CHART PATTERNS ФОРЕКС
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Forex Chart Patterns Popularity
Price action Forex trading, which doesn’t involve any technical indicators other than the price chart itself, is rather popular nowadays. Even indicator traders sometimes refer to the chart formations in their analysis. Personally I trade mainly the chart patterns (in my manual trading account). So I would like to know what are the most popular chart patterns among the FX traders. Before proceeding to the poll, I’d like to describe the possible variants briefly. I won’t include a detailed description with chart examples for each pattern, but will just describe it with few words and will provide some useful links for further digging.
— one of the most popular patterns. Appears at the top/bottom of the trend and consists of a left shoulder (a distinct top on the chart), a head (a higher top) and a right shoulder (a top at the left shoulder’s level). All three parts of the pattern should share the same neckline. Read more about :
Double Top/Bottom is another popular and reliable trend reversing pattern, which is similar to the pattern but lacks the “head” part. More info about Double Top/Bottom:
Triple Top/Bottom is a rarer version of the previous pattern. Some traders also believe that it’s more reliable than the “double” version. It can also be described as where the “head” part is of the same size as the two shoulders. Some information on trading Triple Top/Bottom chart formations can be found here:
Channel is one of my favorite chart patterns, although not many traders find it a reliable signal generator. Channels can be horizontal, ascending and descending and are made of two roughly parallel lines that frame the price action for a given period. Some traders prefer to use the channel breakouts, others trade inside the channel, trying to capture the bottoms and the tops. More details about this pattern:
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Ascending/Descending Triangle is a worthy trend continuation pattern, which, if broken on the correct side, offers a reliable trading opportunity, in my experience. It’s formed when a price action creates a horizontal resistance line (support for Descending Triangle) and an ascending support line (resistance in Descending version). Obviously, there should be some previous trend to continue. You’ll find more information about these triangles here:
Symmetrical Triangles are formed by two symmetrical ascending and descending triangles coincidental in time. It’s a continuation pattern that may advance both bullish and bearish trend. Although it may be considered reliable, the breakout point is usually very tricky in symmetrical triangles. More info on it:
Wedge can be formed by a bullish or bearish trend and is a common reverse pattern. Its main difference from the Triangles is that it’s formed by two sloping (in one direction) lines. Please refer to these sources for details:
Horn is a trend reversal chart pattern described by Thomas Bulkowski. It’s formed by two protruding chart bars that resemble a letter “H”. It’s not a very popular pattern, but Thomas claims that it can be quite successful. Here’s more on it:
Cup and Handle, as well as the inverted Cup and Handle, is a tend continuation pattern with a great level of reliability but a low frequency of occurrence. It’s formed by a rounded () bottom (top for an inverted version) followed by a correction. See more about Cup and Handle:
Diamond chart pattern takes a form of a rough diamond — a symmetrical rhombus. It needs to be located either at the trend’s bottom or top, because it’s a reversal formation. Personally I think of it as a rather unreliable figure, but many successful and professional currency traders (including Peter Brandt and Thomas Bulkowski) consider it a significant reversal signal. More info on this chart pattern can be obtained here:
Inside Bar is probably one of the simplest, yet one of the most effective and, finally, the most misused candlestick chart patten out there. It’s a trend reversing pattern and it requires a previous strong trend to reverse it. The pattern is composed of a container bar and the actual inside bar, whose low and high should be higher and lower than the low and high of the container bar, respectively. More info on trading the Inside Bar pattern:
Hikkake — a failed Inside Bar pattern. This chart pattern consists of two bars — one Inside Bar and the following HHHL or LLLH bar. Sometimes this pattern works wonders, sometimes it fails several times in a row. More about Hikkake can be learned from the following resources:
or Pinocchio bar is a reliable, but barely definable, formation of three candlestick bars. The first bar is called the “left eye”, the second bar is the actual “” and should have a protruding wick far behind the “left eye”. The third bar is the “right eye” and that’s where the pattern trading happens. Some resources on :
Shooting Star/Bullish Hammer one of the basic reversal Japanese candlestick patterns. The Shooting Start is formed by a long bullish bar at the end of an upward trend followed by a candle with a long upper wick, small body and no bottom wick. The Bullish Hammer is similar: a bearish trend should end with a long bearish bar that is followed by candle with a long bottom wick, short body and a top wick. If you are interested in this patter, you can browse the following webpages:
Evening/Morning Star is trend reversing candlestick pattern. Evening Star requires an upward trend, ending with a long bullish candle, followed by a rather small bullish candle and finally reversed by a bearish candle. Morning Star is an inverted Evening Star. Read more about both of them:
Evening/Morning Doji Star is a candlestick pattern that is extremely similar to the Evening/Morning Star but the middle bar is a Doji — a very small candle with no body at all, but with some short wicks. It’s still a reliable reversal signal. Learn more about this pattern:
Dark Cloud/Piercing Line is another popular reversal candlestick pattern. It’s formed at the end of the trend. Dark Cloud is ending the bullish trend. The last rising bar is followed by a candle that opens above the previous close but is bearish and closes below the of the previous bar. The Piercing Line is simply an inverted version of the Dark Cloud. See more about them:
Bearish/Bullish Engulfing is detected when a trend is ending with a candlestick that is completely engulfed with an opposite pattern. Bearish engulfing means that the last candlestick should have an open below the previous bar’s low and a close below the previous bar’s high. Bullish engulfing means a candlestick that opens below the previous low and closes above the previous high. More explanation here:
Gap is a concept describing a difference between the previous bar’s close and the current bar’s open. Usually, it’s assumed that the bigger is the difference, the more reliable is the signal. The market will try to “fill” the gap by rising or falling to reach the previous bar’s close level. Weekly gaps are particularly reliable signals in Forex. More on gaps:
If you have any questions or wish to share your thoughts about trading the chart patterns in Forex market, feel free to post them using the form below.
