Forex Trading Intermediate Knowledge -k Line (3)

Trading must not be around the k line, because the k line represents the change in price, is the most basic component of the chart.

The study and use of K-line are divided into two main parts: one is the K-line form, and the other is the combined form of K-line.

The K-line form includes a K-line hammer line, a cross star; The upward and downward engulfing of two K-lines; The twilight star and the dawn star form of the three K-lines.

The combination form of the k line is the form of more k lines combined together to form a prediction of the market. Combining these forms to trade, simple and direct, but also can take into account different time cycles, is a very worthy of learning and trading technical indicators.

The K-line combination forms are mainly divided into two categories, one is the reverse form combination, the other is the relay form combination. Today's article will explain the 5 most important K-line combinations, including 2 reversal pattern combinations and 3 continuous pattern combinations.

1. Double top, double bottom form

Reversal pattern, as the name suggests, is that after the market experiences this pattern, the market has reversed. The double top and double bottom shape is also called M head and W bottom, and when formed, these shapes resemble the English letters M and W very much.

Standard for the shape of the double roof:

The pattern has two peaks at roughly the same price height. At the end of a wave of long trend, the market formed the first wave peak, and then began to fall back and rush high again, but the strength of the bulls was not enough, and the high market did not break before the test, forming a "M" shape.

At this time, a support line (known as the neck line) was formed below the M shape, and the market fell from the second peak of the M head, breaking down and closing at the neck line to identify a double top.

The shape of the double bottom is the mirror image of the double top shape and is a W-like structure.

 

The right side of the figure is a double top structure, the end of a wave of long trend, the market high fall, again upward test the front peak peak does not break, forming two peaks of roughly the same height, that is, the two oval highs in the figure, the market fell through the lower neck line position, the double top form is established.

The left side of the image is a diagram of the double bottom, which is completely mirrored by the double top.

Trading Method:

1: Break position approach (Take double top as an example).

Enter the market directly at the neck line, you can use manual approach, you can also use a hanging order approach, after entering, directly set the stop loss on the right high point.

2: Step back into the approach (take double bottom as an example).

After the market breaks the neck line, the pattern establishes the trend reversal, and waits for the market to step back to the neck line to stabilize before entering. After the market returns to the neck line, wait for the reverse k line or the reverse pattern, and the stop loss is set at the low point of the reverse pattern.

 

On the left side of the figure is a diagram of the broken step back approach. The blue square in the figure is the position of the approach, and the stop loss is at the low point of the step back (the low point of the red oval).

On the right side of the figure is the diagram of the break approach, in the blue square is the break position approach, and the stop loss is set at the upper point (the high point of the red oval in the figure).

Note:

The way of breaking the level is radical, and the order will not be missed, but the space for stop losses will be relatively large. Pullback approach is conservative, if the market does not retreat, it is possible to miss the trading opportunity, but after the retreat, the stop loss space is relatively small, and the profit and loss ratio is more advantageous

2. Head and shoulders top, head and shoulders bottom

The head and shoulder form is a more complex top and bottom form than the double top and double bottom, which takes a longer time to form, and the structure of the form is more complex.

Morphological standard:

I take the head and shoulder top as an example to explain that the head and shoulder top has three crests, and the middle crest is significantly higher than the left and right two. The high crest in the middle is like a person's head, and the low crest on the left and right is like a person's left and right shoulders, which is where the head and shoulder tops get their name.

In a wave of upward trend, the market continues to hit a high point, with the release of the power of bulls, long and short forces gradually balanced. When the market finally rushed high, it did not reach the previous high point, and only formed a wave peak roughly the height of the next high point in front of it, and then the market reversed under the neck line, and the head and shoulder shape was established. The shape of the head and shoulder base is the mirror image of the head and shoulder top shape.

 

On the left side of the chart is a diagram of the top of the head and shoulders, the last surge of the market did not reach the top of the front, only to test the approximate height of the left shoulder, and then the market began to fall, and broke the neck line, establishing the head and shoulders trend reversal. On the right is the shape of the bottom of the head and shoulders, which is a complete mirror image.

