different types of chart patterns are considered to have a role in facilitating a continuation of the same trend, but these five patterns are widely accepted as the most effective continuation chart patterns.</p> <p>&nbsp;</p> <h3><strong>Triangles</strong></h3> <p>There are three types of the triangle pattern - <em>ascending</em>, <em>descending</em>, and <em>symmetrical</em>. The <a data-di-id="di-id-933e341a-7e24c14d" href="/en/trading-academy/forex/ascending-triangle-pattern"><strong>ascending triangle</strong></a> is a bullish formation that occurs&nbsp;in a mid-trend and signals an impending continuation of the existing trend. It consists of two converging trend lines, where the upper (resistance) trend line is flat, or nearly flat, while the lower trend line (support) is ascending. It signals that the price action is consolidating with the higher lows pushing&nbsp; for a breakout to the upside.<br /> <br /> <img alt="Types of Triangles" src="/TMXWebsite/media/TMXWebsite/Triangle-patterns.jpg" /></p> <p>The <a data-di-id="di-id-ee923568-5c36165c" href="/en/trading-academy/forex/ascending-triangle-pattern"><strong>descending triangle</strong></a>&nbsp;is a bearish formation that occurs in a mid-trend. It usually takes place in a downtrend, and it signals that the impending breakdown will continue the overall bearish trend. Unlike the ascending and descending triangles, which are continuation patterns, the outcome of the <a data-di-id="di-id-ee923568-d782a23d" href="/en/trading-academy/forex/ascending-triangle-pattern"><strong>symmetrical triangle</strong></a> is difficult to predict, as the breakout can occur in both directions.&nbsp;</p> <p>&nbsp;</p> <h3><strong>Rectangles</strong></h3> <p>The <strong>rectangle pattern</strong> is similar to a triangle formation as the price action occurs&nbsp;in between two trend lines. However, unlike the triangle, these two trend lines are not converging, but rather trend in parallel. Hence, the consolidation takes place in a rectangle before the breakout takes place.</p> <p>&nbsp;</p> <p>There are <strong>two types</strong> of rectangles - <em>bullish</em> and <em>bearish</em> rectangle patterns. The bullish version occurs in a mid-trend, while the price action trades within an overall uptrend. As such, the chances of a breakout are higher since the overall environment is bullish. The bearish rectangle forms within a downtrend as the sellers take a breather before pushing to break the rectangle to the downside. Both formations are classified as continuation patterns as they facilitate an extension of the prevailing trend.</p> <p>&nbsp;</p> <h3><strong>Flags</strong></h3> <p>This type of formation occurs after an explosive move upwards or downwards. The price action moves in a very steep manner - the<em> flagpole</em> - before the consolidation phase takes place. This phase occurs within two parallel lines, before the breakout&nbsp;in the direction of a prevailing trend.</p> <p>&nbsp;</p> <p><img alt="bullish flag" src="/TMXWebsite/media/TMXWebsite/Bullish-Flag.jpg" /></p> <p>&nbsp;</p> <p>&nbsp;</p> <p>The bullish flag occurs during an uptrend. After an initial bullish move, the price action consolidates within the two parallel lines before breaking out higher.&nbsp;</p> <p>&nbsp;</p> <p><img alt="bearish flag" src="/TMXWebsite/media/TMXWebsite/Bearish-flag.jpg" /></p> <p>&nbsp;</p> <p>The <strong><a data-di-id="di-id-933e341a-92092bb6" href="/en/trading-academy/forex/bull-pennant-pattern">bear flag</a></strong><a href="/en/trading-academy/forex/bull-pennant-pattern"> </a>facilitates the extension of a downtrend. After a brief consolidation period in a slight uptrend, the sellers re-assume control with a breakdown of the flag.</p> <p>&nbsp;</p> <p>&nbsp;</p> <h3><strong>Pennants</strong></h3> <p>This continuation pattern is very similar to the flag. Both start with a strong, explosive move up or down. Unlike the flag where the price action consolidates within the two parallel lines, the pennant is a triangular pattern that helps the price action to consolidate. It looks like a triangle, although the symmetrical triangles are larger and take more time to develop.<br /> &nbsp;</p> <p>The <strong><a data-di-id="di-id-aaebb41a-46e15df0" href="/en/trading-academy/forex/bull-pennant-pattern">bearish pennant</a><a href="/en/trading-academy/forex/bull-pennant-pattern"> </a></strong>is a continuation pattern that helps extend the downtrend.</p> <p>&nbsp;</p> <p><img alt="bear pennant pattern" src="/TMXWebsite/media/TMXWebsite/bear-pennant-pattern.jpg" /></p> <p>&nbsp;</p> <p>&nbsp;</p> <p>The <a data-di-id="di-id-8c141446-e02d3137" href="/en/trading-academy/forex/bull-pennant-pattern"><strong>bullish pennant</strong></a> occurs in an uptrend. After the consolidation phase, the buyers are able to push the price action higher to extend the prevailing bullish trend.</p> <p>&nbsp;</p> <p><img alt="bullish pennant - an illustration" src="/TMXWebsite/media/TMXWebsite/Bull-pennant.jpg" /></p> <h3><strong>The cup and handle&nbsp;</strong></h3> <p>This type of continuation pattern is not as common as the previous four. It is quite difficult to identify, but it is still effective and classified as a continuation pattern. It is named &ldquo;a cup and handle&rdquo; as it resembles a cup and handle, as the cup is in the shape of the letter <strong>U</strong>, while the handle has a slight <em>downward drift</em>.</p> <p>&nbsp;</p> <p><img alt="cup and handle pattern" src="/TMXWebsite/media/TMXWebsite/cup-and-handle_1.jpg" /></p> <p>&nbsp;</p> <p>The price moves in an uptrend before it starts correcting lower (in the form of the letter<strong>&nbsp;U</strong>). Once the handle is broken to the upside, the second leg of the bullish trend is initiated.</p>

The double bottom pattern is a bullish reversal pattern that occurs at the bottom of a downtrend and signals that the sellers, who were in control of the price action so far, are losing momentum. The pattern resembles the letter &ldquo;W&rdquo; due to the two-touched low and a change in the trend direction from a downtrend to an uptrend.&nbsp;<br /> <br /> The aim of this blog post is to describe how to easily identify the double bottom, and most importantly, how to make profits trading this chart pattern by sharing a simple trading strategy. <h2>How the double bottom pattern is structured</h2> <p>The double bottom occurs at the end of a downtrend. As the price action moves lower, printing the lower highs and lower lows, the price rebounds higher before returning lower again to retest the previous low.&nbsp;<br /> <br /> As the basic rule of the <a data-di-id="di-id-de580d74-7632d5e2" href="/en/trading-academy/mt4">technical analysis</a> says that the twice-touched low becomes a support level, the sellers are unable to print a new low, below the previous low, which provides the buyers with an opportunity to push the price higher. As a result, we have two lows - two bottoms - that resemble the letter &ldquo;W&rdquo;.&nbsp;</p> <p>&nbsp;</p> <p><img alt="a double bottom illustration" src="/TMXWebsite/media/TMXWebsite/Double-Bottom-1_1.jpg" /></p> <p>&nbsp;</p> <p>On the other hand, the highest point of the rebound following the first bottom is considered to be the trigger for the pattern. A horizontal line is drawn at the highest point of a rebound, called the <em>&ldquo;neckline&rdquo;</em>.<br /> <br /> Given that it&rsquo;s almost impossible to get two bottoms at the exact same price, as long as these two lows are at a similar price, it is considered to be enough for the validation of a pattern.&nbsp;<br /> <br /> Since the pattern is initiated by the downtrend and finalised in an uptrend, the double bottom pattern is considered to be a bullish reversal pattern. The pattern becomes active once the price action breaks above the neckline. As such, the price action shifts from the situation where it creates the lower lows and lower highs, to a situation where it initiates a trend of the higher lows and higher highs.</p> <p>&nbsp;</p> <p>It is generally considered that two consecutive bottoms with a short duration in between their creation can be problematic, as this means that the downtrend is very strong, thus, the <a data-di-id="di-id-b7560667-d4dba657" href="/en/trading-academy/forex/bullish-bearish-divergence">prevailing bearish trend</a> is likely to continue. For this reason, the most effective double bottom patterns are those with a certain amount of time in between two lows.</p> <h2>Strengths and weaknesses</h2> <p>A double bottom pattern is one of the strongest reversal patterns out there. Since it consists of two bottoms, it&rsquo;s not a very common pattern. Still, once identified, the pattern is very effective in predicting the change in the trend direction.&nbsp;<br /> <br /> Its greatest strength is that it offers clearly defined levels to play against. The neckline marks the risk and it helps determine the take profit once the pattern is activated. Hence,<strong> the correct drawing of the double bottom is very important.</strong></p> <p>&nbsp;</p> <p>The key limitation of the double bottom pattern is that it is a contrarian strategy. Don&rsquo;t forget that the overall trend is bearish and we are playing the &ldquo;long&rdquo; trade here. Hence, the risk is always that the market will continue moving in the same direction. For this reason, it is important to consult supporting factors in the context of other technical indicators before entering the market.</p> <h2>Spotting the double bottom pattern</h2> <p>As noted earlier, identifying and drawing the double bottom pattern is extremely important. We have a USD/CAD hourly chart below, where the pair moved lower before it struggled to break below the horizontal support and further extend the bearish scenario.&nbsp;</p> <p>&nbsp;</p> <p>Instead, the bulls were able to resist and finally break above the neckline to ultimately erase all previous losses and record gains. We identify two lows that are almost at the exact same price around the $1.30 handle. On the other hand, the price action also created two nearly same highs over the course of a rebound, hence we used this opportunity to draw the resistance line (the neckline) connecting these two highs.</p> <p>&nbsp;</p> <p><img alt="spotting the double bottom pattern with metatrader" src="/TMXWebsite/media/TMXWebsite/Double-Bottom-2.jpg" /></p> <p>&nbsp;</p> <p>It is also worth noting that many traders make a crucial mistake in jumping the gun by entering the &ldquo;buy&rdquo; trade before the pattern is activated. A double bottom pattern, no matter how perfect it may look, is active only once the buyers break the neck line and secure a close above it.</p> <h2>Trading the double bottom pattern</h2> <p>We will now use the same example to show you how to trade the double bottom pattern. This example also offers great insight into how the failed breakouts work. As you can see in the chart below, as soon as the price action created a second bottom, it surged higher, breaking above the levels where two previous highs were recorded.