TradingKey -The Trump tariff storm has roiled the global financial markets. On March 3, US President Trump stated that the proposed 25% tariffs on Mexico and Canada would take effect on the 4th. In response to the US tariff hike, Canadian Prime Minister Justin Trudeau said in a statement on the evening of the 3rd that if the US imposed tariffs on Canadian goods exported to the US starting from the 4th, Canada would "impose 25% tariffs on C$155 billion (about US$107 billion) worth of US goods." Among them, tariffs on C$30 billion worth of US goods would take effect on the 4th, and tariffs on another C$125 billion worth of US goods would take effect 21 days later.

Hit by the tariff storm, the global foreign exchange market has once again fallen into turmoil. The Canadian dollar and the Mexican peso have dropped to around one-month lows against the US dollar. On March 4, the Canadian dollar hit a one-month low of 1.45415 against the US dollar, and the Mexican peso fell another 0.2% against the US dollar to 20.7390, recording its lowest level since February 3.

The volatility in the foreign exchange market brings huge investment returns but also contains many investment risks. To profit from investments in the foreign exchange market, investors must build a solid foundation. This article will explore investment techniques in the foreign exchange market and provide an in-depth analysis of foreign exchange investments from the perspective of technical analysis.

Chart patterns are the foundation of technical analysis in forex investment. They are like the "signal lights" of market trends, visually presenting price movements to assist investors in predicting the future direction of the market. They can be classified into two major categories: reversal patterns and continuation patterns.

Reversal Patterns

Reversal patterns are important signals that the market trend is about to reverse.

Head - and - Shoulders Pattern

It is divided into head-and-shoulders at the top and head-and-shoulders at the bottom. The head-and-shoulders top is one of the most common reversal patterns, often emerging at the end of an uptrend, indicating a shift from a bullish to a bearish market. Its shape resembles a person's shoulders and head when standing upright. In an uptrend, the left shoulder is formed first. As the stock price rises to a certain level and then starts to decline, with relatively high trading volume. This shows that although the bullish force is strong, it has already encountered some resistance. Then, the price rises above the left high to form the head, and the trading volume may reach its peak, representing the last frenzy of the bulls. Subsequently, the price drops to form the right shoulder, with the right shoulder much lower than that of the head and reduced trading volume, indicating the exhaustion of the bulls and the dominance of the bears.Connecting the low points of the left shoulder and head retracements forms the neckline. When the stock price effectively breaks below the neckline, the head-and-shoulders top pattern is officially established, which is a strong sell signal, heralding the start of a downward trend.

（Source: Wikipedia）

The head-and-shoulders bottom, on the contrary, is a reversal pattern of a downtrend. When the neckline is effectively broken through, it indicates that the price will rise.

（Source: Wikipedia）

Double Top and Double Bottom Patterns

These are also relatively common reversal patterns. The double top, also called “double peak” or “M-top”, is a bearish signal. It forms when the price rises to a high, drops, then rallies again but falls once more around the previous high and breaks below the prior low. It features two distinct peaks at similar price levels. Once formed, it indicates the end of an uptrend, and the market will likely turn downward. Investors should consider short-selling upon spotting this pattern.

（Source: Wikipedia）

The double bottom, known as “W - bottom”, is a reversal pattern in a downtrend. When the price breaks through the neckline, it suggests a potential market upswing, giving a bullish signal.

（Source: Wikipedia）

Continuation Patterns

Continuation patterns suggest that the market will resume its original trend after a short-term consolidation. Common continuation patterns include triangles, flags, and wedges.

Triangle Patterns

Triangle patterns consist of symmetrical triangles, ascending triangles, and descending triangles. Their characteristic is that the trend lines gradually converge, with the highs and lows getting closer and closer. When the price breaks through the boundary of the triangle, whether upward or downward, it confirms that the pattern will continue the previous trend.

Flag Patterns

Flag patterns usually form after a rapid rise or fall in stock prices. They are shaped like a flag and are composed of two parallel trend lines. In an uptrend, the upper boundary of the flag pattern slopes downward, and the lower boundary slopes upward. In a downtrend, the opposite is true. It is usually a short-term adjustment pattern after a strong trend. Breaking through the upper or lower boundary of the flag may indicate the continuation of the trend.