3 Best Chart Patterns for Intraday Trading in Forex
One of the most important ingredients for the successful Forex trading is the chart patterns technical analysis. Recognizing figures on the graph is an essential part of the Forex strategy of every trader. It is vital that you learn chart patterns and their meaning. Therefore, I have decided to spare some time to show you how to trade chart patterns like the pros. In this article, I will reveal to you the three best chart patterns for intraday trading and the rules you need to follow when approaching them.
Understanding Chart Patterns in Technical Analysis
Chart patterns are a crucial part of the Forex technical analysis. Patterns are born out of price fluctuations, and they each represent chart figures with their own meanings. Each chart pattern indicator has a specific trading potential. This is why Forex traders spot chart patterns for day trading – to profit from the expected price moves.
In fact, chart patterns represent price hesitation. When you have a trend on the chart, it is very likely to be paused for a while before the price action undertakes a new move. In most of the cases this pause is conducted by a chart pattern, where the price action is either moving sideways, or not very persuasive with its move.
This is a brief sketch of how a chart pattern indicator could look like on the chart. In the example above we have a trend that turns into a consolidation, and then the trend gets resumed again.
Types of Chart Patterns in Forex
There are three types of chart pattern figures in Forex based on their potential: neutral, continuation, and reversal chart patterns. I will share with you a Forex chart patterns cheat sheet for each of the three types.
Continuation Chart Patterns
Continuation chart patterns are the ones that are expected to continue the current price trend, causing a fresh new impulse in the same direction.
Example: If you have a bullish trend, and the price action creates a continuation chart pattern, there is a big chance that the bullish trend continues.
Some of the most popular continuation chart patterns are Flag, Pennant, and Wedges.
This chart patterns cheat sheet shows six of the most common continuation chart patterns in Forex trading. Each of these six formations has the potential to activate a new impulse in the direction of the previous trend.
Reversal Chart Patterns
Reversal patterns are opposite to continuation patterns. They usually reverse the current price trend, causing a fresh move in the opposite direction.
Example: If you have a bullish trend and the price action creates a trend reversal chart pattern, there is a big chance that the previous bullish trend gets reversed. This is likely to cause a fresh bearish move on the chart.
Some of the most popular reversal chart patterns are Double Tops and Bottoms, Head and Shoulders, Wedges, Expanding Triangles, Triple Tops and Bottoms, etc.
Notice that the Rising and the Falling Wedge could act as reversal and continuation patterns in different situations. This depends on the previous trend. Just remember that the Rising Wedge has bearish potential and the Falling Wedge has bullish potential, no matter what the previous trend is.
Neutral Chart Patterns
The neutral chart patterns are the one that induce a price move, but the direction is unknown. In the process of the pattern confirmation, traders realize the pattern’s potential and tackle the situation with the respective trade.
Example: The Forex pair is trending in the bullish direction. Suddenly, a neutral chart pattern appears on the chart. What would you do in this case? You should wait to see in which direction the pattern will break. This will hint you about the potential of the pattern.
The most popular neutral chart patterns are the Ascending Triangle, Descending Triangle, Symmetrical Triangle, and Symmetrical Expanding Triangle.
These are the most common neutral chart patterns that have the potential to push the price in either bullish or bearish direction.
Now you have 20 different chart pattern examples. But which are the best chart patterns to trade? This wWill discuss in the next point of the article.
3 Best Chart Patterns to Trade in Forex
Now that I gave you a brief visual guide to chart patterns, I will tell you which three of these are the best chart patterns for intraday trading. Then I will give you a detailed explanation about the structure and the adjoining rules of each one of the best chart patterns.
Flags and Pennants Chart Patterns
The Flag and the Pennant are two separate chart patterns that have price continuation functions. However, I like to treat these as one since they have similar structure and work exactly the same way.
The Flag chart pattern has a continuation potential on the Forex chart. The bull Flag pattern starts with a bullish trend called a Flag Pole, which suddenly turns into a correction inside a bearish or a horizontal channel.
Then if the price breaks the upper level of the channel, we confirm the authenticity of the Flag pattern, and we have sufficient reason to believe that the price will start a new bullish impulse.
For this reason, you can buy the Forex pair on the assumption that the price is about to increase. Place your Stop Loss order below the lowest point of the Flag.
The Flag pattern has two targets on the chart. The first one stays above the breakout on a distance equal to the size of the Flag. If the price completes the first target, then you can pursue the second target that stays above the breakout on a distance equal to the Flag Pole.
Check out this Flag chart pattern example to see how it works in real trading situations:
This is an example of a bullish Flag chart pattern on the 15-minute chart of the USD/CHF for February 17, 2020.
The two pink arrows show the size of the Flag and the Flag Pole, applied starting from the moment of the Flag breakout. The Stop Loss order of this trade stays below the lowest point of the Flag as shown on the image.
The Pennant chart pattern has almost the same structure as the Flag. A bullish Pennant will start with a bullish price move (the Pennant Pole), which will gradually turn into a consolidation with a triangular structure (the Pennant). Notice that the consolidation is likely to have ascending bottoms and descending tops.
