In today forex faq, we have a question regarding the forex candlestick and chart patterns from one of our fellow traders.
Below is the question:
Concerning forex candlestick and chart patterns on which timesframes would they be most valid? How do you estimate your target profit on a trade? Thank you
Regarding your first question on which timeframes would the forex candlestick and chart patterns by most valid, I will say that they are valid on all time frames.
The problem is if you are using a lower time frame like the 1 or 5 minutes to trade, you will get more noise in your trading. Personally I am using the 15 minutes and 1 hour chart to trade as they have lesser noise.
As for your second question on how to estimate your target profit. There is 2 ways you can go about doing it.
You could use a major support or resistance level as your exit point. For example, when you see the price hitting a major resistance like the pivot point or Fibonacci extension level, you can exit your position already.
Alternatively, you can use a risk reward calculation to exit your position. For example, if you are risking 30 pips every trade and you are eying a risk reward of 1:3, you will always exit your position when the price hits 90 pips.
Some of you may argue that what happens when the price moves 80 pips in your favor and then reverse to take you out. It is okay as your 1:3 risk reward ratio will help you to recoup back the losses.
For example: if you take 10 trades every month and your strategy has a winning percentage of 30% which means that you are going to win 3 trades only every month and lost 7 trades.
If you are trading with $500 per trade. Below is your profit and loss based on 1:3 risk reward ratio:
3 Wins = $1500 x 3 = $4,500
7 Losses = $500 x 7 = $$3,500
You are making $1,000 per month even when you lost 7 out of 10 trades and that is how powerful risk reward ratio is to trading.
I hope that I have answered both your questions. Do give your comment below if there is anything that you are not clear. For those of you who are reading this post and has something to contribute, do feel free to give your comment below.