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25Copyright © 2003 Forex Systems Research CompanyAll rights reserved worldwide123s Higher Lows and Lower Highs
This pattern can also be a continuation pattern, but at the top or bottom of a trend this pattern provides agood confirmation of the direction change. The “3” point is a failed retest of the previous High or Low.The failure of the test signifies the change from a Bull market to a Bear market and vice versa. The “3”point can also be referred to as a Higher Low or a Lower High. This pattern is very useful for finding atrade entry when there isn’t a CI system entry.
(Higher Low)
3 (Lower High)2Neckline231
     
    
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Copyright © 2003 Forex Systems Research CompanyAll rights reserved worldwideDouble Tops and Double Bottoms
Double tops and bottoms are one of the most well known and powerful money making techniques knownby forex traders. They are a test of a previous high or low. Triple Tops and Triple Bottoms are similar buthave three Peaks or Lows
A double top occurs when the price attempts to break out above a recent pivot high but fails this patternconsists of two tops of approximately equal height. Many traders wait for the confirmation when theretracement low beneath the two peaks is broken to the downside after the second peak. When a doubletop has been formed, the price objective is usually an equal distance down beyond the correction low(valley between the two peaks). Double tops are not as strong in a strong up trend as they are inadowntrend.
The mirror image of the double top is the double bottom — a bullish formation. Support cannot beestablished until there is a test of the last point of support.
Double tops (M shaped) and double bottoms (W shaped) are stronger if the equal points are a long wayapart. The two peaks of a double top do not have to be exactly at the same level so allow a few pipsdifference. A double bottom with a slightly higher low for the second point can be a strong bullish signal.Double bottoms are not as strong in a strong downtrend as they are in an up trend. A double bottomwhich coincides with a pivot line can produce a fast move upwards.
Double Top Double Bottom
27Copyright © 2003 Forex Systems Research CompanyAll rights reserved worldwide 
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28
‘0300 PM OctO1, 2002 03:00 PM Dec06, 200%
Copyright © 2003 Forex Systems Research Company
All rights reserved worldwide
atytTrendlines, Support & Resistance Lines
Support and Resistance Lines
Support and Resistance Lines can be both horizontal and sloping.
Resistance Lines are drawn through previous pivot highs. Resistance acts like a ceiling.
Depending on its strength, a resistance line can pause an up trend and when very strong can reverse an uptrend. Its strength is determined by the length of time it serves as resistance and the number of times ithas been touched by price. The longer the period of time, the greater the strength of the line. Some traderswill sell at resistance lines.
Support Lines act like a floor and are price areas where a currency pair finds it difficult to penetratebelow the Support Line. Support lines are drawn through a previous set of lows and can either pause adowntrend or reverse it depending on the strength of the Support Line. Some traders buy at Support
Lines. All Traders see the same thing.
Do not BUY close to RESISTANCE LINESDo not SELL close to SUPPORT LINES
as there is a good chance there will be a reversal
Resistance Line
Support Line
   
Support Line changes to a Resistance Line
29
Copyright © 2003 Forex Systems Research CompanyAll rights reserved worldwideTrendlines
It is important for traders to know which way the market is going, i.e. is it trending up or down or evengoing sideways. Money can be made in all these conditions, but it is important that traders “Trade withthe Trend”
A trendline is a straight line that connects key prices areas in a move, an up trendline connects successiveHigher Lows or Higher Highs and a down trendline connects successive Lower Highs or Lower Lows.Trendlines connecting successive Lower Highs is also known as a resistance line while a trendlineconnecting successive Higher Lows is also known as a support line.
Trendlines can be defined as border lines for making buy or sell decisions. Trendlines form the boundarylines for most of the chart patterns as will been seen in later sections.
A Trendline of about 45 degrees is considered the most reliable, and if steeper than that the markettypically cannot sustain that kind of momentum for long. Watch to see if the market bounces off atrendline or slices through. Watch for retests of the trendline after the price has sliced through.You will often find good buying or selling points at the 3" touch of a trendline.
30Copyright © 2003 Forex Systems Research CompanyAll rights reserved worldwide 
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31
Copyright © 2003 Forex Systems Research CompanyAll rights reserved worldwideChannels
When prices trend between two parallel trendlines they form a channel. When prices hit the bottomtrendline, this may be used as a buying area and when prices hit the upper trendline, this may be used as aprofit taking area and vice versa.
Breakouts of trendlines and support and resistance lines provide good areas for buying or selling.
Channels can be upward or downward sloping and horizontal
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32Copyright © 2003 Forex Systems Research CompanyAll rights reserved worldwideCONTINUATION PATTERNS
RectanglesRectangle —bullish in an up trendWhen the market is flat, draw a line through the highs and a line through the lows. Buy when the market
closes above the straddle. Sometimes, there will be a bull trap and the market will break back into therectangle and below the support line.
 
