A forex chart represents the price action of a currency pair on a graph. Traders used it to predict future price movements in the forex market. They are usually identified by the shape or structure that the price movements form on a chart.
Understanding these patterns will improve your ability to predict price moves and make wise decisions. This article will reveal which chart is best for forex trading.
Quick insights
What is the most common chart pattern in forex?
The forex trading chart patterns are classified into two patterns. One is the reverse method and the other is the continuation method.
| Classified patterns | Chart patterns |
| Reversal pattern | Head and shoulder Inverse head and shoulder Double top & double bottom Wedges |
| Continuation pattern | Triangle pattern Pennants & flags Rectangle pattern Cup & handle pattern |
Reversal pattern
A reversal pattern is a technical analysis chart that indicates a shift in the current price trend. This pattern occurs when a bullish or bearish trend weakens. The most common reversal patterns are given below:
Head and shoulder pattern
In this most profitable forex patterns are used in technical analysis to predict changes in trend direction. It has three forms:
- Left Shoulder: The first peak is formed after an upswing, followed by a decline.
- Head: A head forms when enthusiasm peaks and then declines to a point at or near the stock’s previous low.
- Right shoulder: The third peak is lower than the head and is similar in height to the left shoulder, followed by another decline.
The pattern is completed by a neckline, which is drawn by connecting the low points of the two declines between the shoulders and the head.
Inverse head and shoulder pattern
In this pattern is a bullish reversal chart pattern. It suggests a trend reversal from a downtrend to an uptrend. This is a flipped version of the traditional head and shoulders pattern. It also has three troughs.
- Left Shoulder: The first trough forms after a low, followed by a rise.
- Head: A second and lowest depression forms below the left shoulder, followed by another rise.
- Right shoulder: The third trough is higher than the head but about the left shoulder.
A neckline connects the peaks of the two heights between the troughs. If the price breaks above the neckline after the right shoulder pattern, this will give traders a potential buying opportunity. It indicates the possible end of the bearish and the beginning of the bearish.
Double top and double bottom pattern
A double top occurs after a fluctuation, with two peaks at the same price level, separated by a dip. This occurs when the price rises, but does not exceed the first peak, forming a second peak. The pattern is confirmed when the price drops below the neckline after the second top pattern.
A double bottom is a reversal pattern formed after a downtrend that consists of two troughs at the same price level separated by a high. This occurs when the price drops to a low point and then rises, forming the first bottom. When price breaks above the neckline, signalling bullishness, the pattern is confirmed.
Rising or falling wedges
A wedge pattern that indicates a rise or fall in prices can indicate price reversals. These are categorized into two different ranges based on the reverse price.
A rising wedge is a bearish reversal pattern where the price moves higher but the range between highs and lows narrows. It is characterized by high highs and low lows at a slow pace. This pattern suggests weakening buying pressure and a bearish move when the price breaks below the lower trend line.
A falling wedge is a bullish reversal pattern where the price moves lower but the range between the highs and lows narrows. It is formed by lower highs and lower lows, with a slower pace of lows than highs. This pattern suggests weakening selling pressure and indicates bullishness when the price breaks above the higher trend line.
Continuous pattern
Technical analysis often uses recurring patterns. Indicates a brief consolidation period within the current trend. The common continuation pattern includes triangle pattern, pennants & flag pattern, rectangle pattern, and cup & handle pattern.
Triangle pattern
The triangular chart pattern shows a pause in the trend before the price continues in the same direction. It is created by trendlines that come together to form a triangle shape on the chart. There are three crucial triangles to look for on a forex chart.
Ascending triangle: The ascending triangle is a strong continuation chart pattern that indicates a breakout where a horizontal resistance line and an ascending line intersect at support points.
Descending triangle: The descending triangle, a bearish chart pattern in a downtrend market, comprises a series of lower highs and a lower resistance level, forming from two trendlines for high and low prices.
Symmetrical triangle: A symmetrical triangle in technical analysis shows consolidation before a price breakout. It is formed by two converging trend lines, with the upper one sloping down and the lower one sloping up.
Pennants & flags
Pennants and flags are forex trading continuation chart patterns that indicate a short pause in a trend. Pennants are symmetrical triangles, while flags are rectangular shapes, both of which are reliable for identifying trends.
Rectangle pattern
A rectangle pattern occurs when a price moves between horizontal support and resistance levels, indicating no trend. It ends with a breakout, causing the price to exit the rectangle.
Cup & handle pattern
A cup and handle pattern are a bullish signal used to identify opportunities to go long. That looks like a “u” shape with a slight downward slope on the right side.
Conclusion
Knowing these chart patterns is important for the forex trader going forward. Heads and shoulders, double tops and bottoms, triangles, wedges, flags, and rectangles provide insights into potential trends or continuations.
This understanding of chart patterns helps traders make informed decisions and improve their chances of success. If you continue to have a better knowledge of the forex chart pattern, you will reach your goal in a short period.
Pro Tip
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