If the price breaks the upper level of the Pennant, you can pursue two targets the same way as with the Flag. The first target equals the size of the Pennant and the second target equals the size of the Pole.
At the same time, your Stop Loss order should go below the lowest point of the Pennant.
The bearish Flag chart pattern works exactly the same way but in the opposite direction.
This time we approach the 5-minute chart of the USD/JPY for January 6, 2020. The image gives an example of a bull Pennant chart pattern.
As you see, Flags and Pennants technical analysis works exactly the same way. The only difference is that the bottoms of the Pennant pattern are ascending, while the Flag creates descending bottoms that develop in a symmetrical way compared to the tops. This is the reason why I put the Flag and Pennant chart patterns indicator under the same heading.
Double Top and Double Bottom Chart Pattern
The Double Top is a reversal chart pattern that comes as a consolidation after a bullish trend, creates couple tops approximately in the same resistance area and starts a fresh bearish move.
Conversely, the Double Bottom is a reversal chart pattern that comes after a bearish trend, creates couple bottoms in the same support area, and starts a fresh bullish move.
We will discuss the bullish version of the pattern, the Double Top chart pattern, to approach the figure closely.
To enter a Double Top trade, you would need to see the price breaking through the level of the bottom that is located between the two tops of the pattern. When the price breaks the bottom between the two tops, you can short the Forex pair, pursuing a minimum price move equal to the vertical size of the pattern measured starting from the level of the two tops to the bottom between the two tops.
Your Stop Loss order should be located approximately in the middle of the pattern.
The 5-minute chart of the GBP/USD for January 13, 2020, shows an example of a Double Top pattern technical analysis. The pink lines and the two arrows on the chart measure and apply the size of the pattern starting from the moment of the breakout.
After the breakout entry signal on the chart, you need to short the GBP/USD Forex pair placing a stop loss order inside the pattern. In our case I use a small top after the creation of the second big top to position the Stop Loss order.
Notice that the Double Bottom chart pattern works exactly the same way but in the opposite direction.
Head and Shoulders Chart Pattern
The Head and Shoulders is another famous reversal pattern in Forex trading. It comes as a consolidation after a bullish trend creating three tops. The first and the third tops are approximately at the same level. However, the second top is higher and stays as a Head between two Shoulders. This is where the name of the pattern comes from.
The Head of the pattern has a couple bottoms from both of its sides. The line connecting these two bottoms is called a Neck Line. When the price creates the second shoulder and breaks the Neck Line in a bearish direction, this confirms the authenticity of the pattern.
When the Neck Line breaks, you can pursue the bearish potential of the pattern that is likely to send the price action downward on a distance equal to the size of the pattern – the vertical distance between the Head and the Neck Line applied starting from the moment of the breakout.
Your Stop Loss order in a Head and Shoulders trade should go above the second shoulder of the pattern.
Above you can see a real Head and Shoulders chart pattern on the H1 chart of the GBP/USD for August 19-30, 2020. The inclined pink line is the Neck Line of the figure. The two arrows measure and apply the size of the Head and Shoulders starting from the moment of the breakout through the Neck Line. The red circle shows the head and shoulders chart pattern breakout.
You need to hold a bearish trade until the price completes the size of the pattern in a bearish direction. At the same time, your Stop Loss order should go above the second shoulder as shown on the chart.
As the other patterns we discussed, the Head and Shoulders chart pattern has its opposite version – the Inverse Head and Shoulders pattern. It acts absolutely the same way, but everything is upside down.
Chart Patterns Indicator MT4
After all my years dealing with financial markets, I found a very useful tool: a chart pattern recognition indicator. Even better, it is built in within the default version of the MT4 trading platform.
The indicator is called ZigZag. What it does is to represent the general price action with straight lines by neglecting smaller price fluctuations and putting emphasize on the real-deal price moves. This way you can vary easy visualize a real pattern on the chart.
Let me show you my chart pattern recognition algorithm in action:
Above you can see the 5-minute chart of the EUR/USD for February 7, 2020. The chart includes the ZigZag indicator expressed by the straight red lines on the chart.
In the middle of the chart, we see that the ZigZag lines are creating descending tops and descending bottoms, which is a symptom of a Falling Wedge chart pattern. See that the highs and the lows of the pattern stand out in a very pleasant way thanks to the ZigZag indicator. You can hardly miss the pattern on the chart.
In the red circle we see the breakout through the upper level of the pattern – the confirmation. Then we can trade for the two targets of the pattern. The first one equals the size of the wedge – marked with the smaller pink arrow. The bigger pink arrow measures the size of the Pole. Both should be applied starting from the moment of the breakout.
Notice that you should protect your trade with a Stop Loss order that needs to go below the lowest bottom of the Falling Wedge pattern, as shown in the image.
As you see, the price action completes both targets.
- The chart patterns technical analysis is a crucial part of the Forex price action trading.
- Chart patterns represent price hesitation (consol >
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Damyan is a fresh MSc International Management from the International University of Monaco. During his bachelor and master programs, Damyan has been working in the area of financial markets as a Market Analyst and Forex Writer. He is the author of thousands of educational and analytical articles for traders. When being in bachelor school, he represented his university in the National Forex Trading Competition for students in Bulgaria and got the first place among 500 other traders. He was awarded a cup and a certificate at an official ceremony in his university.
Triangle Chart Patterns
Spotting chart patterns is a popular hobby amongst traders of all skill levels, and one of the easiest patterns to spot is a triangle pattern. However, there is more than one kind of triangle to find, and there are a couple of ways to trade them. Here are some of the more basic methods to both finding and trading these patterns.
