CHART PATTERNS ФОРЕКС

Лучшие Форекс брокеры 2021:

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Графические паттерны

Графические паттерны являются основополагающими структурными элементами технического анализа. Они повторяются на рынке снова и снова, и их относительно легко заметить. Эти базовые паттерны появляются на каждой временной резолюции и поэтому могут использоваться скальперами, дневными трейдерами, свинг-трейдерами, позиционными трейдерами и инвесторами. Существует 3 вида паттернов, в зависимости от того, как цена может вести себя после завершения: разворотные модели, где цена вероятно изменит направление; модели продолжения, где цена, вероятно, продолжит свой курс; двусторонние модели, где цена может двигаться в любом направлении, прорываясь вверх или вниз.

Значения паттернов нужны для прогнозирования следующего движения цены и определения целей. Эти паттерны могут торговаться как агрессивно (с меньшим подтверждением), так и консервативно (с большим подтверждением), поэтому правила входа и выхода могут варьироваться. Для них легко подсчитать возможное соотношение прибыли/риска, что важно знать, перед входом в сделку.

Chart Patterns

Chart patterns are the foundational building blocks of technical analysis. They repeat themselves in the market time and time again and are relatively easy to spot. These basic patterns appear on every timeframe and can, therefore, be used by scalpers, day traders, swing traders, position traders and investors. There are 3 types of patterns, depending on how price is likely to behave after completion: reversal patterns, where price is likely to reverse, continuation patterns, where price is likely to continue its course and bilateral patterns, where price can go either way, depending on whether it breaks to the upside or to the downside.

The measurements of the chart pattern can be used to project the next price movement and what target to aim for. These patterns can either be traded aggressively (with less conformation) or conservatively (with more conformation) so the rules of entry and exit can vary. It’s easy to calculate the reward / risk for them, which is important to know before entering a trade.

10 chart patterns every trader needs to know

Chart patterns are an integral aspect of technical analysis, but they require some getting used to before they can be used effectively. To help you get to grips with them, here are 10 chart patterns every trader needs to know.

Честные Форекс брокеры:

A chart pattern is a shape within a price chart that helps to suggest what prices might do next, based on what they have done in the past. Chart patterns are the basis of technical analysis and require a trader to know exactly what they are looking at, as well as what they are looking for.

Best chart patterns

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.

Some patterns are more suited to a volatile market, while others are less so. Some patterns are best used in a bullish market, and others are best used when a market is bearish.

That being said, it is important to know the ‘best’ chart pattern for your particular market, as using the wrong one or not knowing which one to use may cause you to miss out on an opportunity to profit.

Before getting into the intricacies of different chart patterns, it is important that we briefly explain support and resistance levels. Support refers to the level at which an asset’s price stops falling and bounces back up. Resistance is where the price usually stops rising and dips back down.

The reason levels of support and resistance appear is because of the balance between buyers and sellers – or demand and supply. When there are more buyers than sellers in a market (or more demand than supply), the price tends to rise. When there are more sellers than buyers (more supply than demand), the price usually falls.

Надежные Форекс площадки:

As an example, an asset’s price might be rising because demand is outstripping supply. However, the price will eventually reach the maximum that buyers are willing to pay, and demand will decrease at that price level. At this point, buyers might decide to close their positions.

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.

If the increased buying continues, it will drive the price back up towards a level of resistance as demand begins to increase relative to supply. Once a price breaks through a level of resistance, it may become a level of support.

Types of chart patterns

Chart patterns fall broadly into three categories: continuation patterns, reversal patterns and bilateral patterns.

  • A continuation signals that an ongoing trend will continue
  • Reversal chart patterns indicate that a trend may be about to change direction
  • Bilateral chart patterns let traders know that the price could move either way – meaning the market is highly volatile

For all of these patterns, you can take a position with CFDs. This is because CFDs enable you to go short as well as long – meaning you can speculate on markets falling as well as rising. You may wish to go short during a bearish reversal or continuation, or long during a bullish reversal or continuation – whether you do so depends on the pattern and the market analysis that you have carried out.

The most important thing to remember when using chart patterns as part of your technical analysis, is that they are not a guarantee that a market will move in that predicted direction – they are merely an indication of what might happen to an asset’s price.

Head and shoulders

Head and shoulders is a chart pattern in which a large peak has a slightly smaller peak on either side of it. Traders look at head and shoulders patterns to predict a bullish-to-bearish reversal.

Typically, the first and third peak will be smaller than the second, but they will all fall back to the same level of support, otherwise known as the ‘neckline’. Once the third peak has fallen back to the level of support, it is likely that it will breakout into a bearish downtrend.

Double top

A double top is another pattern that traders use to highlight trend reversals. Typically, an asset’s price will experience a peak, before retracing back to a level of support. It will then climb up once more before reversing back more permanently against the prevailing trend.

Double bottom

A double bottom chart pattern indicates a period of selling, causing an asset’s price to drop below a level of support. It will then rise to a level of resistance, before dropping again. Finally, the trend will reverse and begin an upward motion as the market becomes more bullish.

Triangle Chart Pattern Technical Analysis [100% profit]

A double bottom is a bullish reversal pattern, because it signifies the end of a downtrend and a shift towards an uptrend.

Rounding bottom

A rounding bottom chart pattern can signify a continuation or a reversal. For instance, during an uptrend an asset’s price may fall back slightly before rising once more. This would be a bullish continuation.

An example of a bullish reversal rounding bottom – shown below – would be if an asset’s price was in a downward trend and a rounding bottom formed before the trend reversed and entered a bullish uptrend.

Traders will seek to capitalise on this pattern by buying halfway around the bottom, at the low point, and capitalising on the continuation once it breaks above a level of resistance.

Cup and handle

The cup and handle pattern is a bullish continuation pattern that is used to show a period of bearish market sentiment before the overall trend finally continues in a bullish motion. The cup appears similar to a rounding bottom chart pattern, and the handle is similar to a wedge pattern – which is explained in the next section.

Following the rounding bottom, the price of an asset will likely enter a temporary retracement, which is known as the handle because this retracement is confined to two parallel lines on the price graph. The asset will eventually reverse out of the handle and continue with the overall bullish trend.

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Wedges

Wedges form as an asset’s price movements tighten between two sloping trend lines. There are two types of wedge: rising and falling.

A rising wedge is represented by a trend line caught between two upwardly slanted lines of support and resistance. In this case the line of support is steeper than the resistance line. This pattern generally signals that an asset’s price will eventually decline more permanently – which is demonstrated when it breaks through the support level.

A falling wedge occurs between two downwardly sloping levels. In this case the line of resistance is steeper than the support. A falling wedge is usually indicative that an asset’s price will rise and break through the level of resistance, as shown in the example below.

Both rising and falling wedges are reversal patterns, with rising wedges representing a bearish market and falling wedges being more typical of a bullish market.

Pennant or flags

Pennant patterns, or flags, are created after an asset experiences a period of upward movement, followed by a consolidation. Generally, there will be a significant increase during the early stages of the trend, before it enters into a series of smaller upward and downward movements.

Chart Patterns to Predict Price Action for Forex, CFD & Crypto

Pennants can be either bullish or bearish, and they can represent a continuation or a reversal. The above chart is an example of a bullish continuation. In this respect, pennants can be a form of bilateral pattern because they show either continuations or reversals.

While a pennant may seem similar to a wedge pattern or a triangle pattern – explained in the next sections – it is important to note that wedges are narrower than pennants or triangles. Also, wedges differ from pennants because a wedge is always ascending or descending, while a pennant is always horizontal.

Ascending triangle

The ascending triangle is a bullish continuation pattern which signifies the continuation of an uptrend. Ascending triangles can be drawn onto charts by placing a horizontal line along the swing highs – the resistance – and then drawing an ascending trend line along the swing lows – the support.

Ascending triangles often have two or more identical peak highs which allow for the horizontal line to be drawn. The trend line signifies the overall uptrend of the pattern, while the horizontal line indicates the historic level of resistance for that particular asset.

Descending triangle

In contrast, a descending triangle signifies a bearish continuation of a downtrend. Typically, a trader will enter a short position during a descending triangle – possibly with CFDs – in an attempt to profit from a falling market.

Descending triangles generally shift lower and break through the support because they are indicative of a market dominated by sellers, meaning that successively lower peaks are likely to be prevalent and unlikely to reverse.

Descending triangles can be identified from a horizontal line of support and a downward-sloping line of resistance. Eventually, the trend will break through the support and the downtrend will continue.

Symmetrical triangle

The symmetrical triangle pattern can be either bullish or bearish, depending on the market. In either case, it is normally a continuation pattern, which means the market will usually continue in the same direction as the overall trend once the pattern has formed.

Symmetrical triangles form when the price converges with a series of lower peaks and higher troughs. In the example below, the overall trend is bearish, but the symmetrical triangle shows us that there has been a brief period of upward reversals.

However, if there is no clear trend before the triangle pattern forms, the market could break out in either direction. This makes symmetrical triangles a bilateral pattern – meaning they are best used in volatile markets where there is no clear indication of which way an asset’s price might move. An example of a bilateral symmetrical triangle can be seen below.

Chart patterns summed up

All of the patterns explained in this article are useful technical indicators which can help you to understand how or why an asset’s price moved in a certain way – and which way it might move in the future. This is because chart patterns are capable of highlighting areas of support and resistance, which can help a trader decide whether they should open a long or short position; or whether they should close out their open positions in the event of a possible trend reversal.

Forex Chart Patterns Might Be an Illusion

If you are new to forex trading, chart patterns are likely to attract your attention quickly because the trader community is full of praises for this kind of trading. They will certainly seem appealing due to habits developed from a young age when our parents used different shapes and forms to keep us entertained and amused. Nowadays, the entire toy industry and children based video games are based on shapes and forms used to provide preschool education to toddlers and children. Our brains are naturally wired to see patterns in every abstract form, be it star constellations or forex charts. We give meaning to randomness. Therefore, who could blame you for jumping on the chart pattern bandwagon once you enter the world of forex trading?

Indeed, some pattern names will easily trigger childhood memories that instantly attract you to explore more about pattern trading: triangle, wedge, rectangle, flag, and pennant. Some of them are appealing enough, such as head-n-shoulders or cup-n-handle. It just sounds like fun and games, and why not have some of it while trading. To make things more serious, most traders will tell you that it works and they will provide you with an abundance of examples. But the question is: have you learned to lose fun games when you were a kid?

The question is posed because there is not much information available on when chart patterns are not working. In reality, chart patterns supporters will show you examples when chart patterns have already worked but will rarely share the failed stories on using patterns that have completely misled them. The first instance would obviously create an image of a prominent trader, while the latter would discredit them and portray them as a showoff. Therefore, psychology plays a significant role in chart pattern trading as the availability of successful examples plays hand in hand with the trader’s inclination and ability to boost self-confidence. Reliance on the limited information that is available to the narrow circle of traders and a strong belief in skills that provide an advantage over the competition will eventually lead to overconfidence. Such a mindset represents a perfect stage for doubtless use of chart patterns as successful examples visible only in the aftermath is seen as an actual confirmation of self-confidence and perceived ingenuity. This fact is your first red flag when considering chart patterns as your go-to strategy in forex trading.

It is also important to keep in mind that the overwhelming majority of traders are impressed by chart patterns, which is why new traders are attracted to this kind of trading. It is a classic example of social learning theory that can be summarized as the acquisition of new behaviors by noticing and imitating the behavior of others in the group. That same theory is proven in social experiments in which a random person not aware of the experiment is acting the same way as the group participating in the experiment, without even knowing the reasons for such behavior and regardless of how ridiculous that behavior may be. Simply put, chart patterns should not be utilized without any doubts just because the overwhelming majority is doing so, according to the contrarian traders’ opinion. This resonates as the second red flag especially if you put in the perspective that the majority of traders are on the losing end of the forex market.

