Colored bars and chart patterns revealed

Date: September 15, 2005 14:00GMT

Expert: Igor Belitsky, Analyst of FX-Dealer.com

Topics:
- Forex chart continuation patterns
- How to use colored bars
- Forex chart example

Who is Igor Belitsky?
Igor Belitsky is a specialist in applied mathematics and trading systems development. Since 1996 he has been working as a forex market analyst in a Moscow based financial company.

Specch Material:

1. Forex chart continuation patterns
Forex chart patterns works fine only in combination with other tools like technical indicators. It's well known that continuation chart patterns like flags and triangles are working fine but there is large influence of trader's subjective point of view in identification of those patterns.

Another important issue is trend direction itself. Chart patterns are useless if applied without trend direction. We recommend to use trend filteres based on popular technical indicators like MACD, DMI, Ichimoku etc. For example, MACD > 0 means up-trend; MACD < 0 means down-trend.

2. How to use colored bars
As trend filter was tuned and activated, charting software marks every up-trend bar with blue color, and down-trend bar with red color. This feature helps visually identify trends and do not forget about it.

The basic idea is very simple: Buy only inside blue bar, Sell only inside red bar. You can now trade inside continuation patterns like flags and triangles using this trading rule. Also, whenever support level is broken wait for red bar to appear and sell on bounce, reverse is true for resistance level.

3. Forex chart example
Below is EUR/USD Daily chart covering 1 year history with MACD technical study being used as trend filter. We can see here many continuation patterns like flags and all types of triangles. Without colored bars it would be difficult to identify them correctly. Mixed triangle pattern have both blue and red bars and can be used both with buy and sell signals. Buy signals are always generated inside blue bars while sell signals in red bars.

Click image to enlarge:

Session Transcript:

FXstreet Moderator (Sep 15, 2005 10:10:11 AM)
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FXstreet Moderator (Sep 15, 2005 10:10:24 AM)
Our guest host will first start answering a selection of the pre-registered user’s questions.

FXstreet Moderator (Sep 15, 2005 10:10:43 AM)
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FXstreet Moderator (Sep 15, 2005 10:10:57 AM)
Our guest will answer live Questions sent to the FXstreet Moderator during the course of the session.

FXstreet Moderator (Sep 15, 2005 10:11:11 AM)
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FXstreet Moderator (Sep 15, 2005 10:11:26 AM)
At the end of the session, the link for the transcript and the PASSWORD will be posted.

FXstreet Moderator (Sep 15, 2005 10:12:40 AM)
Today I am delighted to welcome back our good friend and guest speaker Igor Belitsky.

Igor (Sep 15, 2005 10:13:31 AM)
Hello everybody. I am glad to see you here again in this Q&A session

FXstreet Moderator (Sep 15, 2005 10:15:44 AM)
Thank you very much Igor

FXstreet Moderator (Sep 15, 2005 10:16:26 AM)
Lets go to questions send in during the week.

Igor (Sep 15, 2005 10:17:04 AM)
Q1: I have noticed that you play breakouts on patterns; triangles, channels, any others?

Igor (Sep 15, 2005 10:18:01 AM)
I also use Zig-Zag A-B-C pattern.

Igor (Sep 15, 2005 10:19:01 AM)
If wave C breakes the trend line we expect wave C = wave A by leangth

Igor (Sep 15, 2005 10:19:20 AM)
Q2: Playing breakouts; much better in Rangebound market or Trending market "taking 4 hours charts"? playing breakouts how to avoid selling at the dips and buying at the peak. Many Thanks.

Igor (Sep 15, 2005 10:20:07 AM)
Of course Trending market is best

Igor (Sep 15, 2005 10:20:47 AM)
You cannot expect and avoid some sharp reversals against the trend

Igor (Sep 15, 2005 10:21:53 AM)
If you want to gain on the trend you should be ready to bear the risk of being stopped by sharp correction against the trend.