Trading Method:

The trading method of the head and shoulder shape is similar to the trading method of the double top and double bottom, and it is also divided into two kinds, the first kind of breaking approach and the second kind of stepping back approach.

1: Break position approach (head and shoulder top as an example).

Enter the market directly at the neck line, either manually or with a hanging order, and set the stop loss directly on the right shoulder after entering the market.

2: Step back into the approach (take the bottom of the head and shoulders for example).

After the market breaks the neck line, the pattern establishes a trend reversal, and waits for the market to step back to the neck line and stabilize before entering, you can wait for a reverse k line or reverse pattern, and the stop loss is set at the low point of the reverse pattern.

 

 

On the left is the direct entry diagram. The stop loss is set over the right shoulder of the top head and shoulders shape (the red oval position in the figure). Although the market has another wave of gains after entering, the market then begins to decline.

The right side of the figure is the market step back to establish the approach schematic. The price rises above the red neck line, then deeply retraces and forms the inverted k line, enters at the blue square, the stop loss is set at the low of the retread (the red oval in the chart), and then the rally begins.

Note:

(1) The way to break the level is more aggressive, the way to withdraw is more conservative, and everyone chooses according to their own trading risk preference.

(2) Because the head and shoulder shape takes longer to form, the shape is more complex, the frequency of the head and shoulder shape is lower, and the need to wait more patiently.

Finally, to summarize: a few key points of inversion form

(1) There must be a trend before the reversal pattern is formed.

(2) The larger the form, the greater the space for subsequent market operation.

(3) The top form is usually shorter in time and more intense in amplitude than the bottom form.

(4) The price range of the bottom form is usually relatively small, and the time period for forming the form is relatively long.

3. Flag finishing

Then we talk about three trunk configuration combinations. The relay form is the same as its name, that is, after the market experiences these forms, the market continues in the original direction.

The morphological standard of flag finishing:

Before the formation of the flag structure, there is usually a rapid rise or fall in the market, forming a similar trend to the flag pole. Then the market began to reverse the original trend, like a flag.

After the reverse shock consolidation accumulated strength, the market started to break through the channel line of the flag consolidation form again, and the flag consolidation structure was established.

 

 

The left side of the figure is a diagram of long flag finishing, the market after a rapid rise, began to downward flag finishing trend. After finishing the accumulated strength, it broke through the declining channel line on the upper edge of the flag shape, and the flag shape finishing was established, and then the market rose sharply.

The right side of the figure is a diagram of the bear flag finishing form, which is also established after breaking through the upward channel of the finishing form, and then the market fell rapidly.

Trading Method:

1: Break position approach

The price breaks through the flag consolidation channel to enter, and the stop loss is set at the high or low of the flag consolidation.

2: Step back into approach

After the market breaks the flag channel, wait for the market to step back on the channel line, and form a reverse k line or reverse pattern after entering, the stop loss is set at the high or low of the reverse pattern.

 

On the left side of the chart is the diagram of the retread approach. After the price breaks the upper edge of the flag channel, it retread the channel line and form a reverse structure. It enters the market at the position of the blue square in the figure, the stop loss is set at the low point of the reverse pattern, and the low point of the red oval k line in the figure, and then the market rises rapidly.

On the right side of the figure is a diagram of the broken approach. After the price breaks through the lower edge of the flag channel, it enters directly in the blue square position in the figure. It can enter manually or hang an order. After entering, the stop loss is set at the highest point in the front of the flag arrangement and the position of the red oval in the figure.

4. Triangular arrangement

Triangle arrangement is the most frequent relay form.

Morphological standard:

Before the triangular arrangement, there is usually a rapid rise or fall in the market, and then the market begins to reverse the original trend, and the whole structure is like a triangle. After finishing, the market broke through the trend line of the triangle structure, and the triangle finishing structure was established.

Triangle arrangement can be subdivided into convergent triangles, symmetrical triangles, rising triangles, falling triangles, and expanding triangles.

 

The left side of the figure is the short triangle arrangement diagram, after the market fell, the formation of a triangle arrangement, the formation of a 123 wave convergence trend structure inside the triangle, the consolidation of the space in the gradual compression, then the formation of a break, the volume out of a wave of short trend.