As a beginner, it is not easy to spot a forming shape when looking at charts. In fact, you have to draw it yourself and there are no clear instructions on how to do it. Line drawing can cause a lot of frustration, consume much of the precious time, and requires plenty of creativity. You are bound to make mistakes, redraw numerous lines and shapes and it still does not guarantee success. A good example that demonstrates drawing patterns is a matter of frustration rather than efficiency is drawing trend lines. As you may know already, traders analyze charts in numerous different manners and therefore see trend lines arising at different points. Therefore, your decision on breakouts and entry points will differ from other traders and chances are that the same is applicable to drawing chart patterns. There is simply no consistency in drawing patterns. When the first red flag is added to the equation, the fact that chart patterns work perfectly for others makes us question our own abilities and we quickly start blaming ourselves when the drawn patterns are not giving results.

Finally, it is not shapes and forms that move the prices but the big banks reacting to the retail traders. None of them are putting effort into creating triangles and wedges on the charts. On the contrary, they are bound to form eventually as a natural process of market movements. Their natural formation is not a clear indicator that prices are going to take a direction predicted by the pattern, despite the time amount invested in identifying the pattern. The reality is that the prices still have even odds of going one way or another, and there are more systematic ways to connect the dots that give us a higher chance of success than chart patterns.

Forex trading is not universal science and many different strategies and approaches could be used – and even developed – by traders. Those who develop unique trading systems based on evidence that demonstrate consistent results are more likely to achieve success, simply because they start to trust the process over time. In the process of building their exclusive trading system, traders develop a greater understanding of arising issues and use distinctive rationale thus dealing with market obscurities more effectively. Such traders do not waste time identifying and drawing shapes nor do they adjust their skills and knowledge to the chart pattern system that has not been empirically proven.

Although chart patterns are not supported by practical evidence that would confirm their (in)famous reputation, the red flags pointed out in this article represent just one school of thought. There is no need to change the system heavily relying on chart patterns that yield profits, as it certainly is a powerful tool for those traders who found the winning formula. Such traders may have a strong argument on using chart patterns; however, they cannot draw the lines and shapes for all the traders who just can’t get it right. And it is no surprise overwhelming majority struggles with chart patterns since there is more evidence available on why chart patterns do not work in practice. Once caught in its web, it is difficult for traders to break away from the habit of identifying shapes on the chart. Moreover, they tend to modify their systems and overthink when they spot a shape on the horizon. In an effort to avoid this trap, any trader should eventually pose the same question when getting lost with chart patterns: would I rather trust my own work and judgment or follow the signs along the way?

Индикаторы паттернов для МТ4: с алертом, где можно скачать, без перерисовки, свечных моделей

Индикатор паттернов – один из наиболее востребованных и эффективных инструментов, помогающий автоматизировать процесс выявления графических фигур и дополняющий процесс технического анализа. Многие трейдеры в работе используют разнообразные советники, скрипты, сигналы, системы, данный же инструмент дает шанс автоматически распознавать разные комбинации и паттерны , что появляются на графике на протяжении времени торговли.

Достаточно долго паттерны Форекс считались элементом исключительно безиндикаторной торговли, требующим от торговца выполнения самостоятельного анализа графика изменений цены. Чтобы найти и использовать фигуры в торговле, достаточно тщательно проанализировать график, выявить по определенным параметрам и признакам формации, проанализировать информацию, которую они несут и строить торговлю в соответствии с текущей ситуацией.

Процесс выявления и описания графических паттернов достаточно сложный, особенно для тех, кто только начинает торговать на рынке. Часто новички делают ошибки в описании, принимают одни фигуры за другие, неверно трактуют сформировавшиеся сигналы и т.д.

Технический инструмент самостоятельно анализирует график, обнаруживает фигуры, подает сигналы (формат может быть разным, в зависимости от конкретной программы), а уж торговец принимает на базе полученной информации решения касательно открытия/закрытия сделок.

Особенности работы с инструментами данного типа

Любой индикатор, определяющий паттерны, работает по одному и тому же принципу: выявляет закономерности на графике цены для того, чтобы можно было сделать достоверный прогноз касательно будущих изменений. Технический анализ говорит, что история изменения котировок валют в большинстве случаев повторяется, идет циклично.

Индикатор сканирует архив котировок за максимально возможный по длительности срок, находит повторяющиеся сочетания цены (представленные в формате фигур, формаций, паттернов), фиксирует их и формирует прогноз касательно будущих изменений. Собственно, ту же задачу выполняет и трейдер: в процессе анализа графика ищет уже известные сочетания, а потом предполагает дальнейшие изменения на базе знаний касательно прошлых событий.

Большая часть технических инструментов данного типа распознают максимально возможное количество фигур и их видов, давая максимум полезной информации. Наиболее эффективны индикаторы при торговле по тренду или на его развороте – индикатор паттернов определяет формации с максимальной точностью на больших таймфреймах:

чем меньше временной промежуток, тем менее точны результаты.

Популярные и эффективные индикаторы паттернов

Создание программ для автоматического распознавания фигур на графике началось сравнительно недавно, но уже сейчас у трейдеров есть определенный выбор. При поиске самого точного индикатора желательно учитывать условия торговли, тщательно читать инструкцию к нему и предварительно обязательно тестировать на демо-счету или центовых счетах ⇒.

Все представленные программы есть в свободном доступе в сети или в конце этой статьи, их легко можно скачать и установить, разработаны для торгового терминала MetaTrader 4 (самого популярного и распространенного среди торговцев на данный момент).

Лучшие средства для выявления формаций:

1) Pattern Graphix – плагин для МТ4, который оперативно подает информацию про формирование на графике графической модели. Есть возможность выбирать фигуры, которые будут использованы – так, можно оставить только разворотные паттерны либо настроить так, чтобы индикатор искал лишь фигуры продолжения тренда и т.д.

Pattern Graphix гарантирует:

  • Поиски и распознавание фигур: продолжения тенденции, разворота, каналы, линии сопротивления/поддержки
  • Оповещение (в соответствии с настройками)
  • Дает выбор искомых паттернов
  • Быстрая обработка информации, что замено при переключении таймфреймов
  • Точное построение даже на мелких временных отрезках

2) Autochartist – работает аналогично инструментам данной группы, но может использоваться в двух версиях: в качестве веб-приложения либо плагина для МТ4.

Преимущества Autochartist:

  • Предоставление расширенной статистики по вероятности реализации прогноза
  • Большое количество моделей технического анализа
  • Возможность переносить окно с информацией в любой удобный сектор активного окна
  • Компактное предоставление данных

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3) Chart Patterns – фиксирует определенные фигуры и осуществляет первичную аналитическую обработку, предоставляет описание ситуации на рынке. Так, если были найдены паттерны подтверждения тренда, индикатор может выявить главные характеристики движения цены, дав трейдеру максимум информации для принятия решения.

Также инструмент способен подтверждать прорыв линий сопротивления/поддержки, что очень актуально. Индикатор успешно фильтрует ложные сигналы, дает подтверждение истинных.

Дополнительные инструменты для работы

Кроме наиболее распространенных и популярных, существует множество других программ, помогающих трейдерам выполнять технический анализ и делать это максимально эффективно, повышая прибыльность заключенных сделок.

  • Индикатор гармонических паттернов PZ Harmonic Trading – автоматически находит модели, строит проекции Фибоначчи, демонстрирует прошлые фигуры на истории, работает с барами (а не тиками), подает сигналы при появлении фигуры либо ее прорыве. Актуален для тех, кто использует в работе гармонические паттерны Гартли – в торговле на Форексе валютой или бинарными опционами.
    – чувствительный инструмент, который выявляет распространенные модели, но работает на английском, что нужно учитывать.
    – неплохо определяет и подтверждает наиболее распространенные модели, фиксирует моменты перелома тенденции, дает конкретные указания на открытие сделок (стрелками).
    – хорошо распознает формации, подает звуковой сигнал при их появлении на графике, хорошо настраивается под стратегию торговли, позволяет игнорировать формации, которые трейдер не хочет учитывать в работе.
    – есть 8 уровней, на которые делится график цены, каждый имеет свое описание и предполагает определенные действия стоимости, на них формируются модели, выявление которых дает торговцу ценную информацию. Работая с уровнями, нужно уметь фиксировать основные модели, что самостоятельно сделать достаточно сложно, поэтому такой инструмент чрезвычайно полезен.

Независимо от того, какой инструмент был выбран, его нужно уметь правильно использовать. И даже если весь анализ выполняет программа, трейдеру желательно уметь и самостоятельно во всем разбираться, чтобы иметь возможность проверять сигналы и совершать верные действия в экстренных ситуациях.

Best Forex Trading Patterns: Different Shapes, Common Signals

A chart pattern is a combination of support and resistance levels formed by candlesticks in a specific shape which helps to define whether the market will move in the same direction or turn around. There are three types of technical analysis patterns: reversal, continuation, and bilateral.

A chart pattern is a combination of support and resistance levels formed by candlesticks in a specific shape.

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Look at the picture below. Here is one of the most famous trade patterns — head and shoulders. As you can see, candles are placed so that the pattern resembles a head and shoulders. Based on the candlesticks’ location, we can define the support level. Later, we will tell you how to read the signal of this pattern.

Trading Chart Patterns: Types

There are two major types of chart patterns. They are reversal and continuation. However, there is a third one that combines both types. It’s bilateral patterns. Let’s learn how to identify all types on the price chart and what patterns each type contains.

There are two major types of chart patterns: reversal and continuation. However, there is a third one that combines both types. It’s bilateral patterns.

Reversal Chart Patterns

The name of the type explains the idea of the reversal patterns. These patterns predict the trend will turn in the opposite direction after their formation. If the price declines, a reversal chart pattern says the market will go up soon. Conversely, if the market rises, a reversal pattern sends you an alert that you should close a long trade and be ready as the market will decline soon.

Reversal chart patterns predict the trend will turn in the opposite direction soon.

Let’s list the most effective and famous reversal chart patterns:

  • Head and Shoulders and Inverse Head and Shoulders
  • Double Top and Double Bottom
  • Triple Top and Triple Bottom

Although chart patterns look differently, we can highlight a key rule of reading their signals. To define a take profit level, measure the distance between support and resistance levels at the point where the pattern starts forming. It will be the distance between the entry point and the take profit level. The entry point is the place where the price breaks either support or resistance level depending on the trend.

As for the stop loss level, there is an idea of counting the distance between the support and resistance levels and dividing it by two. The concept suits the best risk/reward ratio of 1:2. However, we would advise you to evaluate the market conditions and use a trailing stop loss in case of an uncertain situation.

Continuation Chart Patterns

Continuation chart patterns appear when the current trend takes a pause. That’s why sometimes they are called consolidation patterns. Trendlines serve as support and resistance levels. They occur on the chart when buyers and sellers can’t beat each other, and the price consolidates for a while. Such patterns show the market will keep moving in the same direction.

Continuation chart patterns appear when the current trend takes a pause but keeps moving in the same direction later.

Look at the list of the most famous continuation chart patterns:

  • Pennants or flags
  • Rectangles
  • Wedges: rising and falling
  • Triangles: ascending, descending, symmetrical

For most of the patterns, the idea of trading is similar. You should draw support and resistance lines and count the distance between them at the point where the pattern starts forming. This is the size of the area between the entry point and the take profit level.

Same as with reversal patterns, the entry point occurs when the price breaks either support or resistance level regarding the prevailing trend.

The stop loss level differs. To define the size of the risk, you are ready to take, place the stop loss above the resistance for bearish patterns and below the support for bullish patterns.

Bilateral Chart Patterns

A bilateral chart pattern is a pattern that doesn’t predict a certain direction of the market. It sounds strange as the idea of the pattern is to predict the price direction. Still, the pattern will show you where the market will move. However, it will happen not during the formation of the pattern but after the break of either a support or resistance level.

Bilateral chart patterns don’t predict a certain direction of the market.