What is an ascending triangle?
The ascending triangles form when the price follows a rising trendline. However, the trend consolidates, failing to make new highs.
Ascending triangles are considered to be continuation patterns. Therefore, a break of the resistance prompts a rally.
The pattern is negated if the price breaks below the upward sloping trendline.
The example below of the EUR/USD (Euro/U.S. Dollar) illustrates an ascending triangle pattern on a 30-minute chart. After a prolonged uptrend marked by an ascending trendline between A and B, the EUR/USD temporarily consolidated, unable to form a new high or fall below the support. The pair reverted to test resistance on three distinct occurrences between B and C, but it was incapable of breaking it.
The ascending triangle pattern formed once a horizontal resistance and ascending support lines acted as buffers for the price action. Finally, EUR/USD breached resistance at E, signaling a potential bullish breakout.
How can you trade ascending triangles?
Typically you want to buy after the pattern breaks resistance, as it did at E. It is good practice to set a stop-loss just below the last significant low, which in this example is at D.
Look at the chart below, a continuation of the EUR/USD. Once the ascending triangle formation is formed, we wait for a confirmation candle to signal a breakout. Since the following candle (at F) continued to advance higher, we enter the position at 1.4160, while placing our stop-loss slightly below the previous significant low at 1.4110 (a 50-pip difference from the buy price).
The EUR/USD rallies upward in line with our desired direction. The pair advances roughly 100 pips before consolidating once more at G, providing us with a 2:1 reward-to-risk ratio.
What is a descending triangle?
Not surprisingly, the descending triangle is the opposite of the ascending triangle. It forms when the price follows a downward trendline and then consolidates, failing to make new lows or break a downward trendline.
Descending triangles are considered continuation patterns. Therefore, a break in the support prompts the price to fall.
The pattern is negated if the price breaks the downward sloping trendline.
The example above of the NZD/USD (New Zealand Dollar/U.S. Dollar) illustrates a descending triangle pattern on a five-minute chart. After a downtrend which followed a descending trendline between A and B, the pair temporarily consolidated between B and C, unable to make a new low. The pair reverted to test resistance on two distinct occurrences, but it was incapable of breaking out to the upside at D. The pattern formed a horizontal support while descending resistance lines acted as buffers for the price action. Finally, the NZD/USD breached the resistance at E, signaling a potential bearish breakdown.
How can we trade descending triangles?
Typically you want to buy after the pattern breaks resistance, as it did at E. It is good practice to set a stop-loss just below the last significant high, which in this example is at D.
Look at the chart below, which is a continuation of the NZD/USD chart above. Once the descending triangle formation is completed, we wait for a candle to breakout from the pattern, as it did at E. We sell short NZD/USD at 0.6375, while placing our stop-loss slightly above the previous significant high at 0.6405 (a 30-pip difference from the sell price). NZD/USD tumbles in our desired direction.
The pair descends roughly 90 pips before consolidating once more at F, providing a 3:1 reward-to-risk ratio. Considering this is a five-minute chart, the profits and risks are generally smaller than if the pattern appeared on a larger timeframe.
What is a symmetrical triangle?
The pattern is identified by two discrete trendlines. The first trendline connects a series of lower peaks, while the second trendline connects a series of higher troughs.
Symmetrical triangles generally form during consolidation and the volatility tends to decline as the pattern progresses.
Symmetrical triangles tend to be neutral and can signal either a bullish or a bearish situation. Therefore, a breakout from the pattern in either direction signals a new trend.
The example above of the NZD/USD illustrates a symmetrical triangle formation on a 15-minute chart. After a rapid uptrend, the pair consolidated between A and B, unable to find a distinct trend. During the consolidating state, the pair continued to form a series of lower peaks and higher troughs. Volatility dropped off considerably, if compared to the beginning of the formation. Ultimately, the pattern ended when both of the trendlines came together at C.
How can we trade symmetrical triangles?
Since bias upon the conclusion of the pattern pointed higher, we look for an opportunity to buy the pair. Given the candle following the conclusion of the trend rallied at D, we bought NZD/USD at 0.6240. We place our stop-loss slightly below the most recent significant low at 0.6215 (a 25-pip difference from the buy price). The pair continued to consolidate prior to rallying approximately 80 pips at E. Considering this is a 15-minute chart, the profits and risks are generally smaller than if the pattern appeared on a larger timeframe.
Forex Training Group
If you have been around the Forex market for any length of time, then you definitely have heard about chart patterns and their importance in technical analysis. If you want to learn more about chart patterns and their corresponding signals in trading, then this article will provide you a starting point from which to increase your knowledge of classical chart pattern trading. Today we will go through the most important chart figures in Forex and we will discuss their potential.
What Are Forex Chart Patterns?
Forex chart patterns are on-chart price action patterns that have a higher than average probability of follow-through in a particular direction. These trading patterns offer significant clues to price action traders that use technical chart analysis in their Forex trading decision process. Each chart pattern has the potential to push the price toward a new move. Thus, Forex traders tend to identify chart patterns in order to take advantage of upcoming price swings
Type of Chart Patterns
Forex trading patterns are divided in groups based on the potential price direction of the pattern. There are three main types of chart patterns classified in Forex technical charting.
Continuation Chart Patterns
The trend continuation chart pattern appears when the price is trending. If you spot a continuation chart pattern during a trend, this means the price is correcting. In this manner, continuation patterns indicate that a new move in the same direction is likely to occur. Some of the most popular continuation chart formations are: pennants, rectangles and corrective wedges.