FXstreet Moderator (Sep 15, 2005 10:23:04 AM)
Please post your questions now and Igor will attempt to answer as many as possible.

Guest (Sep 15, 2005 10:25:04 AM)
INteresting concept!- but the question is HOw do I set up the charting/data feed to get such signals? Which data feed do u use to get such signals? Please elaborate

FXstreet Moderator (Sep 15, 2005 10:25:24 AM)
INteresting concept!- but the question is HOw do I set up the charting/data feed to get such signals? Which data feed do u use to get such signals? Please elaborate

Igor (Sep 15, 2005 10:27:00 AM)
If you mean chart example then we just placed buy and sell signals to show how chart patterns and colored bars can be used.

Igor (Sep 15, 2005 10:27:50 AM)
It is not automatic signals. I suggest that signals based on chart patterns cannot be automated.

Igor (Sep 15, 2005 10:28:26 AM)
Although colored bars are easy automated.

Igor (Sep 15, 2005 10:29:46 AM)
Second question: For our live charts we use real-time quote stream provided by one Moscow based forex broker.

JSB (Sep 15, 2005 10:30:26 AM)
Looking a USD/CHF weekly chart the filters u suggest (MACD and DMI) seem to conflict with each other. Would this be an indication that the market is trendless?

Igor (Sep 15, 2005 10:32:12 AM)
I just placed MACD and DMI indicators as trend filters on USDCHF weekly

Igor (Sep 15, 2005 10:33:19 AM)
DMI shows up-trend from 14-mar 2005 and MACD from 16-May

Igor (Sep 15, 2005 10:33:53 AM)
There is no global conflict between them.

Christopher (Sep 15, 2005 10:34:38 AM)
This image, is that what your setup looks like? Ie do you only rely on triangles and channels, and the Mac D?

Igor (Sep 15, 2005 10:35:39 AM)
This image is for indication of our method of using colored bars.

Igor (Sep 15, 2005 10:36:55 AM)
I can not tell you what our real trading system is based on. It is just secret :-)

Igor (Sep 15, 2005 10:37:37 AM)
We do not rely only on triangles and MACD of course.

ebtrader (Sep 15, 2005 10:38:11 AM)
Igor, do u ever take counter trend trades and if so under what circumstances?

Igor (Sep 15, 2005 10:39:17 AM)
If you are trend trader you should always play with the trend.

Igor (Sep 15, 2005 10:40:38 AM)
But the main question here is that there are different trends on different scales.

Igor (Sep 15, 2005 10:42:47 AM)
Counter trend trade is often based on intention to take quick profits. It is dangerous habit.

Igor (Sep 15, 2005 10:45:22 AM)
Sometimes there is strong desire to hedge position with another one against the trend. We try to fight with this habit.

Forrest (Sep 15, 2005 10:46:19 AM)
Once a trend is established - how many pips on the reversal would you say breaks or flattens the trend?

Igor (Sep 15, 2005 10:48:52 AM)
The market goes against the trend just enough to hit your stop-loss. It may be 60-80 pips for 4H chart.

Igor (Sep 15, 2005 10:49:45 AM)
It is the nature of the market. You can be thrown out from the trend bus at any moment

Kalapono (Sep 15, 2005 10:51:39 AM)
What time frames do you find best with this method? Do you use more than one time frame, and which ones are those.

Igor (Sep 15, 2005 10:52:42 AM)
This method is best suit for longer scale charts: W, D, 4H.

Kalapono (Sep 15, 2005 10:54:01 AM)
Do you look for certain types of bars or candles to signal that the bounce or breach of trend/pattern is valid? Where do you place your buy/sell, at the close of the bar or?

Igor (Sep 15, 2005 10:56:41 AM)
There is no special type of candles. If you see that price started to move down against the trend you should guess what continuation pattern is developing like symmetrical triangle etc.