Ascending, descending, and symmetrical triangles are bilateral patterns. Although ascending and descending triangles usually signal a continuation of the trend, there is an odd price that will move in the opposite direction. Thus, you should always evaluate market conditions (for instance, whether the market is volatile) before opening a trade.

The Most Efficient Chart Patterns

Above, we mentioned chart patterns. Of course, we can’t leave you alone with all of them without explaining how they look and work.

Head and Shoulders

A head-and-shoulders pattern is one of the easiest and most common patterns that is known even by newbies.

It’s a reversal bearish chart pattern that is formed at the end of the uptrend. Why is it head and shoulders? Because the pattern has three tops: the second is higher than the first one, but the third peak is lower than the second one. Thus, we have the highest peak, called the head, and two lower peaks which are called shoulders. The perfect pattern has two shoulders that are similar in height and width.

As we said above, the third top is lower than the second one, which signals a weakening of the current trend.

Also, the pattern has a neckline. It’s a line drawn through the lowest points of the two troughs that serves as a support level. The neckline can be drawn horizontally or moving down/up. The signal is stronger if the neckline declines.

The pattern works when the price breaks below the neckline (support) after the formation of the second shoulder. You can open a short position at the breakout. The take profit order can be placed at a distance equal to the distance between the top of the head and the neckline.

Remember about the stop loss. You can always apply a 1:2 risk/reward ratio. So, the stop loss order will be half of the take profit distance and placed above the breakout.

Hint: we should warn you that the price can return to the neckline after the breakout. So, the neckline will turn into resistance.

Inverse Head and Shoulders

An inverse head and shoulders or head and shoulders bottom is a reversal bullish chart pattern.

The inverse head-and-shoulders pattern mirrors the standard one. It consists of three lows. The head has the lowest bottom, while the shoulders are almost the same size.

The pattern begins when the price forms two lower lows which signal a downtrend. However, the third low is higher, which means bears lose their strength, and there are odds of the uptrend.

The reversal is confirmed when the price breaks above the neckline. Take profit and stop-loss orders are defined as in the standard pattern.

How To Draw Trendlines Like A Pro (My Secret Technique) by Rayner Teo

Double Top

A double top is a bearish reversal pattern. It occurs at the end of the upward movement. This pattern is as famous as the head and shoulders one because it’s easy and frequent.

The name of the pattern explains its idea. If you find two consecutive tops of similar or almost similar height with a moderate trough between them, it’s a double top pattern. The neckline should go throw the lowest point of the trough.

The pattern works when the price falls below the neckline after the second top is formed. A trader can open a sell trade after the breakout.

To measure the take profit level, count the distance between the tops and the neckline and put it from the neckline down.

Stop-loss level can be measured according to the risk/reward ratio. Divide the take profit distance by two and place this number of pips from the neckline up.

After the breakout, the neckline becomes a resistance. Like in the head and shoulders pattern, the price can turn back and test the neckline again.

Double Bottom

As you might have guessed, the double bottom is a mirror pattern of the double top. It’s also a reversal pattern, but it occurs at the end of the downtrend.

The double bottom consists of two consecutive bottoms which have similar or almost similar length. Also, there is a high between them. The neckline is drawn through the highest point of the trough.

Forex Chart Patterns — So Pretty, But So Deceiving

The pattern works if the price breaks above the neckline after the formation of the second bottom. Take profit and stop loss levels are measured as in the double top pattern.

The price can retest the neckline after the breakout. However, it is anticipated to rise after the pattern’s formation.

Triple Top and Bottom

These patterns are rarer, but we should tell you about them, so you know they can appear on the price chart.

The patterns resemble double top/bottom patterns and work similarly. The only difference is that triple bottom/top works after the third peak/low is formed.

Symmetrical Triangle

There are three variations of triangles. A triangle pattern is easily recognized. To define it on the price chart, you should draw support and resistance levels. The idea of triangle trading is to open a trade on the breakout. It’s risky to trade within the triangle.

Triangles are traded on the breakout. It’s risky to trade within the triangle.

The take profit order for any type of triangle can be defined by measuring the distance of the widest part of the pattern. This distance should be counted from the entry point. To define the stop loss order, use the 1:2 risk/reward ratio.

The symmetrical triangle is neither bullish nor bearish. The signal depends on the direction of the breakout.

The support and resistance levels move towards one point. Support is going upwards, and the resistance sloping down, so they meet at one point and form one angle.

Trading the symmetrical triangle, you can use two different approaches. You can wait until the price breaks either a support or a resistance line and open a trade after the breakout. Another way is to place One-Cancels-the-Other Order. So, when one order works, the other will be canceled automatically.

Descending Triangle

A descending triangle is considered a continuation pattern that signals the downtrend will continue. Still, it is tricky and can be called a bilateral pattern as the price may turn in the opposite direction to the prevailing trend.

In common concept, the descending triangle shows that bears are strong enough to pull the price further down.

In the descending triangle, the resistance line slopes down, while the support is almost horizontal. The price is expected to break the support level and keep falling. So, as soon as the breakout occurs, you can open a short position.

We don’t recommend opening trade before the breakout as the price may break the resistance, and the trend will change.

Ascending Triangle

An ascending triangle is also a bilateral chart pattern. Still, the main idea of the ascending triangle is a trend continuation. The pattern depicts the strength of bulls, so they are ready to push the price further up.

Opposite to the descending triangle, the resistance of the ascending triangle is relatively flat, while the support level slopes up. Although the price can break both support and resistance, the more common case is that the upward trend continues, so the price breaks above the resistance.

You should wait for the breakout to open a trade as any bilateral pattern includes risks.

Pennants

A pennant is a continuation chart pattern. This pattern occurs after a strong move. The pennant reflects a pause in the strong market direction no matter if it’s up or downtrend. There are two types of pennants: bearish and bullish.

As the market moves in the same direction forming almost a vertical trend, it needs a pause. This short-term pause when the price consolidates is called a pennant.

Traders enter the market on the breakout in the trend’s direction. The take profit level can equal the distance of the move ahead of the pennant formation. The stop loss order should be placed above/below the beginning of the pattern.

Pennants and triangles look similar. Still, the pennant is a short-term pattern that happens when the market moves strongly up or down. The triangle is a medium- or long-term pattern which occurs independently to the previous trend.

Now you can be confused as pennants and triangles look similar. The difference is timeframes. The pennant is a short-term pattern. It happens when the market moves strongly up or down. The triangle is a medium- or long-term pattern. It occurs independently of the previous trend.

Flags

Flags are considered more reliable than triangles or wedges as they are less frequent. There are two types of flag patterns. They are bull and bear. Although the price may break in any direction, in most cases, the flags are continuation patterns.

Bull flag Bear flag

The flag pattern resembles a flag and looks like a small channel after a strong movement. The flag moves in the opposite direction to the prior trend. After an upward movement, it slopes down. After a downward movement, it has an upward slope.

Traders should enter the market after the breakout. Take profit order should equal the size of the flagpole (the distance of the movement before the flag’s formation). Stop loss can be placed above/below the beginning of the flag.

Wedges

A wedge is a chart pattern that predicts a trend continuation. There are two types of wedge patterns: rising and falling.

Support and resistance levels of the pattern move in one direction, so the channel narrows until the price breaks any of the levels. During the ascending (rising) wedge, support and resistance lines move up. However, the rising wedge is a bearish pattern that signals the price will keep moving down. In the descending (falling) wedge, support and resistance decline.

When the price breaks below the support level, a trader can enter the market. To measure the take profit level, calculate the distance of the widest area of the pattern. A stop-loss order can be placed above the resistance in the rising wedge and below the support in the falling wedge.

Rectangles

A rectangle is a continuation chart pattern that occurs due to the pause in the trend. There are bearish and bullish rectangles. The pattern consists of flat support and resistance lines. The price tests them several times before the breakout.

The signal of the rectangle depends on the trend. If the rectangle happens during the uptrend, it signals the price will keep rising. If the rectangle occurs during the downtrend, there are odds the market will fall.

To enter the market, wait for the price to break either support or resistance. The take profit should equal a distance between the support and resistance lines. Stop loss can be placed above the resistance in the downtrend and below the support in the uptrend.

Reading Forex Chart Patterns

Follow these steps to read FX chart patterns:

  • Step 1. Try to define the shape of any of the top patterns we mentioned above.
  • Step 2. Define whether it’s a continuation, reversal, or bilateral chart pattern.
  • Step 3. Draw support and resistance levels.
  • Step 4. Wait for the price to break support /resistance to enter the market. Don’t open trade before the breakout. As it can be a fake breakout, you should get a confirmation from other technical tools.
  • Step 5. Define take profit and stop loss levels ahead to avoid losses.

How to trade Flags and Pennants Chart Patterns Forex Trading Strategy

Tips for Traders: Everything About Chart Patterns

We have prepared a few simple rules that will make your trading more effective:

  • There is no perfect chart pattern that will provide 100% accurate signals and be applied to any market condition. Some patterns occur during high volatility, others are workable for calm markets. Also, you should remember that the chart’s timeframe affects the strength of chart patterns. Thus, any chart pattern needs confirmation. You can apply technical indicators to confirm the signals.
  • Chart patterns are divided into several groups. They are reversal, continuation, and bilateral. All you need to do is learn signals of top chart patterns and apply them when you meet the pattern on the chart.
  • The support and resistance concept is a key to any pattern’s signal. All you need to do is to draw these levels, and you will catch the signal.
  • Chart patterns provide perfect entry, stop loss and take profit levels.
  • Although chart patterns have different shapes, each type has common rules of how to read signals.

Conclusion

Why do traders use chart patterns? Is it not complicated to remember all the shapes and signals they provide? If you still think like this, you should practice more looking for chart patterns on the real market.

However, we don’t recommend training on the real account as a wrong reading of chart patterns can lead to losses. Use a Libertex demo account that allows practicing on real market conditions and a wide range of trading instruments, including currencies and CFDs.

Why to trade with Libertex?

  • access to a demo account free of charge
  • technical assistance to the operator 5 days a week, from 8 a.m. till 8 p.m. (Central European Standard Time)
  • leverage of up to 1:999 for professional сlients
  • operate on a platform for any device: Libertex and Metatrader

Supply and Demand + Chart patterns = Ultimate Forex Strategy

To round up, check the answers to the following questions.

Do Forex Patterns Work?

Forex chart patterns work for sure. Otherwise, traders all around the world would not use them. Still, you should remember that there is no perfect chart pattern, and each signal should be confirmed.

Where Can I Find Patterns in Forex?

You can find chart patterns on any timeframe and for any trading instrument.

How Do You Trade Chart Patterns?

Chart patterns are useful trading tools as they provide entry, take profit, and stop loss levels. All you need to do is draw support and resistance lines that will tell you where to place all the levels.

How Do I Read Forex Charts?

A forex chart consists of chart and candlestick patterns. To read the chart and catch the trading signals, you need to have comprehensive knowledge about the patterns.

How Do You Learn Chart Patterns?

Fortunately, all types of chart patterns have common rules for reading their signals. Learn the main concept and practice on a Libertex demo account to strengthen your knowledge.

What Is the Most Bullish Chart Pattern?

There is no most bullish or bearish chart pattern. Such factors as market volatility, timeframe, market conditions affect the strength of the chart pattern.

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    Risk Warning: Trading leveraged products such as CFDs involves substantial risk of loss and may not be suitable for all investors. 83% of retail investor accounts lose money when trading CFDs with this provider. Trading such products is risky and you may lose all of your invested capital. Please click here to read our full Risk Warning.

    Indication Investments Ltd is deemed authorised and regulated by the Financial Conduct Authority. The nature and extent of consumer protections may differ from those for firms based in the UK. Details of the Temporary Permissions Regime, which allows EEA-based firms to operate in the UK for a limited period while seeking full authorisation, are available on the Financial Conduct Authority’s website.

    LIBERTEX is a trading platform used by Indication Investments Ltd. a Cyprus Investment Firm which is regulated and supervised by the Cyprus Securities and Exchange Commission (CySEC) with CIF Licence number 164/12.