Reversal Chart Patterns
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.
In other words, reversal chart patterns indicate that the current trend is about to end and a new contrary move is on its way! The most popular reversal chart patterns are: double (or triple) top/bottom, head and shoulders, reversal wedges, ascending/ descending triangle.
Neutral Chart Patterns
These are the chart formations which are likely to push the price toward a new move, but the direction is unknown. Neutral chart patterns may appear during trends or non-trending periods. You may wonder what value there may be in neutral chart formations, since we are unable to know the likely direction.
But actually, spotting a neutral chart pattern is still quite valuable as you can still trade an upcoming move. When the price confirms a neutral chart pattern, you can open a position in the direction of the breakout!
Continuation Chart Patterns
Pennant Chart Pattern
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. The difference is that pennants typically occur during a trend phase, while triangles can be formed during both trends and general consolidation periods.
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. The expected move is usually a measured move, meaning the target from the breakout point equals the size of the pennant itself. Below is an illustration of Pennants:
The green lines indicate the size of the pennant and measures the expected price move, which equals the size of the pennant.
When you trade a pennant you should open your position whenever the price closes a candle beyond the pennant, indicating confirmation of the formation. At the same time, your stop loss should be placed right beyond the opposite level of the pennant.
Rectangle Chart Pattern
The rectangle chart pattern is a trend continuation formation, which resembles price consolidation within horizontal support and resistance levels. During a trend, when the price starts moving sideways forming a rectangle, another trending move is likely to occur once price eventually breaks out of the rectangle formation. This move is likely to be at least as big as the size of the rectangle. Rectangles could be bearish or bullish depending on the trend direction. Take a look at the illustrations below for the Rectangle formations:
When you trade rectangles, you should put a stop loss beyond the opposite extreme of the formation. Notice that this trading pattern is similar to the pennant, the difference is the swings of the rectangle formation occur within the same price zone.
Corrective Wedge Pattern
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 are very interesting chart patterns. The reason is that wedges could be a trend continuation or trend reversal formation.
Thus, I decided to distinguish the two types of wedges in order to provide a more detailed classification – So wedges are of two types: corrective wedges and reversal wedges. There is no difference in overall apperance between these two types of wedges. They look absolutely the same – for example, a regular rising wedge and a regular falling wedge. The corrective/reversal character is determined by the previous price movement.
The corrective wedges form as a retracement opposite to the trend direction. In this manner, if you have an uptrend and a falling wedge, you have a corrective falling wedge, which has trend continuation character. If you have a downtrend and a rising wedge, you have a corrective rising wedge, which has trend continuation character. If a corrective wedge occurs during a trend, it has the potential to push the price toward another trending move equal to the size of the wedge itself. This is how corrective wedges appear:
When you trade corrective wedges your stop loss should be placed right beyond the side, which is opposite to the breakout.
Reversal Chart Patterns
Reversal Wedge Pattern
I will start with the reversal wedges because the previous chart patterns we discussed were the corrective wedges. This way you will see the difference between these two.
Reversal rising/falling wedges look absolutely the same way as corrective rising/falling wedges. The difference, though, is the relation between the wedge and the trend direction.
Every rising wedge has bearish character. This means a rising wedge reverses bullish trends and continues bearish trends. At the same time, every falling wedge has bullish character. So, falling wedges reverse bearish trends and continue bullish trends. Still not getting it? Have a look at the image below:
You see? The reversal wedges are absolutely the same as the corrective wedges in appearance. The difference is where they appear in relation to the trend. When a reversal wedge occurs at the end of a trend, it has the potential to push the price to an opposite movement equal to the wedge itself. When you trade reversal wedges you should place your stop loss order right beyond the level, which is opposite to the wedge breakout.
Double Top and Double Bottom Patterns / Triple Top and Triple Bottom Patterns
These are another example of reversal chart patterns. 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. It is absolutely the same with the triple top and triple bottom formations. The difference, though, is that the tops and bottoms here are three and not two. This is how these formations look:
The green lines here indicate the size of the formation and its respective potential. We determine the size when we take the highest top and the lowest bottom of the formation. When we confirm the authenticity of these trading patterns, we expect a price move equal to the size of the formation. This is typically referred to as a 1 to 1 measured move.
But how do we confirm the formation? When we trade double and triple tops and bottoms we need to settle on the signal line for the formation. The signal line of the double top is the horizontal line which goes through the bottom between the two tops. The signal line of the double bottom is the horizontal line, which goes through the top located between the two bottoms.
With the triple tops and bottoms it’s almost the same. This time, the signal line goes through the lowest bottom for a triple top formation and through the highest top in case of a triple bottom formation. When the price closes a candle beyond the signal line, we have a pattern confirmation. Then you can open a position and place a stop loss around half the size of the formation or at the pattern extreme.
Head and Shoulders Pattern
This is one of the most reliable chart patterns in the technical analyst’s arsenal. Head and shoulders are a reversal formation and indicate a topping reversal after a bullish trend.
At the same time, this chart pattern has its opposite equivalent – inverted (or inverse) head and shoulders. The inverted head and shoulders typically appears after a bearish trend and calls for a bottom in price. Below you will find illustrations of this pattern:
As you see, the head and shoulders formation really looks like a head with two shoulders. 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 – head and shoulder.
It is the same with the inverted head and shoulders but instead of an uptrend we have a downtrend and instead of tops the price creates bottoms, as shown on the image above.