Wedge Patterns

Wedge patterns are formed by two converging trend lines that slope in the same direction. They typically persist for a while, taking on a shape similar to a wedge. Wedge patterns generally fall into two types: ascending wedges and descending wedges.

For ascending wedges, both the upper and lower trend lines slope upward, yet the slope of the upper line is less steep than that of the lower line. This pattern is usually regarded as bearish.

Conversely, in descending wedges, both trend lines slope downward, with the slope of the lower line being less than that of the upper line. Such a pattern is commonly seen as bullish.

（Source: Wikipedia）

Trend Indicators

MA： Calculated based on the average price over a specific period, it smooths out price fluctuations in the market, assisting traders in identifying market trends. Common moving averages include short-term moving averages (such as the 10-day moving average), medium-term moving averages (such as the 50-day moving average), and long-term moving averages (such as the 200-day moving average). When the short-term MA crosses above the long-term MA, a "golden cross" is formed, which usually signals a buying opportunity. Conversely, it indicates a selling signal.

（Source: Wikipedia）

MACD: Composed of two exponential moving averages (EMA) with different periods, it is used to measure the strength, direction, and changes of a trend. When the MACD line crosses above the signal line, it may be a buying signal. On the contrary, it is a selling signal. The growth of the MACD histogram indicates the strengthening of the trend, while its shrinkage indicates the weakening of the trend or an impending reversal.

Oscillator Indicators

RSI: It measures whether the market is overbought or oversold by comparing the magnitudes of price increases and decreases over a certain period. The RSI value ranges from 0 to 100. Typically, 70 is set as the overbought level and 30 as the oversold level. When the RSI exceeds 70, the market may be in an overbought state, and a price correction may occur. When the RSI is below 30, the market may be in an oversold state, and the price may rebound.

（Source: Wikipedia）

Stochastic Oscillator: It determines the overbought or oversold condition of the market by comparing the current closing price with the price fluctuation range over a specific period. Composed of the %K line (fast line) and the %D line (slow line), the value of the Stochastic Oscillator also ranges from 0 to 100. Generally, a value above 80 indicates overbought, and a value below 20 indicates oversold. When the %K line crosses above the %D line and both are below 20, a golden cross is formed, which is a buying signal, suggesting that the market may rebound. When the %K line crosses below the %D line and both are above 80, a death cross is formed, serving as a selling signal, indicating that the market may correct.

In forex trading, relying solely on chart patterns or technical indicators for analysis has limitations. Chart patterns can visually show market trend changes but may struggle to accurately gauge trend strength and duration. Technical indicators offer quantitative data, yet may give false signals during abnormal market fluctuations.

Combining chart patterns with technical indicators allows for more accurate assessments of market trends and volatility. Take the combination of the double-top pattern and the RSI indicator. A double-top pattern is a potential bearish signal. However, it alone can't fully confirm a trend reversal. Analyzing with the RSI can further verify an overbought market. If the RSI shows the market is overbought and a bearish divergence occurs while the double-top forms, the likelihood of a market decline increases significantly, enabling investors to make selling decisions with more confidence.

Although technical analysis is widely used in forex trading in financial markets, it has limitations. Technical indicators, calculated from historical data, are often lagging.

Moreover, over-relying on technical indicators while ignoring fundamental analysis can lead to misjudgments. Before making investment decisions, investors should conduct in-depth research on fundamental factors such as macroeconomic data, monetary policies, economic indicators, and fiscal policies to determine the long-term market trend. Then, use technical analysis to pinpoint specific entry and exit points.

Technical analysis cannot predict sudden market events like major political unrest or economic policy adjustments. In the face of such events, investors need flexible market forecasting strategies. First, closely monitor market dynamics and stay updated on various news and information to react promptly when unexpected events occur. Second, investors should rationally control their positions, avoid over-concentrated investments, and reduce potential losses from market emergencies. When market uncertainty rises, it is advisable to reduce risk exposure appropriately and increase the allocation of cash or safe-haven assets.