    Паттерны Форекс

    Если представить себе весь рынок Форекс как непроходимые джунгли, то графические модели выполняют функцию прорубленных в чаще тропинок, ведущие трейдеров к заветным целям. Как известно, прибыль или убыток на любой фондовой бирже формируется за счёт движения котировок. И зачастую эти движения весьма сложно предугадать, даже обладая достаточным объёмом полезной информации.

    Обычно движения цен демонстрируются на графиках в виде подсвечников, наглядно представляющих краткую историю котировок базового актива. Однако, существуют и другие графические модели, являющиеся эффективными инструментами технического анализа. И такой мониторинг в совокупности с имеющейся у инвестора информацией зачастую помогает делать правильные прогнозы. Правильная интерпретация всех графиков и диаграмм – это серьёзное подспорье в работе трейдера, позволяющее ему, постоянно находится на гребне волны движения рынка. Соответственно при наличии таких преимуществ минимизируются риски убытков с увеличением вероятности успешных сделок.

    Разновидности графических моделей рынка Форекс

    Continuation Chart Patterns – Модель продолжения

    Паттерны диаграммы этой категории сигнализируют о том, что доминирующий тренд сохранит свою тенденцию в ближайшем будущем. Такая ситуация формируется в момент консолидации цен, предоставляя трейдеру возможность открывать позиции в сторону актуального движения рынка. Это тип моделирования представлен следующими тремя разновидностями:

      1. Directional Wedges (направляющие клинья) – система направленного движения, изобретённая в 1978 году Уэллсом Уайдлером. Эта популярная графическая модель помогает предугадать пункт разворота тренда в противоположном направлении для принятия оперативного решения. Падающие клинья формируются в точке минимума нисходящего тренда. Восходящие клинья – на вершине волны растущей тенденции. При устойчивости рынка клинья наглядно демонстрируют противостояние «быков» и «медведей». Например, растущий клин в нисходящем тренде сообщает о том, что покупатели активно толкают цену актива вверх. Однако, при этом более высокие минимумы формируются быстрее, чем максимальные котировки. Такая ситуация говорит о том, что покупатели «выдыхаются», и нисходящий «медвежий» тренд вот-вот станет новой доминантой.
        1. Pennants – вымпелы (треугольники), сообщают трейдеру о наступлении временной паузы в доминирующем тренде. Например, в восходящем тренде «бычий» вымпел будет формироваться в момент, когда «быки» начнут массовыми покупками гнать цены вверх. Такой треугольник свидетельствует о том, что растущий тренд получает новый толчок к продолжению движения в текущем направлении.
          1. Flags – флаги формируются в процессе стабилизации рынка после резких разнонаправленных движений котировок. Предшествующий формированию флага тренд условно называется «флагшток». Например, флаг образует растущие котировки при консолидации цен в период фиксации прибыли, формируя самые низкие минимумы и самые низкие максимумы. Любой прорыв верхней границы котировки будет означать намерение «быков» и дальше подстёгивать курс в направлении роста.

          Reversal Chart Patterns – Модель разворота

          Разворотные графики формируются в момент изменения направления тренда в противоположную сторону. В этом случае трейдер получает сигнал о том, что доминированию роста или падения пришёл конец. И в ближайшем будущем цены соответственно начнут расти или падать. Так, разворотный паттерн в восходящем тренде сообщает, что на рынке преобладают «медвежьи» настроения, а в нисходящем – о том, что «быки» приготовились к атаке. Разворотные диаграммы представлены следующими категориями графических моделей.

            1. Head and Shoulders – Модель головы и плеч. Прямой паттерн формируется в восходящем тренде при достижении трёх максимальных позиций. При этом первый и третий максимум минимально отличаются друг от друга по высоте (это плечи). А вторая максимальная точка (голова) выше их обоих. Так называемое «декольте» – это условная кривая, которая соединяет две нижние точки образованной фигуры. Расстояние между декольте и «головой» демонстрирует значение целевой цены, когда котировка пробивается ниже декольте. Обратная голова и плечи формируется в нисходящем тренде точно по такому же сценарию. При этом целевой ценой будет расстояние между «декольте» и «головой», формируемое в момент, когда котировка ломается выше «декольте».
              1. Double Tops and Double Bottoms – двойные вершины и двойные основания. Этот паттерн формируется сразу после того, как котировка достигает двух пиков или двух днищ после сильного движения тренда. Такая диаграммная картинка сигнализирует о том, что гиперактивное направление исчерпало свою силу и собирается повернуться вспять. Целевая цена в этом случае совпадает со средним значением между вершиной и дном (пластом).
                1. Triple Tops and Triple Bottoms – тройные вершины и тройные основания. Паттерн разворота работает аналогично описанной выше модели. Только в этом случае речь идёт о трёх пиках и трёх низших значениях. Суть паттерна также аналогична – последний тренд исчерпал свою силу, и котировки готовы последовать в противоположном направлении.

                Нейтральные графические модели

                Нейтральные паттерны диаграмм демонстрируют временное равновесие рынка, готового пойти в любом направлении. Такие графики дают сигнал трейдерам о том, что ситуация может измениться в любую сторону. Самыми распространёнными вариантами нейтральных паттернов являются симметричные треугольники. Эти элементы формируются в момент, когда цена пробивает более низкие максимумы и более высокие минимумы. В такой ситуации ни «быки» ни «медведи» не способны переломить ход событий в свою пользу. Главная задача наблюдателя за диаграммой – это успеть присоединиться к формирующемуся импульсу, который будет доминировать в ближайший период.

                Применение графических моделей для торговли на Форекс

                Демонстрируя соотношение спроса и предложения в текущий момент, диаграммы паттернов помогают трейдерам решать следующие важные задачи:

                1. Оценка соотношения актуальных рисков к возможному вознаграждению. Формирование того или иного паттерна позволяет понять «стоит ли игра свеч» в конкретной ситуации. Благодаря такой информации трейдер может принять решение о покупке или продаже актива. Например, когда паттерн «головы и плеч» формируется в восходящем тренде, начальная цель для ожидаемого движения вниз – это сумма «пипсов», эквивалентная расстоянию между «декольте» и верхней частью «головы». Стоп-лосс в этом случае следует разместить чуть выше «плеч».
                2. Открытие позиций на основе действия. Трейдеры, практикующие стратегию ценовых действий, анализируют диаграммы для определения торговых возможностей в настоящий момент. Графические модели по своей сути работают на небольшое опережение. И это преимущество позволяет участникам торгов увидеть реальную перспективу того или иного тренда.
                3. Определение ценовых целей для использования условных ордеров. Условный ордер на Форекс – это специальный вид сделки, выполнение которой требует соблюдения определённых заданных параметров (условий). К этой категории относятся лимитные ордера, стоп-ордера, стоп-лимитные ордера. Более сложные вариант – GTC (хороший до отмены), GTD (хороший до даты) и OCO (один ордер отменяет другой) В этом случае, если трейдер ясно видит конкретные целевые цены на паттерне продолжения или разворота, то его задача существенно упрощается.
                4. Оперативная адаптация к актуальным и возможным трендам рынка. Графические модели позволяют с большой вероятностью определить моменты разворотов трендов. Предварительная возможность узнать о начале падения или роста предоставляет возможность увеличить прибыль и уменьшить убытки. Соответственно возникает перспектива раннего входа в выгодную позицию. Таким образом, формируются более широкие и перспективные торговые возможности.

                Недостатки торговли на Форекс с использованием Паттернов

                  1. Ложные сигналы. Как известно, ни один из инструментов технического анализа фондового рынка не является стопроцентной гарантией верного прогноза. Соответственно при использовании паттернов следует понимать некоторые риски неправильного отражения текущей ситуации или перспективы.
                  1. Повышенная «субъективность» оценки рынка. Успешное использование графических моделей может создать у трейдера ощущение «всемогущества» этого функционала и собственных способностей. В этом случае обычно наступает сильное разочарование при первом же ошибочном прогнозе. Утрата объективности оценки неизбежно приводит к убыткам. Потому что в этом случае участник торгов доверяет только диаграммам, выпуская из виду другие методы технического и информационного мониторинга, позволяющие делать правильные прогнозы.
                  2. Задержки в формировании паттернов. Некоторые диаграммы и графики формируются не так быстро, как хотелось бы трейдерам, привыкшим к стремительным агрессивным действиям. В этом случае данная аудитория может быть недовольна потерей возможной прибыли из-за медлительности графического моделирования.
                  3. Краткосрочная эффективность. Подавляющее большинство паттернов результативно работает в кратком временном промежутке. Поэтому данный вид технического анализа не годится для долгосрочных инвестиций и длинных позиций. Любая задержка в использовании полученного сигнала означает потерю определённого объёма достоверности предлагаемой на диаграмме информации.

                  Полезные советы для торговли с использованием паттернов

                  1. Сочетание диаграмм паттернов и линейных графиков. Такая комбинация позволяет увидеть актуальную картину рынка в развёрнутом более крупном масштабе. Не стоит зацикливаться только на диаграммных паттернах, которые не всегда отражают истинное положение вещей и могут формироваться со значительными задержками. Линейный график составляется с упрощением ценового действия, позволяя подтверждать или опровергать данные диаграммной модели.
                  2. Сопоставление сигналов графических паттернов и свечных паттернов. Эффективная тактика, существенно повышающая шансы на успех. Свечные модели формируются гораздо быстрее паттернов продолжения или разворота, предлагая аналитику широкий выбор актуальных сигналов. Грамотно комбинируя эти два инструмента, можно рассчитывать на рост вероятности выгодной сделки.
                  3. Комбинирование графических моделей с техническими индикаторами. Ранние сигналы паттерна о ценовых подвижках характеризуются достаточно высокой неустойчивостью. Именно поэтому в процессе анализа диаграмм стоит сверяться с текущими техническими осцилляторами, такими, например, как ADX, который отлично работает в паре с симметричными треугольниками нейтральной модели.
                  4. Активное использование условных ордеров. Торговые сигналы диаграммных паттернов позволяют с большой долей достоверности увидеть целевую цену. Соответственно можно применять такие сделки как стоп-ордера или лимитные ордера, которые срабатывают только в рамках выставленных условий. Например, когда цена консолидируется в паттерне продолжения во время восходящего тренда, трейдеры могут размещать стоп-ордера на покупку. Такая тактика с большой долей вероятности позволит некоторое время находиться на волне «бычьих» настроений рынка.

                  Общие выводы

                  Графические модели, представленные различными диаграммами паттернов, предоставляет трейдерам следующие возможности:

                  • своевременная оценка вероятности и перспектив предстоящей смены тренда;
                  • оперативный анализ текущей конъюнктуры рынка;
                  • вычисление актуальной целевой цены сделки;
                  • эффективное применение условных ордеров;
                  • общее снижение рисков

                  При этом никогда не стоит забывать о том, что эти сигналы не являются 100% отражением реальности и перспектив. Описанные выше недостатки использования графических моделей должны быть внимательно изучены и взяты на заметку. Только комбинированный технический и информационный анализ способен сформировать оптимальные условия для перспективной работы на рынке Форекс. Но даже самые убедительные прогнозы и выверенные решения никогда не смогу переломить общую эффективность фондового рынка.

                  Для того, чтобы научиться работать с графическими моделями рекомендуем открыть демонстрационный счёт на брокерской платформе AvaTrade. В этом случае вы сможете на практике проверить описанные в этой статьей факты, осваивая тонкости графического анализа без малейших рисков!

                  Analyzing Chart Patterns to Improve Your Forex Trading

                  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.

                  Forex Chart Patterns | Reversible Breakout Strategy in Tamil — Part 9

                  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, 2022 – Apr 12, 2022. 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.

                  • Forex chart patterns are technical on-chart patterns which clue us in on eventual price moves.
                  • Chart patterns are classified within three types:
                    • Continuation Chart Patterns
                    • Reversal Chart Patterns
                    • Neutral Chart Patterns

                    Chart Patterns Forex Trading Strategy || Institutional Trading Methods.