The bottoms forming the head are two points which create the signal line of the formation. This signal line is called a Neck Line. When the price closes a candle beyond the neck line, the head and shoulder formation is confirmed and we can enter the market with the respective position. This position should be short in case of head and shoulders and long in case of inverted head and shoulders. Your stop loss should be placed right above the last shoulder of the formation.
Ascending Triangle Pattern / Descending Triangle Pattern
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.
Although many people consider these chart patterns as neutral, their chance to reverse the trend is a bit higher. Thus, I put them with the trend reversal chart patterns. This is how the ascending and the descending triangles look:
As you see, ascending and descending triangles are very similar to the rising and falling wedges. The difference is that rising wedges have higher tops and falling wedges have lower bottoms, while ascending triangles have horizontal tops and descending triangles have horizontal bottoms.
When an ascending/descending triangle is confirmed, we expect a reversal price movement equal to the size of the formation.
This is shown with the green lines on the image above. The stop loss should be placed right beyond the horizontal level of the triangle.
Neutral Chart Pattern – Symmetrical Triangle
Symmetrical triangles have two sides, which are approximately the same size. Since the two sides of the triangle are usually the same, this creates a technical force equivalency, which creates the neutral character of the formation. The image below shows how a symmetrical triangle appears:
When a symmetrical triangle occurs on the chart, we expect the price to move in an amount equal to the size of the formation. However, the direction of the breakout is typically unknown due to the equivalency of the two sides of the triangle. Thus, price action traders tend to wait for the breakout in order to confirm the potential trade direction of the formation. If you trade a symmetrical triangle, you should place a stop loss right beyond the opposite end of the breakout side.
Trading Chart Patterns
Now that I introduced you to the most important patterns for chart reading it is now time to show you an example of the chart patterns in action. Have a look at the image below:
This is the daily chart of EUR/USD for Oct 29, 2012 – Apr 12, 2013. Our chart analysis shows seven successful chart patterns. The green lines show where we could open our positions. The red lines show where stop losses should be placed.
First, we start with a double bottom formation. The green line is the signal line of the figure and the moment where we would go long. The red line is the stop loss, which is approximately in the middle of the formation. The EUR/USD price increases to 187 pips in 5 days.
The price increase turns into a rising wedge afterwards. Since the wedge comes after a price increase, it has a reversal character. The lower level of the wedge gets broken in bearish direction and would be a potential short on the EUR/USD. The could be closed after two days when the price reached the size of the formation. The profit gain would have been 190 pips.
Then the price starts a new increase which leads us to a symmetrical triangle. Look how the sides are approximately the same size and under the same angle. Since the symmetrical triangle has neutral character, we wait for a breakout. And here it is in bearish direction. We could have shorted the EUR/USD and placed the stop loss right above the figure. In the same day the price completes the size of the formation – 137 pips that same day.
The decrease after the symmetrical triangle leads us to the first bottom of a double bottom formation. When we spot the second bottom, we would put the signal line right above the top between the two bottoms. The price breaks the signal line and a long trade is confirmed. We would place the stop loss around the middle of the figure. In this particular case, one could have stayed in the market for twice the size of the formation!
Soon afterwards, price starts consolidating. Notice how the consolidation resembles a rectangle? Indeed! This is a bullish rectangle! The price breaks the upper level of the rectangle and a buy setup occurs in this EUR/USD Forex pair. We could manage to stay with this long position more than the potential of the rectangle, because we get no bearish behavior after the bullish potential is fulfilled. The price starts hesitating afterwards and we see some bearish attitude on a lower time frame chart (H4). Furthermore, on our daily chart the price closes a Doji candle which has a potential reversal character.
Suddenly, the price finally starts to drop. Do you see something? See the black lines on the image above. The last double bottom followed by the bullish rectangle creates a shoulder and a head. The following decrease creates a second shoulder afterwards. This is a nice head and shoulders formation. In order to confirm the setup, we need price to break and close beyond the neck line of the formation. So, we connect the two bottoms which create the head and we get our neck line. A shorting opportunity in the EUR/USD occurs right after the price breaks the neck line. We could sell the EUR/USD and put a stop loss right above the last shoulder of the figure as shown on the image. We would want to stay with the short position until the price completes the size of the figure.
Then a corrective rising wedge appears. It is up to you if you are going to close the head and shoulders position and then open another short position to trade the rising wedge. The other option is to stay with the head and shoulders short position until the wedge is completed. In both cases you would have generated solid profit from the head and shoulders pattern.
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Understanding Chart Patterns in Forex Trading
With so many ways to trade currencies, picking common methods can save time, money and effort. By fine-tuning common and simple methods a trader can develop a complete trading plan using patterns that regularly occur, and can be easily spotted with a bit of practice. Chart price patterns help traders recognize trends, movements and the patterns developed from the price fluctuations of currency pairs. Forex chart patterns can help you enter a trade on a low and exit high or as metaphorically known «ride the wave» of a pair’s movements.
Chart patterns look at the big picture and help to identify trading signals – or signs of future price movements. One of the assumptions is that history repeats itself. The theory behind chart patterns is based on this assumption – that certain patterns consistently reappear and tend to produce the same outcomes. For example, as market sentiment shifts from optimism to fear, a certain pattern might emerge before traders and investors start selling and send the security’s price lower.
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Patterns are born out of price fluctuations, and they each represent chart figures with their own meanings. Each chart pattern indicator has a specific trading potential. In fact, chart patterns represent price hesitation. When you have a trend on the chart, it is very likely to be paused for a while before the price action undertakes a new move. In most of the cases, this pause is conducted by a chart pattern, where the price action is either moving sideways or not very persuasive with its move.
