Analyzing Chart Patterns to Improve Your Forex Trading

Type of Chart Patterns

• There are three main types of chart patterns classified in Forex technical charting.
• Trend Continuation
• Trend Reversal
• Neutral

trend continuation

• The trend continuation chart pattern appears when the price is trending, and typically breakout in the direction of the trend.
• Neutral

trend Reversal

• The trend reversal chart patterns appear at the end of a trend. If you see a reversal chart formation when the price is trending, in most of the cases the price move will reverse with the confirmation of the formation.

pennant

• The pennant is a corrective/consolidating price move, which appears during trends. It resembles a symmetrical triangle by shape, as both are bound by trendline support and resistance lines.

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rectangle

• The rectangle chart pattern is a trend continuation formation, which resembles price consolidation within horizontal support and resistance lines

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Wedges

• We have a rising wedge when the price closes with higher tops and even higher bottoms. We have a falling wedge when the price closes with lower bottoms and even lower tops. Wedges could be a trend continuation or trend reversal formation

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double top

• We have a double top pattern when after an uptrend the price creates two tops approximately on the same level. And on the contrary, we have a double bottom pattern when after a downtrend the price creates two bottoms approximately on the same level.

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Head and shoulders

• Head and shoulders are a reversal formation and indicate a topping reversal after a bullish trend. After an uptrend, the price creates a top, then it corrects. It creates a second, higher top afterwards and then it drops creating a third, lower top

inverted head and shoulders

• The inverted head and shoulders typically appears after a bearish trend and calls for a bottom in price. After a downtrend, the price creates a bottom, then it corrects. It creates a second, lower bottom afterwards and then it drops creating a third, higher bottom.

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Symmetrical triangles

• Symmetrical triangles have two sides, which are approximately the same size.

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Ascending triangle

• The Ascending triangle has tops, which lay on the same horizontal line and has higher swing bottoms. The descending triangle has bottoms, which lay on the same horizontal line and lower swing tops.

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Trading Chart Patterns

• Trading price action using chart patterns is a simple, effective way to trade the markets.

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