                    • Some of the most important trend continuation chart patterns are:
                      • Pennants
                      • Rectangles
                      • Corrective Wedges
                      • Some of the most important trend reversal chart patterns are:
                        • Double/Triple Top/Bottom
                        • Head and Shoulders
                        • Reversal Wedges
                        • Ascending/Descending Triangles
                        • One of the most popular neutral chart pattern is the Symmetrical Triangle
                        • All these chart patterns have a tendency for a price move equal to the size of the formation itself. This is referred to as a measured move price potential.

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                        The Most Common Forex Chart Patterns

                        A Forex price chart is the starting point for all trading analysis. Even those traders who are sceptical of technical analysis still use charts in their trading to some extent. There is a very good reason behind this, which is that Forex charts provide traders with a large amount of information.

                        Furthermore, there are certain Forex patterns which occur in the price charts and provide the basis of various trading strategies. In this article, we will explore some of the most common Forex chart patterns and show you how you can spot them and use them to your advantage!

                        With such a variety of ways to trade Forex currencies, understanding the most common trading methods can save a lot of time, money and effort. By using popular and simple approaches, a trader can design a complete trading plan using Forex chart patterns that frequently occur and can be easily spotted with little practice.

                        Whilst some of these methods can be advanced and sophisticated, there are some simple methods that take advantage of the most regularly traded elements of those Forex patterns.

                        In the following sections, we will provide you with a cheat sheet for some of the most common Forex chart patterns and teach you how to spot them!

                        The Head and Shoulders Forex Pattern

                        You will probably have come across the head and shoulders Forex pattern, or at least have heard of it, as it is quite popular and is fairly easy to spot.

                        It can appear on all time frames of all currency pairs. Its entry levels, stop levels and price targets make the formation easy to construct a trading strategy around, because these Forex chart patterns supply the levels for you.

                        Let’s have a look at how the head and shoulders Forex pattern is formed:

                        • The Left Shoulder— the price rise followed by a left price peak, accordingly followed by a decline
                        • The Head— the price rises once more forming a higher peak than the left shoulder
                        • The Right Shoulder— a decline happens once more, followed by a rise forming a right peak that is relatively lower than the head

                        With an inverse head and shoulders, the Forex pattern is the same as shown above, but upside down. It is important that traders wait for the pattern to be completed after they set a neckline or trendline that connects two highs in a bottoming pattern, or two lows in the topping pattern of the formation. Almost all or partially completed Forex chart patterns should be watched. However, no trades should be performed until the pattern breaks through the neckline – indicated by the lower of the two grey lines in the image above.

                        The most common entry point is a breakout of the neckline, with a stop loss set above or below the right shoulder, depending on whether the pattern is regular (like above) or inversed.

                        As for the profit target, for a regular head and shoulders Forex pattern, you need to establish the difference between the high of the head and the lowest point of both shoulders, this figure is then subtracted from the entry price.

                        For an inverse head and shoulders pattern, the process is very similar, but in reverse. The low of the head is subtracted from the high of the shoulders and the resulting figure is then added to the breakout price. Whilst this system is not ideal, it provides an approach for trading the markets based on logical price moves.

                        The Triangle Forex Chart Patterns

                        The triangle Forex patterns consist of two of the following trendlines: flat, ascending or descending. The price of the security bounces between these two trendlines before, eventually, breaking out.

                        There are three types of triangle Forex patterns which differ in their significance and construction:

                        • The symmetrical triangle
                        • The ascending triangle
                        • The descending triangle

                        The Symmetrical Triangle

                        Let’s start with the symmetrical triangle, which is often considered to be a continuation Forex chart pattern that signals a period of market consolidation, consequently followed by the resumption of the preceding trend. It is formed by a descending resistance line and an ascending support line.

                        The two trendlines in the formation of this triangle should have a slope converging at a point, which is commonly known as the apex. The security price will bounce between these two trendlines, towards the apex, and will then typically breakout in the direction of the foregoing trend.

                        In the case of being preceded by a downward trend, a trader’s task is to concentrate on a break below the ascending line of support. However, if it has been preceded by an upward trend, the next step is to look for a break above the descending line of resistance.

                        It is important to note that whilst this Forex chart pattern favours a continuation of the previous trend, this is far from always the case. A break in the opposite direction of the previous trend should signal the new trend’s formation.

                        The Ascending Triangle

                        The ascending triangle is a bullish Forex pattern which provides an indication that the security price is heading higher. This chart pattern is formed by two trendlines — a flat trendline being the point of resistance and an ascending trendline in the role of price support.

                        The security price moves between these trendlines until it breaks out, usually upwards through the line of resistance. These Forex chart patterns will typically be preceded by an upward trend, therefore making it a continuation Forex pattern.

                        The Descending Triangle

                        The descending triangle pattern is the opposite of the ascending triangle pattern. It provides a bearish signal to Forex traders, informing them that the price is likely to trend downwards upon completion of the pattern. This Forex pattern consists of a flat line of support, and a downward-sloping line of resistance.

                        Like the ascending triangle, this Forex pattern is mainly considered to be a continuation chart pattern, due to the fact that it is typically preceded by a downward trend.

                        It is important to note that this is not an exact science and, as with all these triangle patterns, the price will not always breakout in the expected direction. That is why it is crucial to implement a stop loss into your trading — as part of your overall risk management plan – in order to protect yourself against any unexpected price movements.

                        The Engulfing Candle Forex Chart Patterns

                        Forex candlestick charts provide a lot more information than simple line graphs. For this reason, Forex chart patterns are a useful tool for measuring price moves on all time frames. Since there are a lot of Forex chart patterns, we suggest paying attention to a trading strategy which is based on a pattern which is easy to spot.

                        The engulfing candle Forex pattern presents an excellent trading opportunity, as it is simple to spot and the price action indicates a powerful and instant change in direction.

                        In a downtrend, an up candle real body (i.e. the space between the open and close price) will entirely engulf the preceding down candle real body. This is a bullish engulfing pattern. Conversely, in an uptrend, a down candle real body will wholly engulf the previous up candle real body. This is a bearish engulfing pattern.

                        These Forex chart patterns are highly tradable as the price action strongly indicates a reversal, since the previous candle has already been entirely reversed.

                        Traders can take part in the beginning of a potential trend, setting a stop loss above the previous swing high where the Forex pattern occurred, when the engulfing pattern is bearish. When trading a bullish engulfing pattern, the stop loss should be placed below the previous swing low.

                        Final Thoughts

                        There is a wide range of trading approaches which make use of Forex chart patterns to find market entries and stop levels.

                        Forex chart patterns that include the head and shoulders and triangle patterns provide ready-made entries and stop losses, as well as profit targets within a pattern which can be identified with little effort.

                        The use of the engulfing candlestick Forex pattern provides an indication of a trend reversal, providing the potential opportunity to participate in a new Forex trend with an identified entry and stop level.

                        A savvy trader may take the opportunity to combine all these well-known patterns and methods and perhaps create a distinctive and customisable trading strategy of their own.

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                        Most efficient Forex patterns: a complete guide

                        This article deals with the price pattern concept and explains the most profitable chart patterns. I will describe the most popular forex candlestick patterns, explain how to discover the candlestick formations in the chart and trade them.

                        You will learn how to trade Forex using price patterns. I will also share my experience and my own original Forex candlestick patterns, which I’ve been using for many years.

                        I hope you will appreciate the hard work I have put into creating this material! It will help you improve your trading skills and your trading performance!

                        The article covers the following subjects:

                        What are patterns in forex?

                        The analysis of price movements started when the price chart appeared. First charts were drawn on the graph paper, and that is when the first analysts noticed that there were some zones in the chart where the price made similar swings in different periods of time. Those were the first chart patterns. Traders called them price patterns because the first patterns looked similar to geometric objects, like a triangle, a square, a diamond. When it became available to see the chart on a computer screen and analyze longer periods of time, new patterns started to appear. Currently, there are over 1000 price formations that are studied by graphic analysis, a branch of technical analysis.

                        Of course, many of them are just their authors’ imagination, but, on the other hand, that is the way, how the first and the most popular chart patterns appeared. Later, technical analysis was expanded, and the chart patterns were enriched by candlestick patterns. In the following parts, I’ll dwell upon the most common forex Japanese candlestick patterns and some original configurations.

                        Traders use candlestick patterns to identify trading signals – or signs of future price movements, in order to enter a trade at the right place. As I’ve already noted, the first pattern to analyze trading charts, included into technical analysis, is thought to be the Triangle pattern. So, I’ll start with it.

                        3 most common and effective candlestick patterns

                        When technical analysis appeared, people noticed the zones in the price charts where the price moves repeated after a while. They started to highlight these zones and mark them. Next, when traders saw the zone in the chart that was noticed earlier, they could assume how the price would move after such a zone, where the price declines or rises. That is how first price chart patterns appeared, or what we now call Forex chart patterns or formations.

                        They were first called so because they looked like geometrical patterns, a triangle, a cube, a diamond. Over time, there were defined clear rules for each pattern, and that is how graphical analysis appeared. Chart patterns are used for forecasting in Forex like they were used earlier, along with support and resistance levels. In my onion, patterns are the most accurate tool of graphical analysis. You only need to discover a price pattern in the chart, and, if it works out, enter a trade and enjoy your profit. Next, we will deal with the three most common forex chart patterns that will never lose their relevance and will suit both beginners and advanced traders.

                        Well, let’ take a closer look at the three best price chart patterns.

                        Third place: Head and Shoulders chart trading chart pattern (S-H-S)

                        It is a very popular reversal chart pattern. The pattern is more discernible in a linear chart, but you’d better enter trades based on the candlestick chart (Japanese candlesticks are in the online terminal).

                        There is the AUDNZD price chart above. There are two modifications of the pattern. The first is a direct Head and Shoulders pattern where the head is the head and shoulders top (red), it looks like a double top formation. There is also can be an inverse Head and Shoulders pattern (green) that looks like a double bottom pattern, both are reversal patterns.

                        Let’s see how you open a buy position according to the signal delivered by the inverse head and shoulders pattern (green):

                        1. Find three consecutive extremes, in this case, lows, the middle one should be lower than the other two (higher, if the pattern is direct);
                        2. Next, we draw a simple trend line along with the highs, this will be the neckline (purple);
                        3. Now, we have a classical resistance line, the buy signal appears when the price breaks this line upside.
                        4. Now, the most important! Make sure that there was a clear downtrend ongoing before the first low of the pattern has been formed. And this trend should be at least twice as long as the depth of the middle low of our pattern. If there isn’t such a trend, the pattern will be not valid, and you can’t open positions according to it. In our example, there is such a trend and the pattern is valid;
                        5. Trading with almost any pattern, you open a position using a pending order, not by the market order, and so, we put bending orders;
                        6. A buy limit is put at the level of the next price high after it breaks through the pattern neckline (Buy Price 1);
                        7. A take profit for our buy limit is set as follows: Measure the distance between the lowest point of the middle low of the pattern (Head) and the neckline in points using the Ruler tool. Put this distance up from the price of the buy limit. Next, subtract about 15%-20% from this distance and put a take profit (Take Price 1);
                        8. A stop loss is set at the level of the low of the entire formation +15%-20% (Stop Price 1);

                        Second place: Broadening formation trading chart pattern

                        This pattern is easier spotted in the linear chart, as the candlestick chart often distorts high and lows.

                        There is the GBPUSD price chart above that displays a broadening formation pattern that looks like an inverse triangle.

                        Let’s see how you open positions to buy and sell according to the signal delivered by a broadening formation pattern.