Igor (Sep 15, 2005 10:57:34 AM)
Then you place your order near the triangle border lines.

bibi (Sep 15, 2005 10:58:05 AM)
Do you use Elliott wave to assist trend detection? thanks

Igor (Sep 15, 2005 10:59:33 AM)
The key element of elliott wave analysis is the trend consists of 1-3-5 wave

Igor (Sep 15, 2005 11:00:44 AM)
But in reality the trend may have 1-3-5-7-9-... waves so I do not use classical EW analysis.

Igor (Sep 15, 2005 11:01:46 AM)
It is not true that basic trend patterns is only 1-3-5

lionel (Sep 15, 2005 11:03:55 AM)
When you say "Counter trend trade is a dangerous habit" does it mean like looking for break outs is a dangerous habit?

Igor (Sep 15, 2005 11:04:40 AM)
It is not equal things

Igor (Sep 15, 2005 11:05:45 AM)
You can look for trend continuation break outs and it is good habit.

Igor (Sep 15, 2005 11:06:57 AM)
But you should not wait for the moment when trend is run out of steam. Just follow the trend.

bibi (Sep 15, 2005 11:07:29 AM)
Do you use moving average as the trend filters? What is your comment on using higher degree moving averages, say 100 EMA, 200 EMA instend of 10, 20 EMA, which are better for deciding the trend?

Igor (Sep 15, 2005 11:08:35 AM)
No I do not use MA itself. Only MACD = MA1-MA2.

Igor (Sep 15, 2005 11:09:42 AM)
If you mean using MACD(100,200)? No I only use standard MACD(13,26,9)

Boykie (Sep 15, 2005 11:10:35 AM)
Which of the indicators are leading versus lagging?

Igor (Sep 15, 2005 11:11:31 AM)
Trend filters like MACD and DMI are always lagging because they cannot predict trend reversals.

Igor (Sep 15, 2005 11:13:20 AM)
But you can use Slow Stochastic on the weekly chart as leading indicator to predict the moment of reversal on the daily chart.

anne (Sep 15, 2005 11:14:12 AM)
Hello - on afag pattern were do you like to take your position - ( in the smaller time frame say 15 min )

Igor (Sep 15, 2005 11:15:27 AM)
Sorry what is afag pattern. I do not use 15 min scale just because there are so many false signals here.

miggy (Sep 15, 2005 11:17:37 AM)
Could you please elaborate on your answer for the Zig-Zag A-B-C pattern?. Thanks

Igor (Sep 15, 2005 11:20:07 AM)
If you see in the up-trend that correction just goes lower below wave A you could wait for wave C to develop and open long position just at the point where wave A = wave C (I mean wave size).

FXstreet Moderator (Sep 15, 2005 11:21:12 AM)
last question:

bibi (Sep 15, 2005 11:21:17 AM)
which currency pairs you focus on?

Igor (Sep 15, 2005 11:22:06 AM)
GBPUSD, USDCHF, EURUSD, EURJPY, USDCAD and sometimes USDJPY.

FXstreet Moderator (Sep 15, 2005 11:25:11 AM)
Thank you very much for that, Igor

FXstreet Moderator (Sep 15, 2005 11:25:20 AM)
If your question was not answered during the course of this chat, please contact Igor

FXstreet Moderator (Sep 15, 2005 11:25:30 AM)
Email: info@forexdealer.net

FXstreet Moderator (Sep 15, 2005 11:25:41 AM)
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FXstreet Moderator (Sep 15, 2005 11:26:20 AM)
In order for us to continue providing informative and educational Q&A Sessions, feedback is vital. Please feel free to post feedback about today's session, topic ideas, & suggestions. We would appreciate this very much. I will be logged on for a while. claire@fxstreet.com

Igor (Sep 15, 2005 11:26:52 AM)
Thank you for your great questions and good luck.

FXstreet Moderator (Sep 15, 2005 11:27:14 AM)
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FXstreet Moderator (Sep 15, 2005 11:28:09 AM)
Thank you all see you tomorrow for LIVE Technical outlook with Sam Shenker

FXstreet Moderator (Sep 15, 2005 11:28:22 AM)
Thank you all