Mastering the art of trading with chart patterns allows traders to anticipate movements in the market well in advance. No matter what currency pair you are observing, every pattern says something profound about the mood of the market. In a wider sense, every group of candlesticks gives us an insight into the bigger picture. When read in the right way, chart patterns can be the key to unlocking where the market may be headed. With the right skills, these patterns can be identified, interpreted, and exploited.
The two most popular chart patterns are reversals and continuations. A reversal pattern signals that a prior trend will reverse upon completion of the pattern, while a continuation pattern signals that the trend will continue once the pattern is complete. Chart patterns are a valuable part of the technical analysis – even if they are more art than science. Many traders use them to identify potential trades that they can confirm using other forms of technical analysis to maximize their odds of success
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|Natural Gas||1M||Inverted Hammer||Current|
|Natural Gas||1M||Three Inside Up||Current|
|Natural Gas||1M||Shooting Star||Current|
|Gold||5H||Morning Doji Star||Current|
|Crude Oil WTI||5H||Doji Star Bearish||Current|
|S&P 500||30||Three Inside Up||Current|
|Dow 30||30||Three Inside Up||Current|
|GBP/USD||1M||Bullish doji Star||1|
|S&P 500||1M||Evening Star||1|
|Natural Gas||1M||Harami Bullish||1|
|Dow 30||1M||Abandoned Baby Bearish||1|
|Dow 30||1M||Evening Doji Star||1|
|Dow 30||1M||Evening Star||1|
|Natural Gas||1W||Dark Cloud Cover||1|
|Gold||5H||Bullish doji Star||1|
|Dow 30||1M||Doji Star Bearish||2|
|S&P 500||1M||Shooting Star||2|
|Crude Oil WTI||1W||Engulfing Bearish||2|
|USD/JPY||1W||Three White Soldiers||2|
|Crude Oil WTI||1D||Bullish doji Star||2|
|Natural Gas||1D||Bullish doji Star||2|
|Crude Oil WTI||1H||Bullish Engulfing||2|
|Natural Gas||1H||Three Inside Down||3|
|Crude Oil WTI||30||Engulfing Bearish||3|
|No Patterns were recognized.|
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Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Chart Patterns in Forex
Assume that you are searching for gold. You can’t dig every part of the earth, you need a tool to show you where the precious mine located. In other word, you need a detector! Well, chart patterns in Forex are your detectors in Forex trading.
Today I will explain chart patterns in Forex to you. The more you read carefully, the more you will equipped with great trading knowledge. So don’t even think of making technical analysis before understanding these concepts.
What are the main chart patterns in Forex? How to spot a uptrend or downtrend? Do these strategies work really? Is chart patterns in Forex complicated? Don’t worry, you will be able to answer all these questions after reading this chart patterns in Forex article.
I am going to cover basic concepts for beginning. But first we should understand our goal before achieving it. One of our aims is to identify price downtrends and avoid it. The other aim is to locate uptrends and earn a lot of money! So to sum up, our goal is earning money like everyone else.
Basically we can cover the topic in six different category.
Double Top and Bottom
This type of pattern indicates reversal from uptrend. You can identify top so easily. The part of graphic looks like a mountain and the top is the peak point of that mountain.
Another similarity between a top and a peak of mountain is that you can’t go up further. But how can you be sure whether it’s double top or an actual rising? It’s easy. In double top, the second peak is very close to first peak. However it doesn’t exceed.
So it means that market has reached the maximum value in the first peak and no matter how they tried to overcome it, they couldn’t achieve. So it’s a double top and it means the pressure of buyers is about to end. Thus, we should be ready for a downtrend.
We should draw a neckline and when the price downs below the neckline, we should be ready for the immediate drop in the price.
So when will the drop stop? Well, probably the price will drop as much as the price difference of neckline and double top.
Another reversal sign is double bottom in chart patterns in Forex. However this time the pattern will tell us to buy rather than sell.
Same as Double top, Double bottom will form after the market has reached a certain level of low.
After the pressure of sellers end, you can expect the price to rise as much as the difference between neckline and double bottom.
As you see double top and double bottom is same but exact reverse of each other.
Head and Shoulders and Reverse of it
Head and Shoulders
Another reversal indication is ‘head and shoulders’. There is reason we call it head and shoulders. There will be three different peaks in the graph next to each other. However, the middle peak will be higher than other two. Just like head and shoulders of human body…
Then we should draw a neckline between two lowest points of the peaks. If the neckline goes downward, it means that our conclusion is more reliable.
So after the price downs below the neckline, we can expect a significant drop in the price. It will probably drop as much as the difference between neckline and highest peaks.
Reverse of Head and Shoulders
Head and shoulders and its inverse is basically same logic. You just need to think everything as opposite of what I showed in head and Shoulders.
For example in this type of pattern, you need to buy instead of selling, because the price will rise after it surpass the neckline.
Wedges of Falling and Rising
Wedges mean pausing. If you realize the wedge, it means that Forex traders are still not sure what to do.
Wedge of Rising
The price will be continued between resistance line and support line. However in this type of chart pattern in Forex, Support line is steeper than resistance line. The form of lines look a-like wedge so the name of the pattern was born.
So if you see this pattern after a rise of price, you should be ready for the fall of the prices immediately after the wedge.
However, if you see this pattern after a fall of price, it could continue falling of price.
Wedge of Falling
It’s like wedge of rising but there are differences. Both of the lines are falling, but this time resistance line is steeper than support line.