                        1. First, find a price pattern that looks like the formation depicted in the chart.
                        2. Define lows and highs: there should be at least 4 (2 highs and 2 lows);
                        3. The price movement from the high to low and vice versa within the pattern is referred to as a pattern’s wave. We need to define the number of waves;
                        4. You can start to trade the pattern only if wave 4 completes within the pattern;
                        5. According to the statistics, there are often six or more waves in the pattern. So, we shall trade waves 5 and 6;
                        6. In the given example, we shall buy according to wave 5 trading signal and sell according to wave 6.
                        7. We enter a buy trade only when the trend reversal is clear following wave 4 (Buy 1).
                        8. A take profit is set at the level where wave 4 started (Take 1);
                        9. A stop loss is set below the support line of the pattern (Stop 1)
                        10. We open a sell trade according to wave 6 when there are indications of the trend reversal following wave 5 (Sell 2).
                        11. A take profit is out at the level where wave 5 started (Take 2);
                        12. A stop loss is set above the pattern’s resistance (Stop 2);
                        13. It is extremely risky to enter trades based on the following waves, as the formation most often finishes with wave 6.

                        First place: Volume Candlestick pattern

                        This pattern consists of just a single candle. It is often spotted in the D1 and H4 charts

                        There is the GBPUSD currency pair chart that represents quite a seldom formation that is, in my opinion, is one of the most efficient price action patterns of technical analysis.

                        The pattern looks like a candle with a very small body and very long tails (wicks). The candlestick is called volume candle because it emerges when there are large trade volumes in the opposite directions in the market (the uptrend of bulls and the downtrend of bears). Therefore, by the time of candlestick closing, the market hasn’t yet determined the new trend, as the demand and the supply are almost equal. However, the balance can’t last for a long time, and either buyers or sellers finally win, driving the price in the corresponding direction. The price should soon break through the low or the high of the volume candlestick, sending us a signal to enter a trade and work out the pattern.

                        Well, let’s see how you open positions to buy and sell according to the signal delivered by a volume candlestick pattern.

                        1. You should look for a volume candlestick pattern only in the two timeframes, they are the daily and the four-hour charts (D1 and H4);
                        2. Each shadow without the candlestick body should be at least 400 pips;
                        3. The candlestick body shouldn’t be longer than 1/10 of the entire formation;
                        4. The color of the candlestick body doesn’t matter. An ideal volume candlestick is a doji (read more about candlestick chart patterns here)
                        5. If the current market price hasn’t broken through the low and the high of the volume candlestick, the pattern is valid;
                        6. You put a buy stop and a sell stop at the candlestick high and low respectively (Buy Stop Price 1 and Sell Stop Price 2);
                        7. The price target profit is put at the distance shorter than or equal to the length of the corresponding shadow.
                        8. A reasonable stop loss is set at the level of the opposite extreme, low/high (Stop Price 2);
                        9. When the price hits the level of one of the pending orders, the position will be opened (Sell Price 2);
                        10. The position will close automatically;
                        11. When one of the orders works out, the opposite should be manually canceled.

                        Train on the demo account and start making money on the real one. Everything is quite simple! I wish you successful and profitable trades with the most common Forex chart patterns!

                        Triangle chart pattern

                        Currently, there are many different kinds of triangles; however, they are all based on the same principle. In the common technical analysis Triangle is in the group of continuation chart patterns. It signals that the trend, ongoing before the triangle appeared, can resume after the pattern is complete.

                        In the picture above, you can see one of the common triangles that hasn’t yet been complete at the moment.

                        In technical terms, a triangle is a narrowing sideways channel that usually emerges at the end of the trend. The triangle basically works out when the range of the price swings is extremely low, there emerges a momentum and the price, breaking through one of the figure’s legs, goes further in the breakout direction. I suggest analyzing the scenarios of both upside and downside breakout on the given example.

                        So, in classical technical analysis, a Triangle chart patterns signal that the price can move either way; fortunately, you don’t have to guess, as when the patterns develops, there are clear rules of identifying entry points.

                        If you trade a triangle pattern, it makes some sense to enter a buy trade when the price, having broken through the pattern’s resistance line, reached and exceeded the local highs, marked before the resistance line breakout (buy zone).

                        The target profit should be taken when the price covers the distance less than or equal to the breadth of the first pattern wave (profit zone buy). A stop loss in this case might be placed at the level of the local low, marked before the resistance level breakout (stop zone buy).

                        A sell position can be opened when the price, having broken through the pattern’s support line, reached or pressed through the level of the local low, preceding the support level breakout (sell zone). The target profit should be fixed when the price has covered the distance equal to or less than the breadth of the first wave (profit zone sell). A stop loss, in this case, should be placed at the level of the local high, preceding the support line (stop zone sell).

                        What can be added? Statistically, 6 out of 10 triangles are broken out in the direction of the previous trend. Therefore, when trading in forex, you should be more careful about the traders, directed against the trend.

                        10 Powerful Trading Patterns — Understanding The Process

                        The Triangle pattern is very important in the Elliott wave analysis. The Triangle pattern is thought to be one of the corrective waves of the directed cycle, it is the further evidence that the ongoing trend is more likely to resume after the pattern is completed.

                        Double Top chart pattern

                        This pattern is classified as one of the simplest ones, so, it is usually less efficient than the other patterns. In classical technical analysis, a Double Top formation is classified as a reversal chart pattern. That is the trend, ongoing before the formation starts emerging, is about to reverse after the pattern is complete.

                        The pattern represents two consecutive highs, whose peaks are roughly at the same level. The pattern can be both straight and sloped; in the latter case, you should carefully examine the tops’ bases that must be parallel to the highs.

                        In the classical analysis, a Double Top works out only if the trend reverses and the price heads down; if the price hits the third high, the formation transforms into the Triple Top pattern.

                        It makes sense to enter a sell trade when the price, having broken through the pattern’s support line, reaches or presses through the level of the local low, preceding the support level breakout (sell zone). The target profit should be fixed when the price covers the distance, shorter than or equal to the height of the formation’s either top (profit zone). A stop order can be placed a little higher than the local high, preceding the support line breakout (stop zone); however, you must remember that the formation often transforms into a Triple Top pattern.

                        Double Bottom chart pattern

                        The pattern mirrors the Double Top pattern, formed in the falling market. In the classical analysis a Double Bottom pattern works out when the trend changes its course and the price is moving up; if the price hits the third low; the formation transforms into a Triple Bottom chart pattern.

                        You can open a buy position when the price, having broken through the resistance of the formation, reaches or exceeds the local high, preceding the resistance breakout (Buy zone). The target profit is marked at distance that is equal to the height of the pattern’s either bottom, or shorter. A reasonable stop loss can be put a few pips below the local low, preceding the resistance breakout (Stop zone). However, you must remember that the formation often transforms into a Triple Bottom; so, it is rather risky to put you stop loss too close to the low.

                        Triple Top chart pattern

                        The pattern is the continuation of a double top. In classical technical analysis, the Triple Top is classified as a reversal chart pattern. It means the trend, ongoing before the formation starts emerging, is about to reverse after the pattern is complete.

                        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.

                        In the classical analysis, a triple top works out only if the trend reverses and the price is heading down; if the price hits new highs, the formation transforms into either a triangle or a flag.

                        It is reasonable to enter a sell trade when the price, having broken through the support line of the formation (the neckline), reaches or breaks through the local low, preceding the support line breakout (Sell zone). The target profit should be fixed at the distance that is shorter than or equal to the height of any top of the formation (Profit zone). A reasonable stop loss can be set around the level as high as the local high, preceding the neckline breakout (Stop zone).

                        Triple Bottom chart pattern

                        The pattern mirrors the Triple Top, formed in the falling market.

                        In the classical analysis, a triple bottom works out only if the trend reverses and the price is moving up.

                        You can open a buy position when the price, having moved up through the pattern resistance line (the neckline), and reaches or exceeds the local high, marked before the neckline breakout (Buy zone). The target profit can be fixed at the level that’s as high as any of the pattern’s tops or lower (Profit zone). A reasonable stop loss can be put a little lower than the local low, preceding the resistance line breakout (Stop zone).

                        Head and Shoulders chart pattern

                        The pattern is a modified version of the Triple Bottom pattern. In classical technical analysis, the Head and Shoulders is a trend reversal pattern. That is, it indicates the trend, going on before the formation emerges, is likely to reverse once it is completed.

                        A Head and Shoulders pattern is characterized by three consecutive highs, whose peaks are at different levels: the middle peak must be the highest one (head), and the others being lower and roughly equal (shoulders). However, there are some modifications of the pattern, when the shoulders are at different levels. In this case, you must make sure that the middle peak is higher than both shoulders. Another key feature to identify the pattern is a clear trendline, preceding the pattern appearance.

                        The pattern can be both straight and sloped; in the latter case, you should be careful to check if the bases of the tops are parallel to the peaks. The lows between these peaks are connected with a trendline that is called neckline.

                        Common technical analysis suggests that the pattern works out only in case of the trend reversal; if the price is moving higher than the pattern’s peak, it is likely to be wrongly identified.

                        You may open a sell position when the price, having broken through the neckline, reaches or goes lower than the low, preceding the neckline breakout (Sell zone). Target profit can be put at the distance that is less than or equal to the height of the middle peak (head) of the formation (Profit zone). You may put a stop loss around the level of the local high, preceding the neckline breakout, or at the level of the right shoulder (Stop zone).

                        What should be added? The Head and Shoulders pattern plays an important part in Elliot wave analysis. It is thought that a Head and Shoulders, emerging in the chart, signals that the major cycle is coming to an end and the correction is about to start. The pattern often links wave 5 and wave A.

                        Inverse Head and Shoulders chart pattern

                        The pattern is simply the inverse of the Head and Shoulders Top in the falling market with the neckline being a resistance level to watch for a breakout higher.

                        In the common technical analysis, the Inverse Head and Shoulders pattern works out only in case of the trend reversal upwards, that is the price growth.

                        You may enter a buy position when the price breaks out the neckline and reaches or exceeds the last local high, preceding the neckline breakout (Buy zone). The target profit can put at the distance that is shorter or equal to the height of the middle peak (head) of the pattern (Profit zone). A reasonable stop loss in this case can be set at the level of the local low, marked before the neckline breakout, or at the lowest level of the left shoulder (Stop zone).

                        Wedge chart pattern

                        This formation looks like a triangle, with a single, but very important difference. A triangle forms only provided there is a clear trend. That is why the pattern can work out in either side, according to the pattern direction.

                        In the common analysis, the Wedge pattern is classified as a reversal pattern.

                        In the picture above, you can see the wedge, that formed in the EURJPY price chart not long ago.

                        In technical terms, the Wedge, like the Triangle, looks like a narrowing sideways channel, but the Wedge and the Triangle also differ in size. The Wedge is, as a rule, much bigger than the Triangle, and it can take months and even years to complete the formation.

                        So, in the classical analysis, the Wedges, as a rule, signal that the price is likely to move in the direction, opposite to the pattern; in other words, the ongoing trend is about to change its course.

                        It is reasonable to place a buy order when the price, having broken out the resistance line, reaches or exceeds the last local high, preceding the resistance breakout (Buy zone). Sometimes, you may lose about 3% of the price movement between the point of the resistance breakout and your entry. Target profit can be put at the distance, equal to or less than the breadth of the pattern’s first wave. A reasonable stop loss can be placed at the level of the local low, marked before the resistance breakout (stop zone).

                        What should be added? In technical analysis, there are a few rules to identify the Wedge pattern, which are worth observing:

                        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.

                        2) The Wedge can be usually broken out only when the price has entered the last third of the formation. To figure it out, divide hypothetically the entire expected wedge pattern into three equal intervals; you’ll need the interval, where the support and resistance levels have met.

                        Flag chart pattern

                        This chart pattern is one of the simplest short-term patterns; so, its efficiency depends on numerous factors.

                        How to find Chart Patterns — in 3 minutes (for beginners)

                        In the common technical analysis, the Flag pattern is classified as a continuation pattern. Therefore, it signals the trend, prevailing before the pattern has emerged, is likely to continue once the formation is completed.

                        The pattern indicates a corrective rollback, following the strong directed movement that often looks like a channel, sloped against the prevailing trend.

                        In the classical technical analysis, the Flag chart pattern can result only in the trend continuation.

