Forex trading involves making trades based on the fluctuations of currency prices. One of the most popular trading strategies is using chart patterns to determine potential market movements. One such pattern is the X pattern, which is also known as the double bottom or W pattern. In this article, we will explain how to use the X pattern in forex trading.
What is the X Pattern?
The X pattern is a technical analysis pattern that appears on a price chart as a letter “W” or “M”. It is formed when the price of a currency pair reaches a low point, then rebounds, and then falls again to the same low point. This creates a double bottom, or W pattern.
The X pattern is a reversal pattern, meaning it suggests a change in direction for the currency pair. If the pattern appears after a downtrend, it suggests that the currency pair may be reversing its trend and moving upwards. Conversely, if the pattern appears after an uptrend, it suggests that the currency pair may be reversing its trend and moving downwards.
How to Identify the X Pattern
To identify the X pattern, you need to look for two lows that are approximately at the same price level. The first low is usually the result of a downtrend, while the second low is the result of a temporary pullback. The price then rises again, forming the “X” shape.
To confirm the X pattern, you should also look for a break above the resistance level, which is the high point between the two lows. This indicates that the bulls have taken control of the market and that the currency pair may continue to rise.
How to Trade the X Pattern
Once you have identified the X pattern, you can use it to make a trade. There are several ways to trade the X pattern, including:
1. Buy at the Breakout Point
One way to trade the X pattern is to buy the currency pair at the breakout point, which is the point where the price breaks above the resistance level. This indicates that the bulls have taken control of the market and that the currency pair is likely to continue rising.
To enter the trade, you should place a buy order above the resistance level and set your stop loss below the second low. You should also set your take profit at a level that is at least equal to the distance between the resistance level and the second low.
2. Buy at the Second Low
Another way to trade the X pattern is to buy the currency pair at the second low, which is the point where the price bounces back from the support level. This indicates that the bears have lost control of the market and that the currency pair is likely to reverse its trend.
To enter the trade, you should place a buy order at the second low and set your stop loss below the second low. You should also set your take profit at a level that is at least equal to the distance between the second low and the resistance level.
3. Sell at the Breakdown Point
If the X pattern appears after an uptrend, you can use it to make a short trade by selling the currency pair at the breakdown point, which is the point where the price breaks below the support level. This indicates that the bears have taken control of the market and that the currency pair is likely to continue falling.
To enter the trade, you should place a sell order below the support level and set your stop loss above the second high. You should also set your take profit at a level that is at least equal to the distance between the support level and the second high.
Conclusion
The X pattern is a powerful tool for forex traders, as it can help them identify potential trend reversals and make profitable trades. However, like all trading strategies, it is not foolproof and requires careful analysis and risk management. By understanding how to identify and trade the X pattern, you can add another tool to your trading arsenal and increase your chances of success in the forex market.