On the right side of the figure is the organized structure of the multi-headed triangle. After a relatively slow rise in the market, a very broad consolidation. The Angle of the downtrend line and the uptrend line of the triangle is very symmetrical, and the convergence trend of 123 waves is formed inside, and the market rises rapidly after the market breaks.

Trading Method:

1: Break position approach

The price breaks above the triangular consolidation trend line to enter, and the stop loss is set at the high or low of the triangular consolidation.

2: Step back into approach

After the market breaks the triangulation trend line, wait for the market to step back to the trend line, and form a reverse k line or reverse pattern, then enter, and the stop loss is set at the high or low of the reverse pattern.

 

The left side of the figure is the diagram of the retread approach, after the price broke through the triangular uptrend line, the market fell quickly, and then the depth of the correction, and formed a reversal of the K-line combination. Go short at the position of the blue square in the chart, and the stop loss is placed at the high of the inverted k line, the red oval in the chart.

On the right side of the figure is the diagram of the broken level approach. After the price breaks through the downtrend line of the triangle, it enters directly and enters at the position of the blue square in the figure. The stop loss is set at the lower inflection point and the position of the red oval in the figure.

Note:

(1) The interior of the triangular finishing usually forms a convergent finishing structure of "123" waves or "12345" waves.

(2) The dislocation of the triangle is usually in the position after 2/3 of the entire triangle arrangement structure.

(3) The expansion triangle arrangement belongs to the arrangement form of false breakthrough, and the transaction is difficult, and it is not recommended that everyone participate in the transaction.

5. Rectangular arrangement

Morphological standard:

Rectangles arranged on the chart are displayed after a wave of rising or falling prices, forming a rectangular pattern. The upper and lower edges of the rectangle are two obvious horizontal pressure support lines.

Because rectangular finishing is horizontal finishing, it is the smallest retreat in finishing forms, and it is a finishing form with the strongest trend. After finishing, the market breaks through the upper or lower edge of the form, and the rectangular finishing structure is established.

 

On the left side of the figure is a diagram of the arrangement of short rectangles. After a wave of decline, the market began to adjust laterally. Subsequently, the market broke the lower support and continued the short trend.

On the right side of the figure is a diagram of multi-head rectangular arrangement. After a wave of rises in the market, it began to organize horizontally, and after two consecutive tests of the lower support, it formed an upward break and continued the bullish trend.

Trading Method:

1: Break position approach

The price breaks the upper or lower pressure line of the rectangular arrangement to enter, and the stop loss is set at the inflection point of the correction before the break point.

2: Step back into approach

After the market breaks through the upper or lower pressure line of the rectangular arrangement, wait for the market to step back on the pressure line, and form a reverse k line or reverse pattern, and then enter the market, and the stop loss is set at the high or low of the reverse pattern.

 

On the left side of the figure is a schematic of a step-back approach. After the price broke the support of the lower edge of the rectangular arrangement, the pullback unfolded and formed a reversed K-line combination, entering at the position of the blue square in the chart, and the stop loss was set at the high point of the red oval reversal pattern in the chart.

On the right side of the figure is a diagram of the broken approach. After the price breaks through the top edge of the rectangular arrangement, it rises rapidly, which can be entered manually or by hanging orders, in the position of the blue square in the figure. The stop loss is set at the lower red oval correction inflection point.

Note:

(1) In the form of rectangular arrangement, the form of the reverse false breakthrough of the lure of the trend is a high probability form, and after the reverse market break, the running space is very large, and it is a form worth trading, but the frequency of this form is not high, but it is worth grasping seriously in actual combat.

(2) Sometimes rectangular collation also appears in top or bottom inversion, and the logic of the transaction is the same as that of the trunk form method.

Finally, summarize: several key points of trunk form

(1) The callback amplitude of the trunk form is not large, which belongs to the weak consolidation, indicating that the original trend is strong, and the profit and loss ratio will be very reasonable after the market breaks.

(2) The rise or fall formed after the break is usually more than double the previous market. For example, in flag finishing, after the market break is established, the running space can reach more than twice the height of the flagpole.