What Are The Top Forex Signals To Watch When A Stock Drops?

The stock market is a volatile beast. If you are trading stocks, it’s almost impossible to know what will happen in the next few minutes, hours, or days. That’s why traders rely on signals from the forex markets. Here are top forex signals to watch when a stock drops:

1) BEARISH ENGULFING PATTERN:

This is a major bearish pattern that was first identified by a Japanese forex trader who called it “Engulfing” on the charts. The Bearish Engulfing Pattern shows that after the price broke through a downtrend line and entered into a lower range, this pattern appeared on the chart and reversed the trend of the price. It happens because after breaking through the downtrend line, it enters into another uptrend line which produces more buying pressure. The whole pattern shows five waves of higher highs and higher lows each time. When this pattern appears, the stock price will reverse immediately, with perhaps 20 to 30 % above its intraday low.

2) TWEEZERS TOP:

This is also a bearish pattern that appears on the charts within the uptrend of price. This pattern appears when the support line or a downtrend line that was previously broken through by price reverses and intersected with the most recent swing high or low. It has three swings; the first swing shows a downtrend line, but after it goes above the downtrend line and then makes another swing to hit a higher low than its second swing, this pattern appears, and it shows an upside reversal.

3) MORNING STAR PATTERN:

This pattern is formed when the price creates a new low and then proceeds to create a series of higher lows and lower highs. After the fifth swing, it makes a higher high and then breaks through the previous resistance area and closes above it. This is an indication that after breaking through the resistance, there are enough buyers to push the price higher; hence it reverses from its downtrend.

4) GRAVESTONE DOJI:

This chart pattern appears at the bottom of a downtrend when the price has created a series of lower lows with lower highs, but the last swing creates indecision between buyers and sellers. This indecision is shown by the fact that the two Doji lines have a higher low and a lower low. After the indecision, the stock price breaks out of its range the next day. This pattern shows that after five waves of lower lows and higher highs, buyers are still in charge and can continue pushing higher prices.

5) MORNINGSTAR REVERSAL:

The Morningstar patterns appear when the price creates a new low, but then it bounces off support or resistance into a series of higher lows and lower highs. After this series, there is an upside reversal with another swing high, but it closes below the previous swing high to produce this pattern. This pattern shows that the price is being pushed by buyers and will continue to rise; hence it can be a good entry.

6) RETRACEMENT DOJI STAR:

This top reversal pattern is formed when the price creates a series of higher lows and lower highs without much indecision, but after the fifth wave, this indecision creates this reversal pattern from its downtrend. This pattern appears at the bottom of a downtrend when there are 4 to 5 swings of lower lows and higher highs, then on the fifth swing, the price creates indecision between sellers and buyers. This indecision is shown in the fact that the two Doji lines have a high equal value, and on the fifth swing, price breaks through both lines to produce this pattern. This pattern shows that after breaking through the trendline resistance, there are enough buyers to push higher prices, and it can be a good entry.

7) HARAMI:

This is also more of a reversal pattern on currency pairs. The Harami appears in the uptrend when there are three higher lows and lower highs in a row, each time through price creates two higher lows or two lower highs but without too much indecision. After the second or third reversal, there is another higher low or lower high, which is more indecisive about producing this pattern. This pattern shows that the trend of price is still strong, and since it has been able to keep on creating new highs and lows, it is a good entry point.

8) SHOOTING STAR:

This is also a reversal pattern, but it appears on the downtrend and the price is trying to break through resistance; the next day this occurs, the price breaks through this resistance, and there are two higher lows with lower highs. Once the price closes above these higher lows and lower highs, it creates a push-higher pattern and forms a shooting star on the way up. This pattern shows that after breaking through support or resistance, there is plenty of buying pressure, and since this time, it has been able to break through both lines, and it can be considered a good entry point.

9) DOUBLE TOPS:

This pattern appears on the downtrend when there are four consecutive lower highs and four consecutive higher lows; each time price creates a higher low or lower high, and it then breaks through these two lines. After this, there is a second reversal pattern which forms two new lows. This pattern shows that after creating two lower highs and two higher lows, it is possible that some buyers are still in charge of pushing prices back up, and it can be an excellent entry point.

10) HEAD AND SHOULDERS:

This is another price pattern that appears when a stock is in a downtrend, and the stock breaks through its downtrend line, then it shows two higher lows but not as strong as the previous two. This pattern shows that after breaking through the downtrend line, however hard it tries, the stock still has buyers and can continue to go up. This pattern can also be used for trading or for timing purposes.

11) THREE INSIDE UP:

This is also an alternating price pattern that appears on the charts when there are three lower highs only. This means that there are no higher lows and vice versa; this pattern is created by the buyers. This pattern shows that even though it has three lower highs, each time the stock price pushes lower, the buyers are still in charge and can pull it back up.

12) THREE INSIDE DOWN:

This is also an alternating price pattern that appears on the charts when there are three higher lows only. This means there are no lower highs and vice versa; this pattern is created by the sellers. This pattern shows that even though it has three higher lows, each time the stock price pulls lower, the sellers are still in charge and can push it back down.

CONCLUSION

Every chart pattern has its own characteristics, some are more bearish than others, and some are more bullish. It is up to you to identify which chart patterns can work for your trading purposes; if you keep learning about them, you will be able to decipher the most important characteristics like where to enter, where to place stops, or how far the stock can go and many other things.