FRUSTRATION IN THE CHARTS

When sentiment can’t find a release, the price compresses and waits for a break. The
signature of such compression, frustration, and impending explosion of a breakout are
the triangles. Triangles can be equilateral where the angles are all equal or shaped in an
ascending or descending pattern. Figure 13.6 shows an ascending pattern because the
largest side is trending up. The range is getting narrower, and there is no room for the
energy to go. There must be a break. The strength of the break is not known in advance.
But the trader seeing a triangle can anticipate that a break will occur.
In the EURCAD cross-pair, an equilateral triangle is spotted, providing an anticipation
of a breakout .



STABILITY: THE CHANNEL PATTERN


Patterns that endure over time through 20 or more candles demonstrate sentiment stability.
The best visualization of this is the channel pattern. Channels can be sideways or
tilted downward or upward. It is called a channel pattern because the patterns are similar
to a river channel, and, in fact, the geometry and energy flow of water in a river channel
is very similar to the movements prices make when forming a channel pattern. Channel
patterns in forex trading are examples of traders using the language of another field of
science as a metaphor to describe what they see the price doing (see Figures 13.8 and
13.9). The trader perceiving a channel can decide on several ways of trading it.
The first strategy is to trade in the direction of the channel and, in a downward channel,
wait for the price to retest the upper bank. For an upward channel, the best location
of the next trade is for the price to sell off and bounce off the lower channel. Channel
trading permits countertrend trading because the market is showing persistence in the
pattern. The width of the channel should permit trading. This means that the trader needs
room for entry off the top or bottom, and assuming that such a cushion requires about 10
pips each, it is reasonable to assume that channels of 30 pips or more are the best size.
Four-hour charts provide a very good source of channels.
The channel formation occurs in almost every time interval. Its robustness can express
itself even at the most micro levels of price movement. The 1-minute pattern can
show a channel and therefore reveal the inherent stability of the sentiment as we see in
the 1-minute U.S. dollar–Japanese yen (USDJPY) chart channel in Figure 13.10.
Most recently, as the EURUSD pair reached historic levels, it formed a clearly identifiable
channel pattern .




By ABE COFNAS