</p> <p>&nbsp;</p> <p><img alt="Trading the double bottom pattern" src="/TMXWebsite/media/TMXWebsite/Double-Bottom-3.jpg" /></p> <p>&nbsp;</p> <p>However, this proved to be a failed breakout as the price quickly returned below the neckline. This perfectly shows how important the virtue of patience is in trading. Moreover, this also shows why it is important to wait for a close above the neckline before entering the market.&nbsp;<br /> <br /> The failed breakouts are usually followed by a sharp move lower to punish the buyers for failing to finalise the initial move higher. This is exactly what happened. However, the buyers regrouped at lower prices, and launched another strong push higher to ultimately break above the neckline around the $1.31 handle.&nbsp;<br /> <br /> Hence, our entry is at $1.3110, a level where the USD/CAD closed above the neckline for the first time. <strong>The stop-loss should be placed below the neckline</strong>, allowing some space for the move similar to a failed breakout where the price action quickly penetrates through the support/resistance without a follow up.&nbsp;</p> <p>&nbsp;</p> <p>The exact level for stop-loss depends on your risk tolerance, but it can range from 15 to 30 pips below the neckline. Any move and close below the neckline invalidates the activated double bottom pattern.&nbsp;<br /> <br /> The take profit is calculated in the same manner as it is the case with the head and shoulders pattern i.e. measuring the distance between the supporting trend line (double bottoms) and the neckline. The same trend line is then copy-pasted from the point where the breakout occurred, with an end point of the trend line being our take profit. In our case, the trend line ends at $1.3180.<br /> <br /> Finally, our take profit order is hit a few days later, banking us around 70 pips. Depending on your risk tolerance and stop loss position, we earned 70 pips by risking 15/30 pips, which represents a great risk-reward ratio.&nbsp;</p>

<p dir="ltr">The <strong>falling wedge</strong> is a bullish pattern. Together with the&nbsp;rising wedge formation, these two create a powerful pattern that signals a change in the trend direction. In general, a falling wedge pattern is considered to be a <em>reversal pattern</em>, although there are examples when it facilitates a continuation of the same trend.&nbsp;<br /> <br /> This article explains the structure of a falling wedge formation, its importance as well as technical approach to trading this pattern. We will discuss the rising wedge pattern in a separate blog post.</p> <h2>Where does the falling wedge occur?</h2> <p>The falling wedge pattern occurs when the asset&rsquo;s price is moving in an overall bullish trend before the price action corrects lower. Within this pull back, two converging trend lines are drawn. The consolidation part ends when the price action bursts through the upper trend line, or wedge&rsquo;s resistance.<br /> <br /> <img alt="what is a falling wedge pattern" src="/TMXWebsite/media/TMXWebsite/Falling-wedge-image-1.jpg" /></p> <p>&nbsp;</p> <p>One of the key features of the falling wedge pattern is the volume, which decreases as the channel converges. Following the consolidation of the energy within the channel, the buyers are able to shift the balance to their advantage and launch the price action higher.<br /> &nbsp;</p> <p>Hence there are three key characteristics of a falling wedge pattern:<br /> &nbsp;</p> <ul> <li>The price action temporarily trades in a <em>downtrend</em> (the lower highs and lower lows);</li> <li>There are<em> two trend lines</em> (the upper and lower) that are converging;</li> <li>There is<em> a decrease in volume</em> as the channel progresses.</li> </ul> <p>&nbsp;</p> <p>The first two elements are mandatory features of falling wedge, while the occurrence of the decreasing volume is very helpful as it adds additional legitimacy and validity to the pattern.&nbsp;<br /> <br /> It may take you some time to identify a falling wedge that fulfills all three elements. For this reason, you might want to consider using the latest MetaTrader 5 trading platform, which you can access <a data-di-id="di-id-249ef9e4-8ec6ac8f" href="/ky/metatrader5/"><u>here</u></a>.</p> <h2>Spotting the falling wedge</h2> <p>The most common <em>falling wedge</em> formation occurs in a clean uptrend. The price action trades higher, however the buyers lose the momentum at one point and the bears take temporary control over the price action.&nbsp;<br /> <br /> The second phase is when the consolidation phase starts, which takes the price action lower. It&rsquo;s important to note a difference between a descending channel and falling wedge. In a channel, the price action creates a series of the lower highs and lower lows while in the descending wedge we have the lower highs as well but the lows are printed at higher prices. For this reason, we have two trend lines that are not running in parallel.&nbsp;</p> <p>&nbsp;</p> <p><img alt="Falling wedge - EUR/USD daily char" src="/TMXWebsite/media/TMXWebsite/Falling-wedge-image-2.jpg" /></p> <p>&nbsp;</p> <p>In the chart above we see a <strong>EUR/USD</strong> on a daily <strong>chart</strong>. The price action moves in an uptrend, pushing higher and creating new short-term lows. The pair&rsquo;s price then starts to move lower, i.e.: the consolidation phase starts as the buyers use this time to regroup and prepare for another press higher.&nbsp;<br /> <br /> In parallel, you see that the volume decreases. Just before the break out occurs and as the two trend lines get close to each other, the buyers force a break out of the wedge, surging higher to create a new low. The surge in volume comes around at the same time as the break out occurs.&nbsp;</p> <h2>What the falling wedge tells us</h2> <p>The&nbsp;falling wedge pattern is a technical formation that signals<em> the end of the consolidation phase</em> that facilitated a pull back lower. As outlined earlier, falling wedges can be both a reversal and continuation pattern. In essence, both continuation and reversal scenarios are inherently bullish.<br /> <br /> As such, the falling wedge can be explained as the &ldquo;calm before the storm&rdquo;. The consolidation phase is used by the buyers to regroup and attract new buying interest, which will be used to defeat the bears and push the price action further higher.&nbsp;<br /> <br /> Hence, a falling wedge is an important technical formation that signals that the correction, or consolidation, has just ended as the asset&rsquo;s price left the wedge to the upside and, in most cases, the continuation of the overall trend is taking place.&nbsp;</p> <h2>Trading the falling wedge</h2> Let us now look at the same example from a more technical trading perspective. Once we spot a falling wedge that fulfills all criteria, we start focusing on the main elements of a trade: entry, stop loss and take profit, as well as the overall risk associated with this trading opportunity.&nbsp; <p>&nbsp;</p> <p>Paying attention to volume figures is really important at this stage. The continuous trend of a decreasing volume is significant as it tells us that the buyers, who are still in control despite the pull back, are not investing much resources yet.&nbsp;</p> <p>&nbsp;</p> <p><img alt="Trading falling wedge - EUR/USD daily chart" src="/TMXWebsite/media/TMXWebsite/Falling-wedge-image-3.jpg" />&nbsp;</p> <p>A break of the wedge to the upside has to be confirmed by a daily close above the wedge, which is exactly what happens. At this point, <strong>you have two opportunities</strong>:&nbsp;<br /> &nbsp;</p> <ul> <li>You enter a trade as soon as the close occurs</li> <li>You wait for a potential pull back for the price action to retest the broken resistance.</li> </ul> <p><br /> The first option is more safe as you have no guarantees whether the pull back will occur at all. On the other hand, the second option gives you an entry at a better price. In this case we will go for the option number one.<br /> <br /> A stop-loss order should be placed within the wedge, near the upper line. Any close within the territory of a wedge invalidates the pattern. You can see that in this case the price action pulled back and closed at the wedge&rsquo;s resistance, before eventually continuing higher on the next day.</p> <p>&nbsp;</p> <p>Finally, you have to set your take profit order, which is calculated by measuring the distance between the two converging lines when the pattern is formed. This way we got the green vertical line, which is then added to the point where the breakout occured. Thus, the other end of a trend line gives you the exact take-profit level.&nbsp;<br /> <br /> Our trade details are as follows: Entry - $1.1815, SL - $1.1735 and TP - $1.1965. Hence, we are risking 80 pips in order to make 150 pips, which is a R:R (risk-reward) ratio of nearly 1:2. A week after we had entered our trade, the profit-taking order was hit, banking us 150 pips.&nbsp;<br /> <br /> As always, we encourage you to <a data-di-id="di-id-779f7ed8-25bb907e" href="https://portal.thinkmarkets.com/account/individual/demo" target="_blank">open a demo account</a> and practise trading the falling wedge, as well as other technical formations. This way, you will get more familiar with different trading approaches and be better prepared to trade your own capital in live markets at a later stage.&nbsp;</p>

