Using effective currency hedging strategy

Chart patterns capture the diverse behavior of people. This includes the slow growth of confidence, seen in an up-sloping triangle pattern. It includes the swift growth of irrational exuberance, most clearly seen in bubble patterns and parabolic trends. When we understand the development of a particular behavior then we can also anticipate how and when the behavior may end. In the market this provides buy and sell points in the trend.

Some analysts take the next step and use patterns to predict the future. This is unwise. The chart pattern graphically illustrates the balance of probability. It indicates the most probable result, but it does not show the inevitable result. Investors assess the balance of probability and identify the price levels or behavior that show when the balance of probability has changed.

The parabolic trend is an unusual chart pattern. It captures a spurt of enthusiasm and it also does an excellent job of defining the end of the trend with an exact date. When the parabolic trend line is drawn, the end of the parabolic curve becomes vertical. This provides a fixed reference point or date. Every day a new price candle is added to the chart, slowly moving towards the fixed end date for the parabolic trend. When the price activity reaches the date there is a high probability the parabolic trend will end because the next price candle will move to the right of the parabolic trend line.