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33Copyright © 2003 Forex Systems Research CompanyAll rights reserved worldwideRectangle- bearish in a downtrend
Sell when price breaks below support and closes below support.
 
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34
Copyright © 2003 Forex Systems Research CompanyAll rights reserved worldwideAscending TrianglesAscending Triangle in an up trend —bullish
A formation in which the slope of price highs and the slope of price lows are converging to a point. Theresistance line is parallel to the bottom edge of the chart while the support line is upward sloping. Place abuy order on a break up and out of the triangle. However, if the pattern fails, sell when the market breaksout and below the triangle
   
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35
Copyright © 2003 Forex Systems Research CompanyAll rights reserved worldwideDescending Triangle in a downtrend —bearish
The defining characteristic of descending right angle triangles is the pattern of declining highs and aseries of equal lows. This combination of points can be connected to form a right angle triangle. Thehypotenuse should be sloping from higher to lower and left to right. An illusory double bottom invitesone last batch of weak hands to buy just before a sharp break signals major selling. Sell when pricebreaks out and down.
Descending triangles are amongst the most reliable of all technical patterns because both supply anddemand are easily defined.
 
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36
Copyright © 2003 Forex Systems Research CompanyAll rights reserved worldwideSymmetrical TrianglesSymmetrical Triangle in an up trend —bullish
A symmetrical triangle is a formation in which the slope of price highs and lows are converging to apoint. Support and resistance are sloping. Symmetrical triangles are formed by rallies and sell-offs, eachsmaller than the last. As time moves on, an event is imminent. The move will be explosive. Place a buyorder on a break up and out of the triangle but the price could go in the opposite direction...
 
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37Copyright © 2003 Forex Systems Research CompanyAll rights reserved worldwideSymmetrical Triangle in a downtrend —bearish
Place a sell order on a breakout below the triangle.
 
 
 
 
 
 
 
38
Copyright © 2003 Forex Systems Research CompanyAll rights reserved worldwide 
USDCHFH1 12673 1.2682 1.2669 1.2679
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Note how the Symmetrical 'Triangle has breached up after a idown move. Symmetrical can 'breach either way. i
 
 
 
 
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39
Copyright © 2003 Forex Systems Research CompanyAll rights reserved worldwide
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Created with Interbank FX Trader, @ 2002-2003 MetaQuotes Sofware Corp,FlagsBull Flag in an up trend-bullish
Bull flags are characterized by lower highs and lower lows with pattern slanting against the trend. Theirtrendlines run parallel.
      
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40
Copyright © 2003 Forex Systems Research CompanyAll rights reserved worldwideBear Flag in a down trend —bearish
Bear flags have higher highs and higher lows and slope against the trend. Their trendlines run parallel.Flags are typically seen right after a big, quick move.
 
 
 
 
 
 
41
Copyright © 2003 Forex Systems Research CompanyAll rights reserved worldwidePennantsBullish Pennant in an uptrend-bullish
The bullish pennant looks similar to a symmetrical triangle but is typically smaller in size (volatility) andduration. These are similar to Bullish Flags and have a triangle pattern rather than a “flag pattern”
 
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42Copyright © 2003 Forex Systems Research CompanyAll rights reserved worldwideBearish
Pennant
These are similar to Bearish Flags and have
in a downtrend-bearish
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a triangle pattern rather than a ‘
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Copyright © 2003 Forex Systems Research ComyAlFalse Breaks
Note: If price does not move in the expected direction, the pattern has failed. However traders can reversetheir trade and still make a profit.
False Breaks produce fast moves
A false breakout occurs when price moves up past a previous pivot high and suddenly reverses for a fastmove in the opposite direction. A false break can also appear when the market breaks out of the top orbottom of a triangle or other common pattern and reverse through the bottom or top of the patternunexpectedly.
A false breakdown occurs when price moves down past a previous pivot low and suddenly reverses upfor a fast move.
False breaks occur when the market breaches a chart pattern then suddenly reverses for the main move.Sometimes this is done by traders “setting up” the market, and typically the false break stops and turns ona Fibonacci point or on a Support or Resistance Line
This occurs reasonable often and can also be the setup for the major move. Sometimes this a test of aprevious point of significance like a trendline, low or high or fibonacci line etc.
False Break
44Copyright © 2003 Forex Systems Research CompanyAll rights reserved worldwide  
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45
Copyright © 2003 Forex Systems Research CompanyAll rights reserved worldwideRetracement System
If you buy every retracement when the market is going up, you will be wrong only once at the top.
A well known saying is “buy dips in a rally”.
Similarly, if you sell every retracement when the market is trending down, you will be wrong only onceat the bottom. A well known saying is “sell rallies in a downtrend”.
It is easier for a market to continue its direction than to reverse its direction. This is known as persistenceof trend. Look for retracements to start at critical points. i.e. Fibonacci levels, trend