<p>The <strong>triple bottom </strong>is a bullish reversal pattern that occurs at the end of a downtrend. This <a href="/en/trading-academy/forex/japanese-candlesticks">candlestick&nbsp;pattern</a> suggests an impending change in the trend direction after the sellers failed to break the support in three consecutive attempts.&nbsp;<br /> <br /> In this article, we look at the structure of the triple bottom chart pattern, what the market tells us through this formation. We are also sharing tips on the simple triple bottom trading strategy that will help you make profits.&nbsp;</p> <h2>What the pattern tells us&nbsp;</h2> <p>As the name suggests, the triple bottom consists of the three consecutive lows printed at the same, or near the same level. For this chart pattern to occur&nbsp;and be effective the price action has to trade in a clear downtrend.<br /> <br /> The sellers push the price lower to test the horizontal support for the first time, however, they meet a strong resistance from the side of the buyers. The price action rebounds higher as the sellers take a breather before the second attempt gets going.&nbsp;<br /> <br /> The outcome of the second attempt is the same, which now makes this level extremely important as the sellers, who are still in control of the price action, have now failed for the second time.&nbsp;</p> <p>&nbsp;</p> <p><img alt="a triple bottom chart pattern illustration" src="/TMXWebsite/media/TMXWebsite/Triple-Bottom-image-1.jpg" /></p> <p>In general, the price should return&nbsp;to around the same levels as during the previous rebound. Given that the downtrend is very strong, the sellers push the price action lower again to try and break the buyers&rsquo; resolve, but without much success again.&nbsp;<br /> <br /> Finally, they give up and the buyers assume control of the price action, this time extending the rebound much higher and eventually erasing most, or all, of the previous losses.<br /> <br /> If you look at the illustration above, the blue line represents the horizontal support that rejected the bears&rsquo; attempt to extend the downtrend. Up higher we have a neckline (the red line) which connects the highs of two rebounds.&nbsp;&nbsp;<br /> <br /> The neckline is arguably the most important element of the triple bottom pattern as its break to the upside activates the pattern and then helps us determine the stop loss and take profit. <strong>Hence, three mandatory features of the triple bottom chart pattern are:</strong><br /> &nbsp;</p> <ul> <li>A downtrend - the security&rsquo;s price must trade lower;</li> <li>Horizontal support - A trend line connecting three roughly equally lows;</li> <li>A neckline - whose break signals the activation of the formation</li> </ul> <h2>Significance and&nbsp;limitations</h2> <p dir="ltr">The triple bottom chart pattern is a rare, but<em> extremely effective </em>reversal pattern. It&rsquo;s rare since the successive creation of three equal lows doesn&rsquo;t happen quite often. Therefore, the double bottom is a more frequent chart pattern as it requires one low less to happen..&nbsp;</p> &nbsp; <p dir="ltr">On the other hand, its scarcity makes it a very strong and powerful pattern. The sellers are extremely exhausted after three consecutive attempts to break lower, which makes them exposed to a rally as buyers feel much more confident after defending a strong horizontal support.</p> <br /> The triple bottom formation doesn&rsquo;t have any apparent weaknesses. Actually, its biggest limitation is that it doesn&#39;t occur quite often, otherwise<em> it would be the strongest reversal pattern out there</em>. <h2>Spotting the triple bottom pattern</h2> <p>Due to its rarity, the triple bottom is quite <em>easy to spot</em>. The first thing you should look for is <strong>a downtrend,&nbsp;</strong>i.e. a series of lower lows and lower highs. Three consecutive failed attempts to break lower usually stick out on the chart (see the chart below).&nbsp;<br /> <br /> As outlined above, the double bottom is a more frequent chart pattern. We advise you to simply mark two bottoms on a chart, and if the price action breaks above the neckline after the second bottom - you should continue by trading the double bottom.&nbsp;<br /> <br /> If, on the other hand, the sellers return to try and break the support in a third attempt, you should monitor the price action closely to see if the third try will end up in a failure. In that case, <em>a break of the neckline should activate the triple bottom chart pattern</em>.</p> <p>&nbsp;</p> <p><img alt="USD/JPY H4 chart - Spotting the triple bottom pattern" src="/TMXWebsite/media/TMXWebsite/Triple-Bottom-image-2.jpg" /></p> <p>&nbsp;</p> <p>In the chart above, we see USD/JPY on a daily chart that is moving lower. The bears then register three attempts to break below the horizontal support around the $108.50 mark, however without much success at all. If you look more closely, you will count at least 8 touches of the $108.50 handle, while we highlighted three lowest prints on a chart.</p> <h2>Trading the triple bottom formation</h2> <p>As outlined earlier, the triple bottom is a bullish reversal chart pattern. Hence, we are looking for clues when the market is ready to reverse its course. The signal that we are looking for <strong>is a break of the neckline</strong>.&nbsp;<br /> <br /> Looking at the chart above, a 4-hour chart, we see a strong breakout that launches the price action higher. As this breakout candle closes much higher, leaving us without an opportunity to dip into the market, we move to a 1-hour chart (below) to identify our entry.</p> <p>&nbsp;</p> <p><img alt="USD/JPY H1 chart - Trading the triple bottom pattern" src="/TMXWebsite/media/TMXWebsite/Triple-Bottom-image-3.jpg" /></p> <p>&nbsp;</p> <p>As with every chart pattern that involves a breakout, we have two opportunities for an entry - after the breakout candle closes above the neck line or waiting for a test. In this case, the second option is not available as the price action never returned to the &ldquo;crime scene&rdquo;. This was expected to a certain degree, given how explosive the breakout was.&nbsp;<br /> <br /> The power behind the breakout tells us that there is a high likelihood of the market extending higher. Hence, we set our entry as soon as the breakout candle closes above the neckline. The vertical blue, which measures the distance between the support and neckline, will help us determine the take profit.&nbsp;<br /> <br /> You just copy-paste the line, starting from the breakout point, with the other end signalling a level, where we should consider taking profits off the table. Any move below the neckline, after the price action closed above it, invalidates the pattern. Hence, this is where our stop loss is located.&nbsp;&nbsp;<br /> <br /> Given the power behind the breakout, we are not surprised to see that, during the next hourly trading session, our profit-taking level has been activated, making us 33 pips richer. On the other hand, we risked 17 pips, which translates into 1:2 risk-return ratio, a standard profitable setting.</p>

The Ichimoku Cloud is a technical indicator primarily used by traders and analysts to define support and resistance levels.<br /> <br /> Developed by Goichi Hosoda, a Japanese journalist who reportedly spent 30 years working on it, the Ichimoku Cloud is also used to identify trend direction, gauge momentum, and generate applicable trading signals.<br /> <br /> Also known as the &lsquo;Ichimoku Kinko Hyo&rsquo; indicator, which translates into a &ldquo;one look equilibrium chart&rdquo;, Ichimoku may look complicated, but is easy to use. Structure The Ichimoku Cloud&rsquo;s four major elements are moving averages that show the high and low over a given period of time.<br /> <br /> Here, we provide a brief breakdown of these four components:<br /> &nbsp; <ul> <li>The <strong>Tenkan Sen</strong> (conversion line) is calculated by the sum of the highest high and the lowest low divided by two. The default setting is 9 periods.</li> <li>The <strong>Kijun Sen</strong> (standard or base line) is based on the same formula as the Tenkan Sen, but the default here is 26 periods.</li> <li>The <strong>Chikou Span</strong> (lagging span) represents the current closing price time shifted backwards 26 periods</li> <li>The <strong>Kumo</strong> (cloud) consists of two lines - the Senkou spans A and B. The former one is calculated by the adding Tenkan Sen and Kijun Sen and then divided by two, shifted forwards 26 periods. The latter represents the highest high + lowest low)/2 for the last 52 periods, also shifted 26 periods in the future.</li> </ul> <br /> &nbsp;As you can see below, we applied the Ichimoku indicator on the USD/JPY hourly chart.<br /> <br /> The&nbsp;<a href="/en/metatrader5" the="">MetaTrader 5 (MT5) platform </a><a href="/en/metatrader5"> </a>offers a simple way of adding this indicator to your chart by selecting it from the drop-down menu.<br /> <br /> <img alt="USD/JPY Ichimoku chart dropdown menu" src="/TMXWebsite/media/TMXWebsite/usd_jpy_Ichimoku_1.png" /><br /> <br /> As you can see, the Tenkan Sen is the fastest of all elements and the most sensitive moving average, given that it is designed based on nine periods only.<br /> <br /> As a result, this element follows the price action very closely and has the quickest reaction of all to any sharp movement in the price action. <h2><br /> Trading signals generated by Ichimoku</h2> <br /> In this segment we will explain how to use the Ichimoku Cloud. Generally speaking, the indicator is better fit for longer time frames.<br /> <br /> Kumo is arguably the most important element of the Ichimoku Cloud. It is designed in such a way that if the asset&rsquo;s price trades below the Cloud, the indicators signal that we are trading in a downtrend and vice versa. A break in the Cloud is seen as a signal to enter a trade, since this is a confirmation that the market trades in an uptrend/downtrend.<br /> <br /> The most important functions of the Ichimoku indicator is to identify trend direction and generate trading signals.<br /> <br /> As you will see, Kumo also changes colours based on the trend direction. Whenever the Senkou Span A rises above the Senkou Span B, the idea that the market trades in an uptrend is further strengthened.<br /> <br /> The default MT5 setting paints the cloud in &ldquo;SandyBrown&rdquo; colour when the Kumo trades upwards. On the other hand, when a Span A falls below Span B, the downtrend is bolstered. In this case, MT5 default setting paints the cloud in &ldquo;Thistle&rdquo; colour.<br /> <br /> Besides Kumo, the second situation that traders monitor is the relationship between Tenkan and Kijun. Here, the former is seen as a short-term moving average, while the Kijun acts as the baseline.<br /> <br /> In this regard, any situation where Tenkan moves below Kijun signals a downtrend in the price action, and vice versa. In order to further validate the trade signal, you may want to consult Kumo and see whether it is generating the same signal.<br /> <br /> Finally, the third situation involves the position of Chikou Span on a chart. If Chikou trades above the price action, it would confirm bullish sentiment; if below, vice versa. A clean trading signal is generated once all three situations point towards the same trend - bullish or bearish. <h2>How to trade with Ichimoku Clouds</h2> Let&#39;s break down the trading with the Ichimoku indicator in simple steps. For this, we&#39;ll look at the USD/JPY hourly chart.<br /> <br /> As seen below, there are two situations we want to explain here. In the first situation, Tenkan drops below Kijun and provides us with a trading signal that the price action may change its course and form the uptrend shift to a downtrend.<br /> <br /> However, at this point both the cloud and Chikou Span are trading below the price action, meaning that the trading signal generated by the relationship between Tenkan and Kijun is not confirmed.<br /> <br /> The situation marked by number #2 is different. For some time now, the price action has been moving lower. At one point, USD/JPY breaks under the cloud as the red line still trades below the blue line.<br /> <br /> Finally, Chikou is trading below the market&rsquo;s price, which means that finally all three elements are providing the same bearish signal.<br /> <br /> Of course, for the bullish signal you should just apply the reverse logic. You want to enter a long trade if the blue line trades above red, the price action is above the cloud and above Chikou Span.<br /> <br /> You are now in a trade and there are two more decisions to be made. One, the stop-loss should be placed above the high of the candle within the cloud formation. Ideally, you should also consult other support and resistance levels before deciding on a stop-loss.<br /> <br /> The same applies for a take profit order, which should be set based on the money management principles and risk tolerance. Again, always consult other indicators and technical levels of support and resistance. <h2>Summary</h2> <ul> <li>The Ichimoku Cloud is&nbsp;primarily used to identify trend direction, gauge momentum and come up with applicable trading signals.</li> <li>It consists of four key elements: the Tenkan Sen, the Kijun Sen, Chikou Span, and Kumo (the cloud)</li> <li>Traders primarily monitor&nbsp;three situations: the crossover between Tenkan and Kijun, the point where the cloud breaks of the cloud in one of two directions, and the location of Chikou on the chart.</li> </ul>

