NEW YORK (TheStreet) -- No matter how many variations exist among foreign exchange traders on level of wealth, risk appetite or experience, each and every one of them have the same objective: What to trade next.
Many forex traders follow the latest economic developments to provide them with hints on how the forex markets will evolve, while others' trading plan is to look out for chart patterns that often occur. The latter is a simple and easy method for deciding when to trade as chart patterns can be easily spotted with some practice.
Two of the most common ones are the head & shoulders and triangles.
A very popular chart pattern searched for is the head & shoulders. As the name implies, the pattern is comprised by a "head" between two, lower shoulders. The regular head and shoulders pattern is usually formed at the top of an upwards trend and is an indication the price is about to fall.
The pattern's formation begins during the price's upward trend, when it reaches a new high and followed by a new low. This is how the left shoulder is formed.
The head of the pattern is formed when the price goes on to a new higher high and falls down to another low. Then the right shoulder is shaped when the price makes another high that is lower than the head's high and after continues to fall below the neckline.
AUD/USD Daily Easy-Forex Chart
The example above is from the AUD/USD daily chart during autumn 2013. There is is also the reverse head and shoulders pattern that forms at the end of a downwards trend and is therefore an indication of a rise in price.