                        In the picture above, you can see a Flag, sloped down, which indicates that the price is about to head upwards.

                        It makes sense to enter a purchase when the price, having broken out the pattern’s resistance line, reaches or exceeds the local high, marked before the resistance breakout (Buy zone). The target profit should set at the distance, not longer than the trend, developing before the pattern emerged (Profit zone). A stop order may be put at the level of the local low, preceding the resistance breakout (Stop zone).

                        What should be added? Technical analysis suggests a few rules to identify a Flag pattern correctly.

                        1) The angle between the Flag channel and the prevailing trend mustn’t be wider than 90 degree.

                        2) The Flag channel itself mustn’t go lower/higher than a half of the preceding trend.

                        Pennant chart pattern

                        This chart pattern is a modification of the Flag, so it has the same major features.

                        In the common technical analysis, the Pennant pattern is classified as a continuation pattern. Therefore, it signals the trend, prevailing before the pattern has emerged, is likely to continue once the formation is completed.

                        This chart pattern indicates a corrective rollback, following the strong directed movement that often looks like a small triangle, sloped against the prevailing trend. A pennant in the longer timeframe is often a triangle in the short-term chart.

                        In the classical technical analysis, the Pennant chart pattern can result only in the trend continuation.

                        It makes sense to enter a purchase when the price, having broken out the pattern’s resistance line, reaches or exceeds the local high, marked before the resistance breakout (Buy zone). The target profit should be set at the distance, equal to or shorter than the trend, developing before the pattern emerged (Profit zone). A stop order may be put at the level of the local low, preceding the resistance breakout (Stop zone).

                        Broadening Formation pattern (megaphone pattern)

                        The Broadening Formation, also known as a megaphone pattern, looks like a megaphone or a reverse symmetrical triangle. Therefore, its work principles are similar to the triangle’s ones. In classical technical analysis, a broadening formation is classified as a continuation pattern, though it is most often an independent trend. It means that the trend, prevailing before the formation started, is likely to resume once it is completed.

                        One of the forms of the Broadening Formation is displayed in the picture above.

                        In technical terms, the formation looks like a broadening sideways channel that can sometimes be sloped. The pattern’s realization is based on that the price in each new local trend marks new highs and lows; so you trade the pattern to spot the price inside the formation, rather than to expect a breakout of the swings range, like it was described for triangles.

                        So, let’s see the examples of entry orders inside the pattern.

                        The formation, like a triangle, has waves inside; and they are, like in a triangle, the price movements up and down, from the high to the low.

                        A reasonable buy entry can be placed when the price, having reached the support level of the line, reaches or breaks through the local low, previous to the current low (buy zone 1). The target profit can be set at the level of the local high, followed by the current one, or higher (profit zone 1). A reasonable stop loss can be placed a little lower than the low, after which you entered the trade (stop zone 1).

                        It makes some sense to enter a sell trade when the price, having hit the resistance levels of the formation, reaches or exceeds the local high, followed by the current high (Sell zone 2). The target profit should be set at the level of the local low or lower (profit zone 2). A stop order in this case may be put higher than the local high, following which you entered the trade (stop zone 2).

                        What should be added? There are a few simple rules to correctly identify a Broadening Formation pattern and avoid common mistakes:

                        1. You should start trading inside the pattern only after wave 4 of the pattern is completed.

                        �� The Only CHART PATTERNS Technical Analysis & Trading Strategy You Will Ever Need — (FULL COURSE)

                        2. Positions in the trend direction, prevailing before the pattern started developing, are safer and are more often to reach the target profit.

                        3. You should put stop orders not only beyond the local lows or highs, but it also good to place them beyond the support and resistance levels of the formation, in case of false breakouts of the lines.

                        Diamond chart pattern

                        This formation is a combination of the Triangle and the Broadening Formation

                        In the common technical analysis, the Diamond is classified as a reversal pattern, and it is often a distorted modification of the Head and Shoulders pattern.

                        You enter a sell trade when the price, having passed down through the pattern support line, reaches or breaks through the local low, followed by the support breakout (Sell zone). The target profit is set at the distance equal to or shorter than the width of the biggest wave inside the pattern (Profit zone). A reasonable stop loss here will be at the local high, preceding the support line breakout (stop zone).

                        What can be added? There are some simple rules that will help you trade the Diamond pattern more efficiently and avoid common mistakes:

                        My 3 Favorite Forex Chart Patterns

                        1. The pattern can seldom result in the trend continuation. In this case, you can simply trade with pending orders, or be careful to check that the pattern’s support and resistance lines are parallel to each other.

                        2. 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.

                        3. The Diamond pattern most often appears at the end of long trends, so, you’d better look for it in the timeframes, starting from 4H and longer.

                        Spike pattern

                        A spike is a comparatively large upward or downward movement of a price in a short period of time.

                        The pattern usually emerges, following the state balance between supply and demand in the market.

                        In common technical analysis, the Spike is referred to as a reversal pattern.

                        The patterns starts emerging when a sharp local trend ends; the movements start slowing down and there occurs a sharp surge in volume in a thin market. This volume is instantly offset. At this point, there are two likely scenarios. First, buyer or seller, who was trying to break the flat, can just remove the volume form the market and the price will go back. Second, a bigger trade volume in the opposite direction is put against the volume of the first trader and returns the price to the former levels.

                        You might enter a sell trade when the price goes out of the sideways trend after the major pattern works out (Sell zone). The target profit here should be put at the distance shorter than or equal to the spike’s height (Profit zone). A reasonable stop loss can be put a little higher than the local highs of the sideways trend, marked before and after the spike (Stop zone).

                        What can be added? There is a number of rules that will help you trade the Diamond pattern more efficiently and avoid common mistakes:

                        1. Before and after a spike emerges, there are be must short-term sideways trends (flats).
                        2. Before the first flat starts, there must be a strong, clear trend that ends with the pattern.
                        3. The pattern is the most efficient when the spike of the formation is made of just two candles, and it is good when it is in the timeframe, longer than H1.

                        I will go on the review with chart formations, resulted from Japanese candlestick charting techniques.

                        Volume candlestick pattern

                        It is a candlestick pattern that consists of just a single candle.

                        The pattern looks like a candle with a very small body and very long tails (wicks). The candlestick is called volume candle because it emerges when there are large trade volumes in the opposite directions in the market. Therefore, by the time of closing, the market hasn’t yet determined the new trend, as the demand and the supply are almost equal. However, the balance can’t last for a long time, and either buyer or seller finally wins, driving the price in the corresponding direction. The price should soon break through the low or the high of the volume candlestick, sending us a signal to enter a trade and work out the pattern.

                        You can seldom come across the pattern in the classical technical analysis, as it was discovered as early as in the 1990s, and is hardly remembered nowadays. So, in the present interpretation, the formation is rather a proprietary pattern, and I have figured out and repeatedly tested all the orders’ levels myself.

                        According to the pattern, you can enter trades in either direction, mostly by means of pending orders Buy Stop and Sell Stop.

                        You open a sell position when the price reaches or goes lower than the local low of the volume candlestick (Sell zone 2). Target profit is put at the distance shorter than or equal to the distance between the candlestick open price and its low (Profit zone 2). A stop loss in this case can be set at the local high of the volume candle (Stop zone 2).

                        You enter a buy trade when the price reaches or exceeds the local high of the volume candlestick (Buy zone 1). Target profit is put at the distance shorter than or equal to the distance between the candlestick close price and its high (Profit zone 1). A reasonable stop loss can be set at the local low of the volume candle (Stop zone 2).

                        What should be added? There is a number of rules that will help you trade the pattern more efficiently and avoid common mistakes:

                        1. The candlestick body should be at least tenfold less than its total length from the low to the high.

                        2. Each tail shouldn’t be shorter than 400 pips

                        3. The pattern work only in two timeframes — H4 and D1.

                        Tower chart pattern

                        The pattern is a candlestick formation that consists of 6 and more candles.

                        The Tower pattern is commonly referred to as a reversal pattern and most often emerges at the end of a trend.

                        The Tower pattern, as a rule, consists of one big trend candlestick, followed by a series of corrective bars, having roughly equally-sized bodies. After a series of corrective candlesticks is completed, there is a sharp movement via one or two bars in the direction, opposite to the first trend candlestick.

                        You put a sell entry when there starts emerging bar 5 and all the next bars of the correction (Sell zone). Target profit is put at the distance, not longer than the height of the first pattern’s candlestick (Profit zone). A stop loss may be set at little higher than the local highs of the sideways corrective movement (Stop zone).

                        What should I add? There are some rules you need to follow to increase the pattern’s efficiency and avoid common mistakes.

                        1. In the picture, there is one of the ways, how pattern can develop. Perfectly, the pattern should consist of 5-6 bars (1 candle of the trend, 4 bars of the correction, and 1 bar of the work-out).

                        2. The pattern usually works out via the fifth corrective bar, but there are some Towers that include more corrective bars. In this case, you stick to the general rules and enter the working out via the fifth bar.

                        3. Don’t put a stop order too close to the local highs/lows of the correction; it can be just triggered by the market noise.

                        Three Crows pattern (Three Buddhas)

                        The pattern is a candlestick formation that consists of 4 candlesticks; when you switch to a shorter timeframe, it can often look like a Flag pattern.

                        The Three Crow pattern is commonly classified as a continuation pattern; therefore, it is often a kind the zigzag correction.

                        The pattern usually comprises one big trend candlestick, followed by three corrective candles with strictly equal bodies. The candles must be arranged in the direction of the prevailing trend and be of the same colour. After the series of corrective candles is completed, the market explodes via one or two long candlesticks in the direction of the prevailing trend, indicated by the first candlestick of the pattern.

                        You open a buy position, when the third candle of the correction closes and the fourth one opens (Buy zone). Target profit can be put in two ways. The common rule suggests you set target profit at the distance that is less than or equal to the length of the first candlestick in the pattern (trend candlestick) (Profit zone 2). The second way suggests you take the profit when the price reaches the level of the longest upper tail of any candlestick in the pattern (Profit zone 1). A reasonable stop loss in this case can be put at the local low of the correction candle 3 (Stop zone).

                        What should be added? There is a number of rules that will help you trade the pattern more efficiently and avoid common mistakes:

                        1. The first candlestick (leg) cannot consist of more than 2 candles; it is perfect, if there is only one candle, of course.

                        2. Correction candlestick must have equally-sized bodies, the tail length is not important.

                        3. The body of the third correction candlestick mustn’t go higher/ lower than a half of the first candlestick in the pattern

                        Cube pattern (Golden Cube)

                        The pattern consists of 4 candles, and it often looks like a sideways trend, flat, in the shorter timeframe.

                        In common technical analysis, the Cube is classified as a continuation pattern, but it is most often a kind of the correction pattern, “flat waves”.

                        The Cube pattern consists, as a rule, of 4 consecutive candlesticks of equal size and alternating colors. Candles must be long enough to construct a geometrical object “Cube”. The pattern is also known as a Golden Cube, as 90% of the patterns alike occur in the XAUUSD price chart. It is quite simple to trade the pattern: when candlestick 5 opens, following four consecutive ones of equal size, you enter a trade, based on the colour of the first candlestick in the pattern. If it is red (black), you enter a sell; if it is green (white), you enter a buy.

                        You put a sell order when there opens candlestick 5, following four candles of the cube (Sell zone).Target profit can be put at the distance that is not longer than the trend, prevailing in the market before the pattern emerged (Profit zone). A stop loss in this case may be put at the distance, equal to the length of any cube’s candlestick, in the opposite direction of your entry (Stop zone).

                        What should be added? There is a number of rules that will help you trade the pattern more efficiently and avoid common mistakes:

                        1. If the candlesticks are long and don’t construct a cube together, it is rather a rectangle, than a cube, and you shouldn’t trade according to the pattern.
                        2. The tails of the candlesticks in the pattern don’t influence the pattern’s efficiency.
                        3. The best timeframe to trade the pattern is H4.