<p>The <strong>Zigzag indicator</strong> for <a data-di-id="di-id-3a56e082-fd267adf" href="/en/metatrader4">MetaTrader</a> is a basic tool for traders to use to assess the likelihood of a trend reversal in an asset. When used in conjunction with basic support and resistance analysis, it helps identify when a market is actively reversing the trend or slicing through one of those previously laid out levels. It does help eliminate a lot of the noisy conditions that are typically found in a trend and focuses solely on the overall directionality of that move.&nbsp;</p> <p>&nbsp;</p> <p>The indicator accomplishes this by using a specific percentage of price movement. There are multiple theories on which one you should use, and that is going to be up to the individual trader. However, the basic idea is that if the trend does not change by <em>X percentage</em>, then the trend has not changed at all. It should be noted that the default setting is 5%.&nbsp;</p> <p>&nbsp;</p> <p><strong>When you apply a Zigzag indicator to a chart</strong>, it clears up a lot of the noise over the longer term moves, thereby making it much more effective on longer-term charts than shorter-term charts. It is shown by a simple line on the chart that almost looks like a trend line, but it doesn&rsquo;t pay attention to the highs and lows of a specific set of candlesticks. It simply draws out the trend.&nbsp;</p> <h2>Adding the Zigzag indicator to MetaTrader</h2> <p>Adding the Zigzag indicator to MetaTrader is extremely easy to do. As the indicator is already built into the platform, all the trader needs to do is simply click <strong>Insert</strong>, pull down to the menu to click on <strong>Indicators</strong>, and then go to the next submenu <strong>Custom</strong>, and then simply click on <strong>Zigzag Indicator.</strong></p> <p>&nbsp;</p> <p><img alt="Adding Zigzag to Metatrader" src="https://k13-dev.thinkmarkets.com/TMXWebsite/media/TMXWebsite/Zigzag-Indicator-image-1.jpg" /></p> <p>&nbsp;</p> <p>At this juncture, a dialog box will appear that allows the trader to change the parameters in the colors as per usual. The most important ones to pay attention to our in the &ldquo;Inputs&rdquo; tab, which will give you a <strong>Depth</strong>, <strong>Deviation</strong>, and <strong>Backstep</strong>.&nbsp;The <strong>Depth&nbsp;</strong>input is the percentage of change that represents when the trend changes.&nbsp;<br /> <br /> For example, if the price drops 5% from the high, <strong>then the Zigzag indicator will start to show a red line falling</strong>, representing that the trend has in fact changed.</p> <h2>How to read the Zigzag indicator</h2> <p>Reading the Zigzag indicator is easy. It simply shows what direction the trend is, so if it&rsquo;s rising from the lower left to the upper right, therefore rising in price, it shows that the market is in an uptrend. Conversely, if the Zigzag indicator is falling from the upper left to the lower right, it shows that the trend is decidedly negative.&nbsp;<br /> <br /> That being said, it simply tells you the overall attitude of the market, not necessarily a signal as to whether or not you should get into a trade based solely on the direction of the lines on the chart. However, it does give you a basic filter as to which direction you should be looking to trade. <em>(In this sense, it&rsquo;s used very much like moving average.)</em></p> <p>&nbsp;</p> <p><img alt="Zigzag indicator" src="https://k13-dev.thinkmarkets.com/TMXWebsite/media/TMXWebsite/Zigzag-Indicator-image-2_1.jpg" /></p> <p>&nbsp;</p> <p>When you get the signal that price is moving in a particular direction, the Zigzag indicator is only going to be your &ldquo;30,000 foot look at the market.&rdquo; This is because if you are trading an instrument with leverage, in this case currencies, a 5% move in order to change the indicator is rather large.&nbsp;</p> <p><br /> <strong>It&#39;s&nbsp;because of this that a lot of forex traders will have two choices ahead of them: </strong><br /> &nbsp;</p> <p><strong>they can either</strong>&nbsp;<br /> <strong>a)</strong> use extraordinarily low leverage&nbsp;<br /> <strong>b)</strong> change the indicator to a much lower percentage to increase its sensitivity</p> <p>&nbsp;</p> <p>In that sense, the Zigzag indicator tends to work better for other markets if you use the basic settings. Keep in mind, much like most other indicators that Forex traders use, the Zigzag was initially designed to trade stock markets. In other words, it does not necessarily factor in the danger that leverage can bring.<br /> <br /> In order to show the difference, we included a chart just below that compares the difference between a 5% change and a 2% change. Notice that the red Zigzag indicator changes direction much quicker than the blue one, because it is configured to change at just a 2% depth.</p> <p>&nbsp;</p> <p><img alt="Zigzag, comparing 5 percent change and 2 percent change" src="https://k13-dev.thinkmarkets.com/TMXWebsite/media/TMXWebsite/Zigzag-Indicator-image-3.jpg" /></p> <p>&nbsp;</p> <p>Notice on the chart below, the Zigzag indicator tends to turn within the blue rectangles drawn on the chart. This shows you potential zones of support or resistance that the market seems to be interested in. With that being the case, it can provide somewhat of a predictive factor going into the future, because where you see the Zigzag turnaround several times in the same area, it shows you just <strong>how strong the rejection of price is</strong>. (This is where 5% makes a difference, because it shows a true reversal, and therefore there is an argument to be made for leaving things alone if you can be patient enough to wait for trade signals within these areas.)</p> <p>&nbsp;</p> <p><img alt="Zigzag w/ support/resistance levels" src="https://k13-dev.thinkmarkets.com/TMXWebsite/media/TMXWebsite/Zigzag-Indicator-image-4.jpg" /></p> <p>&nbsp;</p> <p>One of the best ways that you can use this indicator in the above example is to wait for your <a href="/en/trading-academy/forex/japanese-candlesticks">favourite candlestick pattern</a> to appear in that region. While not perfect, it gives you an idea as to the probability of the candlestick pattern working out in your favour.&nbsp;</p> <p>&nbsp;</p> <p>Traders who use the Zigzag indicator spend a lot of time on the sidelines waiting for the right set up, but some of the world&rsquo;s best traders of all time will tell you that we are quite often paid to wait for the right set up.</p> <h2>A few examples of using other indicators with Zigzag</h2> <p>One of the most obvious things to use with Zigzag is going to be Fibonacci retracement levels. On the chart below, you can see that from the bounce at the extreme low in the New Zealand dollar, there is a Fibonacci retracement tool drawn to the top of the zigzag indicator. Notice the highlighted area on the chart.</p> <p>&nbsp;</p> <p>The market pulled back to the 38.2% Fibonacci retracement level, and then bounced again. This is one way that traders can use Zigzag, a way to place Fibonacci retracement tools.&nbsp;</p> <p>&nbsp;</p> <p><img alt="Zigzag w/ Fibonacci" src="https://k13-dev.thinkmarkets.com/TMXWebsite/media/TMXWebsite/Zigzag-Indicator-image-5.jpg" /></p> <p>&nbsp;</p> <p>Another way to help filter out some of the noise that the markets can throw at you is to add a moving average to this indicator. There are a couple of ways that you can use the indicator, but the first and most obvious one is to look for the Zigzag indicator to turn at a common moving average to confirm that it is offering dynamic support or resistance. This shows that at least two indicators are telling you the same thing, and therefore it adds to the confluence of events that can have traders looking to get involved.&nbsp;<br /> <br /> The other way is to wait for the Zigzag indicator to turn around after breaching a moving average, and then confirming it. In other words, if it rises above the 50 day EMA and then falls right back down below it, this shows that the market is in fact keeping that trend. It is a rejection of price just above the moving average. This can help you take advantage of traders that are trapped when they got long of a market as we broke above that moving average. Obviously, this works when the Zigzag indicator breaks below a moving average and turns around as well. Remember, moving averages are not like brick walls, so they do not necessarily reject price immediately at all times.&nbsp;<br /> <br /> Take a look at the chart below and notice how many times the Zigzag indicator broke above or below the red 50 day EMA, and then turned around. Those are perfect examples of <strong>how to use this indicator with a moving average</strong>. Furthermore, we have highlighted the area where markets turned right away at the 50 day EMA with a yellow circle.&nbsp;<br /> <br /> Either one of these strategies can be especially useful and should be tried out with a demo account in order to get comfortable trusting the indicator, and perhaps even learning <em>how to position size your trade properly.</em></p> <p>&nbsp;</p> <p><img alt="Zigzag w/ moving averages" src="https://k13-dev.thinkmarkets.com/TMXWebsite/media/TMXWebsite/Zigzag-Indicator-image-6.jpg" /></p> <p>&nbsp;</p> <h2>Some things to consider when using Zigzag</h2> <p>The<strong> Zigzag indicator</strong> is relatively simple and iuseful. However, like anything else with technical analysis, there are best case uses for it, and it&#39;s&nbsp;not necessarily the correct tool in every scenario.</p> <p>&nbsp;</p> <p>After all, by its very definition there needs to be a trend that you can trade in order to be successful. For example, if you get a back-and-forth type of market on a one hour chart, the Zigzag indicator is going to struggle to fire off appropriate signals, because the lag in waiting for a 5% change will almost by its very definition have you late in the trade. In other words, it skews your risk to reward ratio, which is a killer of accounts down the road. You need to have the ability to make your winners bigger than your losers over the longer term or be right with almost every trade you make.