Rectangles of Bullish and Bearish
Rectangles is one of the most useful chart patterns in Forex. If you realize that the price is stuck between parallel support and resistance lines. The rectangle indicates that buyers and sellers are in draw so the price can’t surpass the lines for a while. So you need to wait until one of the boundary value is broken.
Rectangle of Bearish Trend
This type of chart pattern in Forex occurs when the price remains stable after a downtrend. The reason of this rectangle is to give a break from selling. Probably sellers will start their trading executions again after the rectangle.
Once you realize that the price is below the support line, you can expect this downtrend to continue at least as much as the price difference of support and resistance lines.
Rectangle of Bullish Trend
In contrast, if the price was rising before the rectangle, you can conclude it as rectangle of bullish trend. So if you buy before surpassing the resistance line, you can earn good money.
Moreover, once the price breaks the resistance level, how much will the price will increase? The answer is at least as much as the difference between two parallel lines which forms up the rectangle.
Pennants of Bearish and Bullish
Pennants is one of the most used form of chart patterns in Forex. Pennants are similar to rectangles by many ways. One of them is to indicate continuation rather than reversal.
After the big moves of prices, whether a rise or drop of price, traders take a rest before continuing their trading operations. So the price sometimes forms up a tiny triangle also known as pennant.
During this pennant form of price, many traders will join to continue the big move of the price.
Pennants of Bearish Trend
Bearish trend occurs after the price dropped so fast. So after a while, some of the traders stop their trading operations while new traders will join the downtrend. Thus, pennant form of the price will be realized.
Pennant of Bullish Trend
Increase of the price will continue after this type of pennant form. Again this happens when the buyers want to take a rest from their trading executions. After they rest enough and store enough power, they will continue buying.
In fact, the pennants have a very small size, but they indicate a very fast and very big moves in price. So be aware and try to catch them.
There are three different form of triangles in chart patterns in Forex: symmetrical, ascending and descending.
This type of pattern occurs when the line of highs and line of lows merge in a point. And they are symmetrical to horizontal axis. It means that the slope of both lines are equal in magnitude but they have opposite signs.
So when the price comes to end of the triangle, you can expect price to break one of these lines. But how can we know whether the price will rise or fall? Well, unfortunately we won’t be able to tell this.
But don’t worry. We can still get over this problem with developing a smart way of trading. You need to give trading executions when the price just get out of the triangle.
On ascending triangle, there is a resistance level at the top and a line of higher lows. If we need to explain the situation, the buyer traders can’t surpass the resistance level. So they drain their energy by making higher lows instead.
So finally, we have reached to tip of the triangle, so what? What can we conclude from this ascending triangle? The answer is really controversial.
Many people who call themselves as ‘experts’ of charting will tell you that the buyers will win and they will make the price to rise. But in fact, it’s not true always. You must prepare yourself for each direction of price move.
If you read our article until this point, you would guess that the descending triangle is opposite of ascending triangle. And yes, you are right! Instead of resistance, there is a support line and instead of higher lows, there are lower highs.
Most of the cases, the price will break support line and the price will fall. But same as ascending triangle, you can’t be a hundred percent sure about fall of the price. So be aware!
Forex Chart Patterns Cheat Sheet
Like we promised, here’s a neat little cheat sheet to help you remember all those forex chart patterns and what they are signaling.
We’ve listed the basic forex chart patterns, when they are formed, what type of signal they give, and what the next likely price move may be. Check it out!
|Chart Pattern||Forms During||Type of Signal||Next Move|
|Head and Shoulders||Uptrend||Reversal||Down|
|Inverse Head and Shoulders||Downtrend||Reversal||Up|
You never know when you’re gonna need to cheat, hah! Bookmark this thing yo!
And as you probably noticed, we didn’t include the triangle formations (symmetrical, ascending, and descending) in this cheat sheet.
Confusing I know, but that’s where practice and experience comes in!
Like we mentioned, it’s tough to tell where the forex market will breakout or reverse.
So what’s important is that you prepare well and have your entry/exit orders ready so that you can be part of the action either way!
Chart_Patterns — индикатор для MetaTrader 4
Для поиска моделей используется зигзаг. В данном случае используется поставляемый с метатрейдером ZigZag.
Поиск производится только по сформировавшимся экстремумам загзага. Последнюю линию правого плеча и аналог у 2-х/3-х пиков/оснований рисует только после того, как сформируется следующий пик после нахождения модели, т.е. сначала модель будет без одной линии.
Модели после нахождения уже не перерисовываются. Чистит за собой только свое.
Количество и качество моделей зависит от параметров:
- minExtDepth — это минимальное значение ExtDepth загзага.
- maxExtDepth — максимальное.
- Если надо использовать только один максимальный параметр, то минимальный должен быть на 1 меньше максимального ( по умолчанию 11 и 12 соответственно).
- ExtDeviation — стандартная опция зигзага.
- ExtBackstep — стандартная опция зигзага.
- show_zig_zag — отображать ли линию зигзага ( если да, то будет показана линия только с maxExtDepth ).
- show_targets — показывать ценовые ориентиры. только для голова_и_плечи, 2-е/3-е пики/основания. Берутся самые скромные.
- max_percent_diff — как сильно могут отличаться разницы цен между головой и левым/правым плечами, количества баров между головой и левым/правым плечами и т.д.
- max_wave_diff — максимальная разница между волнами треугольников/клиньев.
Chart_Patterns_NTF — это то же самое, только для старшего ТФ — на скрине его фигуры серые.
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