Stocks & Commodities V. 25:6 (12-14): Forex Focus by Brent Donnelly
Access to foreign exchange trading has opened up exciting trading options for the retail trader. You can now trade alongside corporations and institutions in a highly liquid market that is global, traded around the clock, and highly leveraged. Before jumping into this market, however, we must understand the factors that affect the forex market. With that in mind, STOCKS & COMMODITIES has introduced Forex Focus to better prepare the retail trader to participate in the currency market.
Position yourself in the foreign exchange market using a reliable chart pattern.
A reliable trading pattern in foreign exchange markets is the false break and reverse, or slingshot reversal pattern. In this article I will introduce the slingshot reversal, discuss how the pattern is traded, and provide a recent example from the AUD/USD (Australian dollar) market.
A slingshot reversal occurs when a major support is broken but the price does not hold and the market then reverses, going back up through the old support level. Here I am referring to a broken support but everything described also applies to the opposite formation, where resistance breaks and the rally fails and reverses back below the resistance. This pattern works so well because the downside break of the major technical level clears existing long positions and creates new weak shorts. The large number of breakout systems and momentum models in foreign exchange further enhances the reliability of the structure. The slingshot reversal pattern is not unique to forex markets, however. The pattern can be exploited profitably in other markets as well; entry/exit parameters need to be adjusted for other commodities, but the concepts are identical.