<br /> <br /> The Zigzag indicator doesn&#39;t&nbsp;take into account anything other than the amount of change in the price of the asset. Yes, price is the most important factor but there are other things that will catch the attention of market participants such as a Fibonacci level, a moving average, or just a&nbsp;large, round, psychologically significant figure such as 1.0000 on a chart.&nbsp;</p> <p>&nbsp;</p> <p>Beyond that, it also doesn&#39;t take into account candlestick price action, or something as basic as a trend line. If there is a trend line break, that will show up and catch the attention of traders much quicker than the Zigzag indicator will. That being said, while the Zigzag indicator is not exactly perfect, it does tend to lend itself quite nicely for bigger moves, so on it&#39;s&nbsp;probably best used on higher time frames.&nbsp;<br /> <br /> <strong>Always keep in mind:</strong>&nbsp;<br /> &nbsp;</p> <ul> <li>Zigzag tends to perform better with higher time frames.</li> <li>Zigzag doesn&#39;t&nbsp;perform well in choppy sideways markets.</li> <li>Zigzag doesn&#39;t&nbsp;take into account other technical factors.</li> <li>Zigzag should almost always be used with another indicator, making it a piece of a system.</li> <li>Zigzag is adjustable, and should be<em> tinkered with</em>&nbsp;to the traders liking.</li> </ul> &nbsp; <p>All of this being said, if used properly, the Zigzag indicator can be an excellent secondary indicator. For example, if you are looking at a potential pullback in order to start buying, and the Zigzag indicator has already flipped over against that pullback, it tells you that the indicator believes that the market has changed directions.</p> <p>&nbsp;</p> <p>Remember that a 5% move in a currency of the trend is a reasonable move to start to question things, as markets tend to undulate back and forth over time. In a sense, it is probably better to use Zigzag as a confirmation of a pullback and continuation of a longer-term trend. For example, if price pulls back in an uptrend and then turns around, causing the Zigzag indicator to go bullish again, that is probably a reasonable signal for longer-term traders to start buying and adding to their position again, building up profits along the way.&nbsp;<br /> <br /> This is an interesting indicator in the fact that it &#39;s so simplistic. A lot of indicators make things&nbsp;complicated, while the Zigzag is as&nbsp;rudimentary as possible. In that sense, it&#39;s&nbsp;a great way to look at the markets because it doesn&#39;t&nbsp;rely on anything other than the percentage of movement. There are an unlimited amount of ways to trade the markets, so the combination of indicators that you use can make a huge difference.&nbsp;<br /> <br /> The Zigzag indicator certainly is worth testing and does have its uses. However, in and of itself it doesn&#39;t&nbsp;make a signal. The only traders that tend to focus solely on Zigzag for a trade signal tend to be longer-term <em>buy-and-hold&nbsp;</em>type of investors. This goes back to the history of Zigzag being originally formulated for stock markets.&nbsp;<br /> <br /> Because of this, most traders who like this indicator apply it to daily charts or even higher time frames. It doesn&#39;t&nbsp;perform well on the short-term charts, but&nbsp;it was never designed to do so.</p>

<p dir="ltr">The&nbsp;<strong>Simple Moving Average </strong>(SMA) indicator is one of the most straightforward measures available to traders.&nbsp;<br /> &nbsp;</p> <p dir="ltr">It is a trend-defining indicator that isn&rsquo;t necessarily made to be used in range-bound markets, but they can show you when that condition is approaching, thereby keeping you out of the market or having you switch the tools that you use.</p> <p>What is the simple moving average indicator?</p> <p dir="ltr">The simple moving average indicator is a measure of the average price over a certain amount of <a href="/en/trading-academy/forex/japanese-candlesticks"><u>candlesticks</u></a>.&nbsp;<br /> &nbsp;</p> <p dir="ltr">For example, if the 20-day simple moving average indicator is added to a chart, it will calculate the average price over the previous 20 days. The indicator updates itself at every candlestick and creates a line that goes up and down on the chart, showing the overall flow of where the market is going.&nbsp;<br /> &nbsp;</p> <p dir="ltr">There are other versions of moving average indicators, but the simple moving average indicator is the easiest to use. You simply measure the average closing price of a certain amount of candles, divided by that many candles.&nbsp;<br /> &nbsp;</p> <p dir="ltr">This gives you the average price, and as time goes on the various levels are connected by a line, giving traders a clear view as to whether the average price is rising, falling, or simply going sideways over a certain amount of time.<br /> &nbsp;</p> <p dir="ltr">It can be used on any timeframe, but there are some that do tend to be used more than others.&nbsp;</p> <p>How to add a simple moving average indicator to MetaTrader</p> <p dir="ltr">To add a simple moving average indicator to <u>your charts</u>, click on the &#39;<strong>Insert</strong>&#39; menu, choose &#39;Indicators&#39;, and then select &#39;Trend&#39;, where you will find &#39;<strong>Moving Average</strong>&#39; on that menu. A dialog box will pop up with the title &#39;<strong>Moving average</strong>&#39;, giving you several options.&nbsp;<br /> &nbsp;</p> <p dir="ltr">The &#39;<strong>Period</strong>&#39; box allows you to select how many candlesticks you wish to calculate the average price of, and then the &#39;<strong>MA method</strong>&#39; allows you to select which type of moving average you want to apply. In this case, you would obviously select &#39;<strong>Simple</strong>.&#39; You can also choose to apply to either the <em>close</em>, <em>high</em>, <em>low</em>, or <em>open</em>, but 99% of what you will see involves the close.<br /> <br /> <img alt="adding the Simple Moving Average indicator" src="https://k13-dev.thinkmarkets.com/TMXWebsite/media/TMXWebsite/adding-SMA.jpg" /></p> <p>How the simple moving average indicator is typically used</p> <p dir="ltr">The most common way this indicator is used is to determine the overall trend. Notice the red line that is sloping lower on the chart below. It shows that we are clearly grinding lower over the course of the last several days on the hourly chart in the AUD/NZD pair.<br /> &nbsp;</p> <p dir="ltr">The slope going lower is a function of the average price drifting lower and lower over time. Notice how at the beginning of the chart the 20 SMA was rising, but then the price broke down through the moving average to show that something had changed.<br /> &nbsp;</p> <p dir="ltr">Shortly after that, you&rsquo;ll notice that a majority of the candlesticks were below the 20 SMA, showing that price had changed from rising over the course of the previous 20 hours to falling.&nbsp;<br /> &nbsp;</p> <p dir="ltr">This shows an overall trend change, and it gives you an idea as to whether you should be long or short a currency pair. In this case, it&rsquo;s obvious that selling the Australian dollar against the New Zealand dollar was&nbsp;the right way to go. The moving average shows you&nbsp;just how right&nbsp;it was.<br /> <br /> <!--%3Cmeta%20charset%3D%22utf-8%22%20%2F%3E--><img alt="ALT: example of a 20 SMA trading strategy" src="https://k13-dev.thinkmarkets.com/TMXWebsite/media/TMXWebsite/20-SMA-strategy.jpg" /></p> <br /> <!--%3Cmeta%20charset%3D%22utf-8%22%20%2F%3E--> <p dir="ltr">For example, at the blue arrow you can see that the market was clearly in an uptrend and pulled back towards the 50 day EMA where we saw the market bounce significantly from that level and continue to go higher.&nbsp;</p> <p dir="ltr"><br /> One way that you could have looked at this is that the &#39;hammer&#39; that had formed on the daily chart right at the 50 day simple moving average was a sign that buyers were finding dynamic support there. Later on, you can see that the market broke down below the 50-day simple moving average indicator, but then bounced back towards it where the red arrow shows a selling opportunity based upon a massive bearish candlestick.&nbsp;</p> <p dir="ltr"><br /> Later on, it tested the general vicinity of the 50-day simple moving average indicator three times where it sold off each time it got too close to it.&nbsp;</p> <p dir="ltr"><br /> At the very end of the chart the market closed well above the 50 day EMA and then started to rocket to the upside showing the 50 day EMA starting to slope higher, confirming than that the trend has obviously changed for the upside in favor of the Euro instead of sloping lower in favor the British pound like it had been previously.<br /> &nbsp;</p> <p dir="ltr">Another use for simple moving average indicators is to look for &#39;moving average crossovers&#39;. This typically is used for &#39;buy and sell signals&#39; and some traders even go so far as to always stay in the marketplace based upon how the signal is showing, either bullish or bearish. That being said, the simplest explanation is that you take a faster moving SMA and plot it with a slower moving SMA on a chart. In this example, we will use the CAD/CHF daily chart.</p> <p dir="ltr"><br /> On the chart, there is the red 20 day simple moving average, and the white 50 day simple moving average.&nbsp;</p> <p dir="ltr"><br /> In a &#39;moving average crossover system&#39;, the idea is that as the quicker moving average rises above the slower one, shorter-term traders are starting to come in and momentum is moving to the upside. At that point, traders will buy the market.&nbsp;</p> <p dir="ltr"><br /> On the other hand, when the faster moving average dips below the longer-term moving average, then it shows that short-term traders are starting to push momentum to the downside, and it becomes a sell signal. In this scenario, you buy when the indicator of the shorter time frame breaks higher, and you sell or find yourself short when the lower timeframe indicator breaks underneath.&nbsp;</p> <p dir="ltr"><br /> When you look at this chart, you can see the inherent problem with using this system without any type of filter. There would have been five potential losses before the market finally broke in your direction and would have had you selling into a major breakdown.&nbsp;</p> <p dir="ltr"><br /> One simple filter is to look at the longer-term simple moving average indicator, and what the slope is. For example, in this chart you can see that we were relatively flat for most of this, and that may have kept you out of the market as it shows that we weren&rsquo;t really trending.&nbsp;</p> <p dir="ltr"><br /> On the final crossover, and the one that the market is currently trading, you can see that <strong>the longer-term 50-day EMA started to slope lower</strong>, and the two moving averages started to spread out, showing that there was a real divergence between the two time frames, and that momentum was picking up.&nbsp;</p> <p dir="ltr"><br /> In the end, quite often the simple moving average indicator is used with something along the lines of an oscillator in order to determine momentum, and possible diversions. There are other indicators people will use with it, but it seems to be oscillators are by far the most common.<br /> &nbsp;</p> <p>Some common simple moving averages<br /> &nbsp;</p> While there is no &#39;magic bullet&#39;, there are some common ones that are popular:<br /> &nbsp; <ul> <li>10-SMA, for fast moving short-term trades</li> <li>20-SMA, for slightly longer term momentum on short-term trades</li> <li>50-day SMA, which represents just a bit underneath a quarter</li> <li>100-day SMA, which represents half a year</li> <li>200-day SMA, which represents roughly one year of trading based upon trading hours</li> </ul>

