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reversal or continuation

When opening a position after a rounding bottom is set up, it’s wise to set a stop-loss to protect yourself if your price movement expectation is wrong. The rounding bottom can be an effective tool for identifying price movements that may lead to either a price reversal or a continuation. The best use of this pattern is in conjunction with other technical indicators that may help you determine which direction the price is most likely to move. The breakout beyond the lower trend line set up by “B” and “D” will confirm this pattern.

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Continuation chart patterns usually occur during price consolidation periods and offer great opportunities for traders to open positions in the direction of the dominant trend. The most common continuation chart patterns include directional wedges, flags and pennants. These patterns build up in a retracement manner and a breakout in the direction of the main trend confirms that the temporary pullback is now over. It is reasonable to enter a sell trade when the price, having broken through the support line of the formation , reaches or breaks through the local low, preceding the support line breakout . The target profit should be fixed at the distance that is shorter than or equal to the height of any top of the formation .

Double bottom

The previous trend is as likely to continue as it is likely to reverse. That is why it’s one of the few patterns traded during its formation and not after. It looks very much like a triangle directed downwards in the direction of the trend. The main difference between a wedge and a triangle is that a wedge is an independent trend, while a triangle is an ending point of a trend. In common technical analysis, the Spike is referred to as a type of the reversal patterns.

There’s also an inverse head and shoulders pattern, which is a mirror reflection of the head and shoulders pattern. The head and shoulders, channels , and wedges are three of my favorite patterns. I feel confident in saying that you could literally trade nothing but bull and bear flags and make very good money in the Forex market.

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There is no one ‘best’ chart pattern, because they are all used to highlight different trends in a huge variety of markets. Often, chart patterns are used in candlestick trading, which makes it slightly easier to see the previous opens and closes of the market. After such a bilateral chart pattern forms, the price can continue moving in either direction. A good example of a bilateral chart pattern is a wedge, or a broadening formation. You enter a buy trade when the price reaches or exceeds the local high of the volume candlestick . Target profit is put at the distance shorter than or equal to the distance between the candlestick close price and its high .

Most efficient Forex patterns: a complete guide

By fine tuning common and simple methods a trader can develop a complete trading plan using patterns that regularly occur, and can be easy spotted with a bit of practice. Head and shoulders, candlestick and Ichimokuforex patterns all provide visual clues on when to trade. While these methods could be complex, there are simple methods that take advantage of the most commonly traded elements of these respective patterns. Continuation chart patterns are those chart formations that signal that the ongoing trend will resume.

  • As you can see on this chart, a descending triangle mirrors its counterpart and has one sloping and one horizontal trend line.
  • Nevertheless, when trading different triangle shapes, there are different things to consider, which we’ll talk about next.
  • It sends an indecisive signal to the market with a prediction of a trend reversal in the future.
  • Corrective Wedge pattern is a correction that happened during the trend which forms a Wedge Shape in the Chart.
  • You should consider whether you understand how ᏟᖴᎠs work and whether you can afford to take the high risk of losing your money.

When a rectangle forms, traders look to place a trade in the direction of the dominant trend when the price breaks out of the range. When a breakout occurs, it is expected that the price will make a movement of at least the same size as the range. This means that if a rectangle chart pattern forms in an uptrend, traders will look to place buy orders after the horizontal resistance is breached.

Forex Chart Patterns – for profitable trading

Check the stop level of the broker to see how much risk you can take with your leverage option on your trading account. Some brokers offer partner center with high IB commissions please beware of them. They are stop loss hunters due to high spread even in major currency pair like EUR USD, USDJPY, GBPUSD. For low risk, high reward trading opportunity, the starting point of the price move and the price direction should be predicted using the trends and the necessary chart formation. The stop loss order should be smaller and tight to avoid excess loss in trading. In the screenshot below, the triple top forms right at a previous major resistance area.

Applying rules to a specific pattern would be a mistake that hides a significant risk and may cause to losing money rapidly. The pattern represents one of the main trend scenarios in technical analysis. It consists of three momentums, followed by the market reversal and the correction, once they are completed. You enter a sell trade when there is emerging the first candlestick, following the three little ones .

