The Diving Board pattern is very rare in the Forex market. But when they are formed on the chart, that is the best opportunity to make profits with a bullish order. However, it requires traders to observe closely to find the most reasonable entry point. In this article, I will guide you to recognize the Diving Board price pattern and how to trade Forex effectively with it.
What is Diving Board pattern?
The Diving Board is a classic price pattern in which there is a sudden plunge followed by a sharp rebound. It takes place after a period of previous cumulative sideways. This pattern reminds us of the movements of a diving athlete.
The following is an example of the pattern on the candlestick chart.
As you can see the price has accumulated and created a solid support level. However, this support level is broken and formed a “diving board”. The price then recovers and rises above the resistance in the initial accumulation zone, At this point, the pattern is confirmed. It can be seen that the time to create this pattern is quite long. However, if you seize the opportunity, then there will be big profits in a short time.
Features of the Diving Board pattern
Based on the example below, you can see the Diving Board pattern consists of 3 parts on the chart.
– The first part is the diving board. This sideways area is called the accumulation zone. Note that this zone must have a support level running throughout the accumulation period. Usually, this zone will last about 15-20 candles on average.
– The second part is the plunge. This is an unexpected move of the price in the direction of a sharp drop. It breaks the support level mentioned above. The typical drop rate is 26% measured since the price broke the support.
– The third part is the recovery. After a steep decline, the price changes its direction and begins to move strongly upward.
How to trade Forex with the Diving Board pattern
Once determined the accumulation zone with 15-20 candles of a drop rate of about 26%, this is when you need to focus to seize the opportunity when the price recovers. Specifically, after the market breaks down to create a diving board, we will wait for the price to create a bottom to enter a bullish order.
After the pattern is successfully confirmed, we will have 2 ways to place a bullish order.
Place an order when the price breaks out and close the candle above the previous resistance level.
Place an order when the price breaks through the resistance level and returns to retest the support.
Stop loss: If you place the stop loss too far, the risk will be large. But if it is close, it is easy to be touched. Therefore, we will place the stop loss right at the newly formed bottom, which is the most reasonable one.
Take profit: Theoretically, we will measure the distance from the bottom to the resistance zone. Then double it to set a reasonable profit-taking level with a risk/reward ratio of 1:2. To optimize your profit, you can move the stop loss to the next support level. Only close the order when the reversal signal appears or the uptrend is weakening.
The Diving Board is a classic pattern for a buy signal. To achieve greater efficiency when trading with this pattern, you should combine more indicators. And remember an important thing is to always set stop loss and take profit before or after entering the order. Hopefully, through this article, you have learned how to identify and effectively use this pattern. Good luck!
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