<p>The Fibonacci ratios commonly used are 100%, 61.8%, 50%, 38.2%, 23.6% - these are shown as horizontal lines on a chart and may identify areas of support and resistance. These levels are created by drawing a trend line between two extreme points and diving the vertical distance by the key Fibonacci ratios. These extreme levels are known as the recent swing high and swing low,&nbsp;<br /> <br /> To identify the Fibonacci levels for an uptrend, click on the swing low and draw the trend line to the swing high. In a down trend you simply reverse the trend line. The following chart shows the Fibonacci levels on price which is in an uptrend.<br /> <br /> <img alt="Fibonacci Retracement" src="/TMXWebsite/media/TMXWebsite/Fibonacci-Retracement.png" style="vertical-align: middle;" /><br /> <br /> As you can see on the chart, we have plotted the Fibonacci levels by clicking on the swing lows at 1.000 and swing highs at 1.14. The Fibonacci levels plotted show where price travels to and reverses, and are evident at the 61.8%, 38.2% and 23.6% levels. The 61.8% level is a common support level, as in the above example you can see the price has tested this level on many occasions. More recently, you can see where the price broke through the 38.2% level and retested this level. In this example there&rsquo;s an expectation for the currency pair to test the 23.6% level at 1.11.<br /> <br /> The next chart shows the Fibonacci ratios plotted for the pricing action in a down trend.&nbsp; As you can see, we&rsquo;ve drawn a trend line from the swing high at 1.1037 to the swing low at 1.0994. Again, you can clearly see where the price reversed at key Fibonacci levels such as the 50% and 23.6% levels.<br /> <br /> <img alt="Fibonacci Retracement" src="/TMXWebsite/media/TMXWebsite/Fibonacci-Retracement-2.png" style="vertical-align: middle;" /><br /> <br /> Fibonacci levels are by no means fool proof &ndash; they&rsquo;re not areas where you would buy and sell from. You should look at them as areas of interest &ndash; an indication of where the price may go to in the future.<br /> &nbsp;</p> <h3><strong>Combining Fibonacci ratios with support and resistance</strong></h3> <p>Fibonacci ratios can be subjective, but can also be used to identify key support and resistance levels. A potential way to use the Fibonacci levels is to spot potential support and resistance levels, and see if these levels line up with the Fibonacci levels. If you do spot these levels, the chances of the price bouncing off them are higher.<br /> <br /> <img alt="Fibonacci Retracement" src="/TMXWebsite/media/TMXWebsite/Fibonacci-Retracement-and-Support.png" style="vertical-align: middle;" /><br /> <br /> As you can see from the chart, the key Fibonacci levels 61.8% and 38.2% have been areas of support and resistance previously, and by identifying this on the chart, these levels can potentially be areas where you could enter the market. With traders looking at the same support and resistance levels, there&rsquo;s a good chance that there will be a number of orders around those levels.&nbsp;</p>

<p>The <strong>symmetrical triangle</strong> is a consolidation chart pattern that occurs when the price action trades sideways. It&rsquo;s considered to be a neutral pattern, as two trend lines are converging until the intersection point.&nbsp;<br /> <br /> The purpose of this article is to look at the structure of the symmetrical triangle, what the message that the market sends through the symmetrical triangle is. Moreover, we will be sharing a basic symmetrical triangle pattern trading strategy.</p> <h2>The structure of the pattern</h2> <p>The symmetrical triangle pattern is a neutral chart formation. Two converging lines are moving to each other as the market makes the lower highs and the higher lows. As the space between two converging lines gets narrower, the likelihood of a strong breakout increases.&nbsp;<br /> <br /> At the beginning of a triangle, the distance between two trend lines is the longest one. The consolidation of energy from both sides occurs, which allows the price action to trade sideways for a certain period of time.&nbsp;<br /> <br /> It&rsquo;s exactly this consolidation phase that is the reason why breakout/downs are usually followed by a strong volume as many traders are on the sidelines waiting for the market to decide in which direction it wants to go.</p> <p>&nbsp;</p> <p><img alt="bullish and bearish symmetrical triangles" src="https://k13-dev.thinkmarkets.com/TMXWebsite/media/TMXWebsite/Symmetrical-Triangle-image-1.jpg" /></p> <p>&nbsp;</p> <p>Although the symmetrical triangle is a neutral pattern, the likelihood of a breakout is stronger towards the direction of the overall trend, meaning that if the symmetrical triangle has been formed after an uptrend, the <em>probability of a break is higher compared to a breakdown</em>.&nbsp;<br /> <br /> Hence, we make a difference between the bullish symmetrical triangle pattern and a bearish symmetrical triangle pattern. On the left side of the picture above, we have a bullish symmetrical triangle, as the direction of the existing trend is to the upside, while the bearish symmetrical triangle is formed from the downtrend.&nbsp;<br /> <br /> In these situations, the symmetrical triangle is then classified as a continuation pattern as the triangle itself simply gives a form to the temporary pause within an overall uptrend or downtrend.&nbsp;<br /> <br /> It&rsquo;s important to note that the perfectly symmetrical triangle is extremely difficult to find. At least one of the two trend lines almost always leans more than the other. For this reason, you should focus on&nbsp;the message that the market is sending, rather than identifying the perfectly symmetrical triangle.</p> <h2>What the symmetrical triangle shows us&nbsp;</h2> <p>The symmetrical triangle tells us that the market is currently undecided about the future direction of the price action. The higher lows and the lower highs also signal that the market seems listless in its direction. Again, the market may seem more inclined to move in the direction of the existing trend.&nbsp;<br /> <br /> Many experienced traders prefer to stay on the sidelines for as long as the market is ranging and until there is a high certainty that the breakout/down is imminent. We should always wait for the price to leave, and ultimately close, outside of the triangle to make sure that we are not dealing with a failed breakout.&nbsp;<br /> <br /> As with most forms of <em><strong>technical chart patterns</strong></em>, symmetrical triangle patterns are best used in conjunction with other technical indicators and chart formations. For this reason, experienced traders use the volume to verify the breakout/down.</p> <h2>Spotting the symmetrical triangle</h2> <p>As outlined earlier, the symmetrical triangle consists of the two converging trend lines as the price action moves sideways. It&rsquo;s&nbsp; important that we correctly identify the symmetrical triangle chart pattern and draw the lines precisely in order to make sure that we don&rsquo;t miss out on a breakout/down.&nbsp;<br /> <br /> In a USD/CAD four-hour&nbsp;chart lower, we see a downtrend as the sellers push the market lower. After a recent swing high, the market starts making the lower highs, while on the other side of the market we witness the higher lows. Hence, this consolidation phase within a downtrend is formed within the symmetrical triangle.</p> <h2>Spotting the symmetrical triangle</h2> <p>As outlined earlier, the symmetrical triangle consists of the two converging trend lines as the price action moves sideways. It&rsquo;s&nbsp; important that we correctly identify the symmetrical triangle chart pattern and draw the lines precisely in order to make sure that we don&rsquo;t miss out on a breakout/down.&nbsp;<br /> <br /> In a <strong>USD/CAD four-hour&nbsp;chart lower,</strong> we see a downtrend as the sellers push the market lower. After a recent swing high, the market starts making the lower highs, while on the other side of the market we witness the higher lows. Hence, this consolidation phase within a downtrend is formed within the symmetrical triangle.</p> <p>&nbsp;</p> <p><img alt="USD/CAD H4 chart - Spotting the pattern" src="https://k13-dev.thinkmarkets.com/TMXWebsite/media/TMXWebsite/Symmetrical-Triangle-image-2_1.jpg" /></p> <p><br /> The consolidation phase is marked by multiple tagging of the two trend lines on both sides, as the buyers and sellers attempt to break the triangle. Finally, the sellers are able to push the price action below the triangle as two converging lines almost touched. In this example, the symmetrical triangle acts like a continuation pattern that simply helps to extend the downtrend further lower.</p> <h2>Trading the symmetrical triangle pattern</h2> <p>Once we have identified the symmetrical triangle pattern on a chart, we are waiting for a breakout/down to occur. Similar to other breakouts/downs, there are two options to enter a trade. First, you can enter into the market as soon as the candle on a high time frame chart (at least 4H) closes above or below the triangle.<br /> <br /> Secondly, you can opt to wait for the price action to break the triangle and then return to retest the broken trend line. This option gives you a better entry as you can use the opportunity to enter the trade exactly at the retest. On the other hand, its limitation lies in the fact that you may never get the opportunity to enter a trade as the retest isn&rsquo;t guaranteed to happen.&nbsp;<br /> <br /> The <strong>advantage of the first option</strong> is that you can&rsquo;t miss out on a trade, as you are in as soon as the candle closes above/below the trend line. However, the close may occur far away from the trend line, which means that your take profit window has narrowed, while the amount of pips you are risking has increased.&nbsp;</p> <p>&nbsp;</p> <p><img alt="USD/CAD H4 chart - Trading the pattern" src="https://k13-dev.thinkmarkets.com/TMXWebsite/media/TMXWebsite/Symmetrical-Triangle-image-3.jpg" /></p> <p>&nbsp;</p> <p>In <strong>this particular example</strong>, we see that the price action returned higher to retest the supporting trend line after the breakdown. In the end, both options were on the table for us to choose from. In order to be sure that we have the opportunity to capitalise on the breakout, we decided to enter into the market once the H4 candle closed below the triangle&rsquo;s supporting line (the black line).<br /> <br /> The stop loss order is placed within the body of a triangle as any return to the inside invalidates the pattern. You can also put the stop loss order above the resisting trend line when the breakout occurs near the end of a wedge i.e. when the distance between two trend lines is very short.&nbsp;<br /> <br /> The vertical blue line measures the distance between the two trend lines at the start of a triangle, and by copy-pasting it from the start of a move that resulted in a breakdown, you will determine the take profit level.<br /> <br /> The breakdown extended lower, and the lowest point of the downtrend almost touched our take profit order. This is a good example to show that you should always leave some room for the market to maneuver in the context of the take profit and stop loss. Ultimately, we booked around 250 pips by risking 100 pips i.e. 1:2.5 risk-reward ratio.</p>