Pennants could be bearish or bullish depending on the trend direction. When a pennant occurs during a trend, it has the potential to push the price in the direction of the overall trend. Since beginning my trading career I have encountered many ups and downs along the way attempting to discover how the financial markets really work. A strong pre-breakout sequence can enhance the pattern quality as it can signal the momentum shift underway.


A rounded top appears as an inverted ‘U’ shape, and indicates an imminent downtrend, while a rounded bottom appears as a ‘U’ and occurs before an uptrend. To trade a symmetrical triangle, be ready for the market to break out in either direction. Then watch to see whether that turns into a new trend, and buy or sell accordingly. Take a look at any market, and you’ll notice that price action is rarely linear.

Why Do You Need a Chart Pattern Cheat Sheet?

Some traders even choose to enter short-term trades within the wedge pattern, taking smaller profits from the oscillations between support and resistance. After a rising wedge pattern, the market should break out downward, passing the support level. This presents opportunities for a new bearish position, or might be a sign to close a long one.


Forex chart patterns, which include the head and shoulders as well as triangles, provide entries, stops and profit targets in a pattern that can be easily seen. The engulfing candlestick pattern provides insight into trend reversal and potential participation in that trend with a defined entry and stop level. Chart patterns are specific price formations on a chart that predict future price movements. Therefore, chart pattners are grouped into continuation patterns – that signal a continuation in the underlying trend, and reversal patterns – that signal reversal of the underlying trend.

Things You Didn’t Know About Successful Forex Traders in 2023

In other words, they simply measure out the distance in pips and then set a pending order to book profits at that level. Triangle patterns are generally considered continuation patterns, but they can also appear before the reversal of a trend. Once confident in your chart pattern trading abilities, you may wish to upgrade to a fully funded live account to profit from your new trading edge.

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The trend line signifies the overall uptrend of the pattern, while the horizontal line indicates the historic level of resistance for that particular asset. This creates resistance, and the price starts to fall toward a level of support as supply begins to outstrip demand as more and more buyers close their positions. Once an asset’s price falls enough, buyers might buy back into the market because the price is now more acceptable – creating a level of support where supply and demand begin to equal out. Please ensure you understand how this product works and whether you can afford to take the high risk of losing money. The Cup and Handle chart pattern helps you quite accurately anticipate pullbacks and trade according to the main rule of technical analysis, “Trend is your friend, trade with the trend”.

How to spot reversal of bullish or bearish trend – Elliott Wave

The most productive is the pattern, whose biggest wave is formed by a single candlestick, and the high and the low are the candlestick shadows. 1) The Wedge, as a rule, may be broken out at waves 4, 6 and each successive wave with even number. The first wave for the Wedge, like for the Triangle, is the movement that started the pattern’s developing, that is, in the direction of the ongoing trend.

Identifying the pattern shapes in the chart is very easy by using simple tools such as horizontal lines, trend lines, Equidistant Channel lines, etc. Whenever a currency pair price reaches an all-time high price twice, it sends a signal of a downward market movement thereafter. Chart patterns offer unique insights into price development and with the help of chart patterns traders can decode chart situations effectively.

This Flag chart pattern is one of the simplest short-term chart patterns; so, its efficiency depends on numerous factors and is considered as an easy to handle pattern. The pattern is formed when the price reaches three consecutive highs, the tops, located at about the same level. Most often, the pattern emerges after a failed try to implement a double top pattern, and so, it is more likely to work out than the latter one. The pattern can be both straight and sloped; in the second case, you should carefully examine the bases of the tops, which must be parallel to the peaks.

If the forex chart patterns breaks and close below the 20-period moving average then you exit the trade. In this video, you’ll learn three of my favorite chart patterns and how to actually trade them step-by-step. After a brief decline, a morning star candlestick pattern formed, which signalled that price was getting ready to potentially move higher again. These candlestick patterns generally forecast a resumption of a trend after a corrective phase, which makes them good candidates for scalpers.

Looking for reversal patterns in mature trends is the recommended approach since mature trends have a higher chance to reverse, compared to new trends that are just getting started. They form in the shape of triangles, but they are very brief, with the resulting move duplicating the movement that preceded the formation of the pennant. In an uptrend, a bullish pennant will form when a small period of consolidation is followed by a strong desire by bulls to drive prices higher. It will be a signal that bulls are charged up for another strong push higher.

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