                        Tweezers pattern

                        The pattern is a candlestick formation that consists of two or more candlesticks, which have long equal tails (wicks).

                        The Tweezers formation is commonly thought to be a reversal pattern that most often appears when the trend ends.

                        A Tweezers pattern usually consists of two or more candles, whose tails are at the same level. In addition, a tail must be as long as at least a half of the candle’s body. Tweezers, made of two candles, are the most often. The formation is a common reversal pattern and emerges quite often in the market; therefore it strongly depends on the timeframe where it is identified.

                        You enter a sell trade when the last candlestick of the pattern (it is usually the second one) is completed, and a new candlestick starts constructing (Sell zone). Target profit is placed at the distance, not longer than one of the tails (wicks) of the candles, comprising the pattern (Sell zone). A reasonable stop loss may be put a few pips above the local highs, marked by the candles, constructing the pattern (Stop zone).

                        What should be added? There is a number of rules that will help you trade the pattern more efficiently and avoid common mistakes:

                        1. In the common form, the pattern consists of two candles, but you can come across Tweezers, made up of three or more candles. In this case, a stop loss should be set at an ample distance, much higher than the tails.
                        2. If the tails of the adjacent candles don’t end at the same levels, but with a slight difference, you’d better not enter a trade, based on the pattern.
                        3. Target profit for this pattern is sometimes placed at the distance, equal to or shorter than the longest candle in the pattern.

                        Gap pattern (Gapping play)

                        This pattern is not a real pattern; it is rather a strategy, based on exploiting the price gap.

                        The strategy is based on the idea that there are two types of price gaps in the modern market. The first one usually happens when there is a break in trading on an exchange; the second one results from fundamental factors, affecting the market. This methodology suggests exploiting the second type of gaps, that is, the gaps, emerging during trading sessions. Statistically, it is thought that most of the instruments that gap at the opening often move back towards the previous levels before trading resumes in the usual mode. In other words, the price gap is seen not as the emerging of the new trend, but rather as a short-term response of the speculators to a certain event that is likely to be instantly played by the market.

                        Profitable forex strategy – Support & Resistance + Chart patterns

                        You open a buy position after the first candlestick, following the price gap, opens (Buy zone). Target profit is set at the distance that’s equal to or shorter than the gap itself; in other words you take the profit when the price rolls back to the previous close, preceding the gap (Profit zone). A stop loss can be put at the distance, equal to or longer than the gap in the direction, opposite to your entry (Stop zone).

                        What should be added? There is a number of rules that will help you trade the pattern more efficiently and avoid common mistakes:

                        1. It is quite easy to distinguish between the needed type of gap and the one, resulted from a break in the exchange work. The second kind of gaps happens at a particular time, determined by the exchange working hours; gaps, occurring at a different time, are simply ignored.
                        2. The needed gap most often happens in the intraday timeframes; that is, in the intervals, starting from H1 and shorter.
                        3. It makes no sense to set a stop loss less than the target profit; you’d better put it at an ample distance.

                        Mount pattern

                        The formation is a rather rare proprietary pattern, but it often works out successfully. The pattern looks like Three Crows pattern, I’ve already described, but inverted.

                        The Mount pattern is commonly thought to be a reversal patter, unlike the Three Crows that is a continuation one.

                        The Mount pattern usually consists of one long trending candlestick, followed by three little candles of the same color as the main candlestick; that is the signal the continuation of the trend, indicated by the big candle. The little candles usually have the bodies of equal sizes. The candles must follow each other, sloped in the direction of the main trend. After the series of small candles is completed, there is a sharp price jump via one or two candles in the direction, opposite to the first candlestick in the pattern.

                        You enter a sell trade when there is emerging the first candlestick, following the three little ones (Sell zone). Target profit is placed at the distance that is not longer than the total length of the three little candles and one big candlestick of the prevailing trend (Profit zone). A reasonable stop loss here is set a few pips above the local high of the longest candlestick in the pattern (Stop zone).

                        What can I add? There are a few rules, following which you will trade the pattern more efficiently and avoid common mistakes:

                        1. As a rule, the final entry candlestick must be much longer than the three preceding candles and engulf them.
                        2. The pattern most often occurs in the H4 timeframe.
                        3. Target profit is sometimes set at the level of the trend beginning just ahead the pattern itself.

                        Symmetrical Channel pattern

                        The formation is a price pattern that is being constructed for a long time.

                        The pattern represents two trends that are basically corrective to each other. The trends are usually of equal length and time of developing. The trends are most often displayed like two clear price channels. Trading the pattern is based on the idea that the trend, prevailing before the channels started developing, will be resumed by the price once the channels are completed.

                        In the classical analysis, the formation is a reversal pattern; but, because it is often very big, it is rather an independent trend than a part of some other one.

                        You open a buy position when the price breaks through the resistance line of the second channel and reaches the local high, preceding the breakout (Buy zone). Target profit may be taken when the price covers the distance equal to or shorter than the trend, prevailing before the first channel started emerging (Profit zone). A stop loss is reasonable to set at the local low inside the second channel, which was marked before the channel’s resistance had been broken out (Stop zone).

                        What should be added? There is a number of rules that will help you trade the pattern more efficiently and avoid common mistakes:

                        1. As the pattern represents an independent trend, you’d better look for it in the timeframes, not shorter than D1.
                        2. The pattern is often identified long before the second channel is completed, so you can trade inside the channel.
                        3. So far, there have been recorded no cases when the pattern hasn’t worked out in the expected way; so there is no need to set stop losses, and so it makes the order less likely to be triggered by the market noise.

                        Three Stair Steps pattern

                        The formation is a classical reversal pattern.

                        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. In fact, the stairs in the pattern describe the local corrective price rollbacks, after the movements in the main trend; and the third stair is already the start of the global corrective movement, which determines the pattern’s realization.

                        The pattern is traded according to one of the basic concepts of the trend reversal. If the trend is formed by two stairs, as it is displayed in the picture below, the pattern is thought to be complete. In this case, you need to expect the first stage of the trend reversal that starts when the global trendline is broken through (the support line). The movement from the ongoing trend’s high down to the support line breakout is the third stair of the pattern.

                        What should be added? There is a number of rules that will help you trade the pattern more efficiently and avoid common mistakes:

                        1. The pattern is basically a part of the cycle in the wave theory; therefore the target profit should be calculated according to the basic method of the wave theory – Fibonacci levels.
                        2. In some cases, when the pattern is complete in the long timeframes, it is reasonable to stay on the safe side and enter a trade after the price reaches the local high/low, following the breakout.
                        3. The stairs of the pattern are often the local Flags; so you can trade them within the global Three Stair Steps pattern.

                        Flat Breakout pattern

                        The formation is rather a way to trade the price channel than an independent pattern of technical analysis. It is classified as a pattern because it steadily works out and is quite efficient.

                        The pattern looks like a common sideways channel that is often sloped. The channel is formed according to the price moving up and down, “from border to border”. The price movements inside the channel are called the “channel’s waves”. The pattern is based on the idea that its last wave is 50% of the basic length of the channel. You draw a hypothetical line that divides the channel into two equal parts and expect the movement that will rebound from this line, rather than break it through as a common wave. After the price rebounded from this hypothetical line, you need to expect until the price breaks through one of the channel’s borders and enter a trade in the direction of the breakout at the distance of the base channel breadth.

                        You open a buy position when the price, having rebounded from the hypothetical middle line, breaks through the channel’s resistance line and reaches or exceeds the last local high of the channel (Buy zone). The target profit can be taken when the price covers the distance that is shorter than or equal to the breadth of the broken channel (Profit zone). A stop loss can be placed a few pips below the last local low inside the broken out channel, (Stop zone).

                        What should be added? There is a number of rules that will help you trade the pattern more efficiently and avoid common mistakes:

                        This pattern of channel breakout is quite simple and often occurs; but it is difficult to identify it, as it most often emerges in short timeframes.

                        If the price breaks through the channel’s middle line by its tail that reaches the opposite border of the channel, but the body of this candle doesn’t break out the center line, the movement is considered to a wave and it isn’t exploited to realize the pattern.

                        When you set stop losses, you should take market noise factor into consideration; therefore, you shouldn’t enter the trades where stop loss and take profit are less than the average market noise for the instrument traded.

                        In conclusion, I’d like to note that all price patterns of technical analysis in forex are not the rigid laws and can be interpreted in different ways. However, the longer is the timeframe, where you are looking for a pattern, the more likely is the pattern to work out.

                        Nowadays, there are over a hundred of patterns, officially described and recorded in the register of technical analysis; and the new ones appear every day. If you managed to discover and define your own pattern in the chart, don’t abandon it just because it hasn’t been described before. You may have discovered a new pattern that will yield you profits. And the fact that it is known only to you, is, in fact, an advantage; for market makers won’t use it to get careless traders into a trap. To sum it up, don’t be afraid to enrich your trading tools with something new; for the best market analyst is you, yourself.

                        Have you discovered a new pattern, or just liked the article? Do share your observations or just write your questions or comments in the section below. I’m really eager to answer and explain.

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                        FAQs about Forex chart patterns

                        Almost every book on Forex will describe Forex chart patterns, but few are those who can interpret them correctly. The most important thing to understand is that all patterns are subdivided into candlestick patterns and chart patterns. When we deal with a candlestick pattern, we read it based on the candles (bars) that form it. We examine the chart in close-up. When we deal with a chart pattern, we need to look at it «from a distance» or switch to a linear chart. Thus, you’ll see the whole pattern and will be able to identify it.

                        There exist over 150 candlestick (bar) patterns and 80 chart patterns approximately. Most of those patterns aren’t efficient. A pattern is a mere regularity that occurs from time to time. Every new pattern is the fruit of its author’s imagination. Still, there are patterns discovered at the very beginning of the technical analysis era. They are the most efficient ones as traders have already tested them a million times. There aren’t many, just twenty of them. Most of them have been described in detail in this article.

                        There are three basic types of patterns:

                        1. Trend continuation patterns. After such a pattern forms, the price continues moving in the direction of the previous trend.

                        2. Trend reversal patterns. After such a pattern forms, the price moves in the opposite direction of the previous trend.

                        3. Bilateral patterns. After such a pattern forms, the price can continue moving in either direction. A good example of a bilateral pattern is a wedge, or a broadening formation.

                        There is one significant distinction between candlestick patterns and chart patterns. Candlestick patterns become more tradable on bigger time frames while their efficiency drops on small time frames. To read a candlestick pattern correctly, you need to look at it in close-up. You’ll be thus able to see all the elements better. Then, you need to see if there was a trend before the pattern formed. All candlestick patterns are tradable only when they appear at the beginning or the end of a trend.

                        Understanding Chart Patterns for Online Trading

                        Any pattern is an independent trading system. Like any other integral system, it doesn’t tolerate modifications and assumptions. If you’ve found and assessed a pattern and you are ready to trade it, forget about the rest. Forget about any news, events, trends, and the like. Until you close the trade indicated by that pattern, don’t look for other trading opportunities.

                        A falling wedge is a good example of a bilateral pattern. 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.

                        Candlesticks became a convenient visual tool after computer charts appeared. As the first charts were daily ones, candlestick patterns, used more often, were daily too. The most popular and efficient stock chart patterns are Stars. That is a category of patterns that predict a market reversal. They most often consist of two daily candles.

                        A reversal pattern is a pattern followed by a trend shift. As traders’ most popular task is to identify the point of a trend shift, reversal patterns are more numerous than any others. Head and Shoulders is a typical example of a reversal chart pattern. The most popular reversal candlestick pattern is Engulfing.

                        The first and the most efficient patterns appeared exactly in the stock market on the only then existing time frame – the daily chart. Even now, when intraday trading is growing more popular, it’s on bigger time frames that patterns prove to be the most efficient. When it comes to trading rules, every pattern has its own ones. Applying common rules to a specific pattern would be a mistake.

                        The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

                        Chart Patterns & Trend Action for Forex, CFD and Stock Trading

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