<p>The <strong>Bill Williams Gator Oscillator</strong> is an indicator that the famous trader it was named after&nbsp;developed in concert with several other indicators. The Gator Oscillator helps determine whether a market is in a trend or if it&rsquo;s simply consolidating. It&rsquo;s used to decide when to enter and exit a trade, as timing in trading is crucial.&nbsp;</p> <p>&nbsp;</p> <p>The Gator Oscillator is typically used in conjunction with the Alligator indicator, as a secondary indicator. The Alligator indicator is simply three <a data-di-id="di-id-be9761b2-4445391e" href="https://www1.thinkmarkets.com/en/trading-academy/forex/sma-indicator">simple moving averages</a> in the 5, 9, and 13 variety shifted forward in order to smooth out the readings.&nbsp;</p> <p>&nbsp;</p> <p>Both of these indicators are built into the<a data-di-id="di-id-3a56e082-fd267adf" href="https://www1.thinkmarkets.com/en/metatrader4"> MetaTrader platform</a>, so there&rsquo;s no need to download anything, as you can simply click a few buttons and place these indicators on your charts.&nbsp;</p> <h2>Adding the Gator Oscillator to MetaTrader</h2> <p>Adding the Gator Oscillator to the chart is very simple. Click <em><strong>Insert</strong></em>, pull down the menu to<em><strong> Indicators</strong></em>, then click <em><strong>Bill Williams</strong></em>. Now, all you have to do is select the <em><strong>Gator Oscillator</strong></em> option.</p> <p>&nbsp;</p> <p>At this point, the dialogue box allows the trader to change <em>colors</em>, <em>levels</em>, and <em>visualization</em>, but the main parameters are going to be for the <strong><em>Jaws</em></strong> period, <em><strong>Teeth</strong></em> period, and the <em><strong>Lips</strong></em> period.</p> <p>&nbsp;</p> <p>These are the three levels of smoothed moving averages that make up the indicator. With the Alligator Indicator, the idea is that the three moving averages need to spread out in a direction at the same time to show momentum. This indicator, the Gator Oscillator, expands on that foundation. Below, you can see the options available in your MetaTrader platform. Simply click <em><strong>OK</strong></em> to select the standard options.</p> <p>&nbsp;</p> <p><img alt="adding the gator oscillator" src="https://www1.thinkmarkets.com/TMXWebsite/media/TMXWebsite/adding-the-gator.jpg" /></p> <p>&nbsp;</p> <p>At this point, the Gator Oscillator will show up in its own window at the bottom of the chart. There are green and red bars that appear, and a zero line where the indicator separates. The oscillator is different from many other oscillators as it&rsquo;s actually two oscillators. The <em>positive value</em> for the oscillator is above the zero line while the <em>negative value</em> is below the zero line. It isn&#39;t a normal <em>histogram</em> in the sense that it shows both positive and negative momentum. That being said, there are a variety of ways to read these oscillators in order to discern what type of market the currency pair is in.&nbsp;</p> <p>&nbsp;</p> <p><img alt="the gator oscillator indicator" src="https://www1.thinkmarkets.com/TMXWebsite/media/TMXWebsite/Gator-Oscillator.jpg" /></p> <h2>How to read the Gator Oscillator</h2> <p>Using the<strong> Bill Williams Gator Oscillator</strong> is relatively simple, but you need to know how to interpret the reading. You should keep in mind that Bill Williams suggested in his <strong>Alligator strategies</strong> that the market is in one of four potential environments. The alligator can be <em>sleeping</em>,<em> awakening</em>, <em>eating</em>, or <em>sated</em>. When the alligator is sleeping, that means that there is no trend in the market. When the alligator is awakening, it is starting to form a trend. When it is eating, it is continuing the trend, and when it&#39;s sated, that means that it is slowing down, perhaps suggesting a lack of momentum.&nbsp;</p> <p>&nbsp;</p> <p>In order to take advantage of the Gator&nbsp;Oscillator, you need to understand how to read these dual bars, as they give you different readings based upon the colors on both sides of the zero line. In order to simplify things, you can refer to this section when trying to use it.&nbsp;</p> <ul> <li><strong>Sleeping phase</strong> - The sleeping phase is when both of the bars on each side of the zero line in the oscillator are red. This means that the alligator is <strong><em>sleeping</em></strong>, or in other words there is no trend. This would be the same as when using the Alligator indicator, and the moving averages are all crossing each other and tightening up, showing a lack of any clear directionality.&nbsp;</li> <li><strong>Awakening phase</strong> - The awakening phase is when there are different colours on each side of the oscillator. The awakening phase&nbsp;corresponds to win the moving averages are starting to widen a bit in the Alligator Indicator. The Gator Oscillator eliminates the need for those moving averages by simply plotting down in this window what the moving averages would be doing. As the alligator is <em><strong>awakening</strong></em>, that means that a trend is starting to form.&nbsp;</li> <li><strong>Eating phase</strong> - The eating phase is when there are green bars on both sides of the oscillator. This means that the alligator is trending, meaning that it is <em><strong>eating</strong></em>.&nbsp;In this scenario, you should be trying everything you can to keep your position open in order to get as many prophets as possible. In other words, the moving averages on the Alligator indicator would be spread wide open, and in a nice trending slope.&nbsp;</li> <li><strong>Sated phase</strong> &ndash; The <em><strong>sated phase</strong></em> means that the market is starting to slow down a bit, as the alligator is starting to get full, and therefore is sated. In other words, the trend may be slowing down or even ending. This is when you go from a couple of green bars above and below the zero line to a mix of colours again. At this point, the indicators tell you <em>it may be time to take profit</em>.</li> </ul> <p>Take a look at the chart below. It features <strong>blue</strong>,<strong> orange</strong>, and <strong>green</strong> arrows. The blue arrow will represent when you get a couple of green bars on both sides of the zero level, meaning that the alligator is <em>eating</em>, and therefore you should try to stay in the market. The orange arrow shows duel red bars, suggesting that you should stay out of the market because there is no trend and the alligator is <em>sleeping</em>.</p> <p><br /> Take a look at the green arrows, you can see that the market has a mix of colours, suggesting that a trend could be starting. As you can see, this indicator is highly sensitive to trend, and as a result can tell you when it&rsquo;s time to either be in or out of a trend. It&rsquo;s also worth pointing out the fact that the measuring of the trend doesn&#39;t necessarily suggest which direction that trend is in, just that it is moving. Remember, <strong>this oscillator essentially just measures the difference between the three moving averages that make up the Alligator indicator</strong>.</p> <p>&nbsp;</p> <p><img alt="the signals shown with corresponding arrows" src="https://www1.thinkmarkets.com/TMXWebsite/media/TMXWebsite/the-signals-with-arrows.jpg" /></p> <p>&nbsp;</p> <p>To give you an idea of how this looks with the Alligator indicator, take a look at the chart below and notice how the<em> histogram</em> spreads out further when the moving averages are spread out. It&rsquo;s just a simplification of how to read what is essentially the same indicator. It&#39;s&nbsp;an easier way to see the same information,&nbsp;thereby&nbsp;<strong>making it very useful</strong>.</p> <p>&nbsp;</p> <p><img alt="using the gator oscillator and the alligator indicator together" src="https://www1.thinkmarkets.com/TMXWebsite/media/TMXWebsite/gator-oscillator-and-alligator-indicator.jpg" /></p> <h2>Further thoughts on the Gator Oscillator</h2> <p>The Bill Williams Gator Oscillator is a useful indicator, but it&#39;s&nbsp;essentially the same thing as the Alligator indicator. In other words, it&rsquo;s basically just using three moving averages in order to determine trends. Granted, they are smoothed moving averages, and therefore they are also susceptible to the same type of whipsaw trading situations that any moving average system will suffer. However, the oscillator gives the trader a much clearer picture of what&rsquo;s going on instead of having to try to understand the slope of the moving average, the spread of the moving averages, etc. It&#39;s a handy way to discern the information. This&nbsp;oscillator is a bit different from&nbsp;many other oscillators, as it&#39;s&nbsp;a <strong><em>dual oscillator</em></strong>.&nbsp;<br /> <br /> You&nbsp;use it for divergence, although that isn&rsquo;t necessarily as common with this&nbsp;oscillator as&nbsp;with the Moving Average Convergence Divergence indicator, the Relative Strength Index, or many other ones. That being said, you should keep in mind that when looking for divergence in this oscillator, you need to realise that you are looking at two oscillators. The top half of it can be looked for <em>bearish divergence</em>, while the bottom half can be used to try to find <em>bullish divergence</em>.&nbsp;</p> <p>&nbsp;</p> <p>Remember, divergence is simply a difference between momentum and price, meaning that if the price is rising but the momentum is slowing, the momentum and the price action are diverging. This is normally a sign that the market is ready to rollover, as there isn&rsquo;t a lot of underlying momentum or conviction.