Compression is the term every trader should understand. Reading the price is most important in the technical analysis of forex trading. Like if the price is changing at a fast rate then you must know the reason behind it. If you are a technical analyst you should use only technical tools. Like why the price is forming big bullish candlesticks at a certain zone or why the price is forming small candlesticks at a certain zone? You must know the reason behind it. In this article, we will teach you about compression patterns in forex and what will happen during compression patterns.
What’s Compression in forex?
There are only two reasons for the movement of price. One is demand and another one is supply. The price will go up when there is demand. The price will go down when there is supply. What will happen when there’s no demand left but only supply? What will happen when there’s no supply left but only demand? Think about it. Compression is related to this topic.
Compression pattern forex
When the price is moving slowly up as well as consuming all the demand on the way then there will be no demand left until the origin of this pattern. As there is no demand so large amount of supply will cause the price to come straight to the origin of this pattern without any hindrance. This pattern is the main reason behind a large bearish candle or big price movement in a very short interval of time. This is called compression in forex or cp forex.
Let me explain on a chart for a clear view. Watch in the image below price is moving very slowly consuming all the demand on the way. Since there is no demand on the way. So price came straight to the origin of the pattern.
More facts about compression in forex?
The compression zone is the gap or space. Like when the price will enter in space it will automatically come to the next end of space. Now let me tell you in the terms of supply and demand. When there’s no demand, the price will go down only and with high velocity. Like in the image above, the compression zone shows that there’s no demand in this zone so when the price entered that zone it came straight to the other end of the zone with high velocity. This is the main point of compression in forex trading.
How to trade compression in forex?
This topic will be different for different traders. As every trader has its own strategy to trade forex. Only the top 1% are winners because they are unique from others. So don’t copy strategies but try to make your own strategy. You can use a compression pattern in your existing strategy to increase the risk-reward ratio or winning rate or increase your take program level or modify the stop loss level. It depends on you only. For your help, I will show you a simple trend line breakout strategy with a compression pattern.
Look in the image below there’s compression pattern and after trend line breakout as there’s already compression on the way so don’t hesitate to enter in the trade and make some decent profit. Making a profit is no easy but it will be easy only if you will make your own strategy or your own rules.
Watch the three minute video to learn simple concept of compression in forex.
Don’t make friends with the trend, make friends with each candlestickVivek Nair
Note: All the viewpoints here are according to the rules of technical analysis. we are not responsible for any type of loss in forex trading.