&nbsp;</p> <p>&nbsp;</p> <p>Alternatively, if the price is falling but the momentum is starting to go more positive, that typically means that you are going to see a bullish move sooner or later.<br /> <br /> Take a look at the chart underneath to see a couple of examples of <em>divergence</em>.</p> <p>&nbsp;</p> <p><img alt="divergence in the gator oscillator" src="https://www1.thinkmarkets.com/TMXWebsite/media/TMXWebsite/Divergence-and-the-gator-oscillator.jpg" /></p> <p>&nbsp;</p> <p>Bill Williams seemed to be focusing on three specific smoothing moving averages for almost everything he did. Because of this, it probably isn&#39;t necessary to use this indicator with a bunch of other ones that he has created, because essentially, they are going to tell you the same thing.&nbsp;</p> <p>&nbsp;</p> <p>That being said, obviously they have a certain amount of expectancy popularity as they are included with the MetaTrader platform. All things being equal, the <em><strong>Alligator series</strong></em>&nbsp;&nbsp;is a set of indicators that can be useful if you understand how they are printed. At the end of the day, everything is based upon moving averages, which over the longer term <strong>work really well with trends</strong>, but a lot of traders have trouble trusting <em>just</em> moving averages. It&rsquo;s almost impossible to trade with just moving averages, as most people will add some other indicators&nbsp;such as a different oscillator or <a data-di-id="di-id-9164943b-f5d0272a" href="https://www1.thinkmarkets.com/en/trading-academy/forex/analysis-fibonacci-ratios">Fibonacci retracement levels</a>, or something else.&nbsp;</p> <p>&nbsp;</p> <h4><strong>Keep in mind:&nbsp;</strong></h4> <ul> <li>Moving averages are lagging indicators, and therefore have a bit of a delay.</li> <li>5, 8, and 13 are all used, albeit smoothed versions.</li> <li>The moving averages are all Fibonacci numbers, not that you can read too much into them.</li> <li>The indicator itself should not be used alone. You should use other setups in congruence with the trend information that the&nbsp;Gator Oscillator is telling you.</li> <li>It is essential to have an understanding of what the color combination of bars in the oscillator mean, as each variety has a different message.</li> </ul> <p>Going forward, it&rsquo;s crucial that you get used to reading the indicator so starting out on a <a data-di-id="di-id-e6b992d-4014eb5" href="https://portal.thinkmarkets.com/account/individual/demo" target="_blank">demo account</a> is probably paramount at this point. By understanding the overall attitude of the market, meaning whether or not it is trending, you can start to employ the right strategy.<br /> <br /> In a sense, the Gator Oscillator isn&rsquo;t so much a strategy as it is an indicator that can tell you which type of strategy you should be employing into the market. For example, if the alligator is <em>sleeping,</em> this means that there isn&rsquo;t much in the way of a trend, and therefore you may like to start trading <strong>a range bound system</strong> until the alligator <em>awakens.&nbsp;</em>Obviously, the exact opposite can be true as well.</p> <p><br /> One thing that is very useful with this indicator is that when the alligator enters the <em>sated phase,</em><strong>&nbsp;it might be time to get out of the market.</strong> At the very least, it may be time to start moving your stop loss closer to the current price, as the momentum is starting to slow down. That in and of itself is a very useful feature of this indicator, and it can keep you in more profits if you get out before the trouble starts.</p> <p>&nbsp;</p> <p>Obviously, not all indicators are going to be perfect but this one is very useful because it can give you an idea of the trend without cluttering up the charts with a bunch of moving averages, although you can clearly use the Alligator indicator right along with it, even though&nbsp;both indicators will essentially tell you the same thing, but in different ways. The indicator has been tested for several decades, therefore, it has a strong track record of use by professional traders.</p>

<p>A Japanese candlestick is a technical tool used by traders to pack price information into a single candle. They are considered an extremely useful tool, since the traders are able to easily see and analyse a large amount of data.</p> <h2>Origins of the Japanese candlesticks</h2> <br /> Japanese candlesticks go back to as far as the 18th century. A Japanese trader Munehisa Homma traded rice in the local markets. He also served as an adviser to the Japanese government.&nbsp;<br /> <br /> Homma started recording prices of rice on a daily basis, including opening price, high, low, and close. After some time, he started noticing patterns that were repetitive.<br /> <br /> In 1755, he wrote a book titled:&nbsp;<br /> <br /> <br /> <strong>The Fountain of Gold &mdash; The Three Monkey Record of Mone,</strong>&nbsp;<br /> discussing the psychological aspects of the trading process.&nbsp;<br /> <br /> He is believed to be the first person to realise that the behaviour of other participants in the market is a crucial element in trading. The emotions of traders play a huge part in their decisions. Homma realised this and took advantage while trading the rice.&nbsp;<br /> <br /> Homma is also known for introducing the <strong>Sakata Rules</strong><br /> <br /> A set of five rules that outline patterns developed by local traders. It is exactly this set of rules that created the basis for the birth of Japanese candlesticks.&nbsp;<br /> <br /> It was not until the end of the previous century that Steve Nison introduced the concept of Japanese candlesticks to the wider public in a classic investing book titled:<br /> <br /> &nbsp;<strong>Japanese Candlestick Charting Techniques.</strong><br /> <br /> The essence of this concept is the psychology of a trader, which we will&nbsp;discuss&nbsp;in detail&nbsp;below.<br /> &nbsp; <h2>The key elements of Japanese candlesticks</h2> &nbsp; <p>A Japanese candlestick consists of four main elements:&nbsp;<br /> &nbsp;</p> <ul> <li>Opening price&nbsp;</li> <li>Highest point reached by the asset&rsquo;s price</li> <li>Lowest point reached by the asset&rsquo;s price</li> <li>Closing price of the candle</li> </ul> <p>&nbsp;</p> <p><img alt="structure of a Japanese candlestick" src="/TMXWebsite/media/TMXWebsite/structure-of-a-Japanese-candlestick-pic-2.jpg" /></p> <p>&nbsp;</p> <p>As seen in the photo above, the four elements create two parts of the candle: the&nbsp;<em>wick</em>&nbsp;(extending up and down) and the&nbsp;<em>body</em> that consists of the opening and closing prices. The wick&nbsp;can be long or short, depending on the price movements.<br /> <br /> As such, candlesticks differ from the simple bar charts by displaying more information, but in such a way that they are still easy to read.&nbsp;</p> <p>&nbsp;</p> <p><img alt="narrow- and wide-spread candlestick" src="/TMXWebsite/media/TMXWebsite/narrow-and-wide-spread-candlestick-pic-3.jpg" /></p> <p>&nbsp;</p> <p>Traders usually use either green (<em><strong>bullish</strong></em>) or red (<em><strong>bearish</strong></em>) colour to paint the candlestick, although some also use white (bullish) and black (bearish) as well.</p> <p>&nbsp;</p> <p><img alt="green (bullish) and red (bearish) colors" src="/TMXWebsite/media/TMXWebsite/green-(bullish)-and-red-(bearish)-colors-pic-4.jpg" /></p> <p>&nbsp;</p> <p>As seen in the photo above, the <strong><em>bullish candle</em></strong> is formed when the close&nbsp;is higher than the open, and the opposite is the case for the <em><strong>bearish candle.</strong></em> There is a wide range of different shapes, from those with long wicks to either side to those with almost no body.&nbsp;<br /> <br /> The top of the upper wick shows the session&rsquo;s high and vice versa. The longer the distance between the high and the low, the wider the price range of the given session is.&nbsp;<br /> <br /> You can test how different Japanese candlestick patterns work by trading without risking your capital first, by <a href="https://portal.thinkmarkets.com/account/individual/demo"><u>opening a demo trading account</u></a>.&nbsp;</p> <h2>What the Japanese candlesticks tell you</h2> <p>As noted earlier, the Japanese candlesticks are important as they display data to traders that reflect the state of the market. Based on the key elements, traders can better understand the prevailing trend in the market and which side has the upper hand.&nbsp;<br /> <br /> Looking at the image above, we see the EUR/USD daily chart. At the right end of the chart we see a series of long and green candles. This type of candle is very strong as the body is long and the close is usually near the top of the candle. It means that the bulls are in control of the price action as they could facilitate a series of wins that brought them huge gains.&nbsp;<br /> <br /> A clean uptrend, which is characterised by a series of higher highs and higher lows, sends a message that there is a continuous interest from the side of buyers to push the price higher. On the other hand, the long and red candles are a sign of strong selling pressure.&nbsp;<br /> <br /> It is exactly the relationship between individual candlesticks that creates patterns that help traders predict future price changes.&nbsp;</p> <h2>The most popular candlestick patterns&nbsp;</h2> <p>There are two major groups of candlestick patterns: <em>bullish vs bearish</em>, and then there are <em>reversal, transitional </em>and <em>continuation</em> patterns. Patterns also differ based on the number of candles, starting from a single-candle formation to those consisting of two and three candles.&nbsp;<br /> <br /> Bullish patterns are those that predict that the price of an asset is likely to rise while the latter indicate the price is likely to fall. A reversal pattern signals a potential change in direction, while the continuation, as the name itself says, signals an extension of the current trend.&nbsp;<br /> <br /> In the section below, we will discuss the five most powerful candlestick patterns used by traders to predict price movements and make profits. All of these patterns generate a sign or message only, and you should consult other technical indicators before you engage in a trade.<br /> <br /> For this purpose, we have prepared <strong>detailed guides</strong> to explain the best candlestick patterns with examples and how to use them in your trading strategy. See a <strong>short summary</strong> for <em>the most popular ones&nbsp;below</em> or just <em>follow the links</em>&nbsp;here to the detailed guides gain deeper understanding:<br /> &nbsp;</p> <ul> <li><a href="/en/trading-academy/forex/shooting-star-candlestick-pattern"><u>Shooting Star</u></a></li> <li><a href="/en/trading-academy/forex/ascending-triangle-pattern"><u>Bullish and bearish engulfing patterns</u></a></li> </ul>