Introduction
Forex trading is not just about numbers — it’s also about identifying patterns in price movements. Chart patterns are visual representations of market psychology, showing how buyers and sellers interact. By recognizing these patterns, traders can anticipate possible market directions and make smarter trading decisions.
In this guide, we’ll explore four main categories of forex chart patterns:
- Reversal Patterns
- Continuation Patterns
- Candlestick Patterns
- Unique/Advanced Patterns
Reversal Chart Patterns
Reversal patterns signal that the current trend may be ending and a new trend is about to begin.
1. Head and Shoulders
- Appears after an uptrend.
- Shows three peaks: the middle one (head) is the highest, and the two side peaks (shoulders) are lower.
- Signals that the bullish trend may reverse into a bearish one.
2. Double Top and Double Bottom
- Double Top: Two peaks at a similar level, suggesting resistance and a bearish reversal.
- Double Bottom: Two lows at a similar level, suggesting support and a bullish reversal.
3. Triple Top and Triple Bottom
- Similar to double formations but with three peaks or troughs.
- Stronger confirmation of reversal.
Continuation Chart Patterns
Continuation patterns suggest that the existing trend will likely continue after a short pause.
1. Flags and Pennants
- Short-term patterns that form after a sharp price movement.
- Flags look like small rectangles; Pennants look like small triangles.
- Both indicate a continuation in the trend direction.
2. Triangles (Ascending, Descending, Symmetrical)
- Ascending Triangle: Bullish signal, formed by rising lows and a flat resistance line.
- Descending Triangle: Bearish signal, formed by falling highs and a flat support line.
- Symmetrical Triangle: Consolidation, can break either way depending on market sentiment.
3. Rectangles
- Price moves within a horizontal range of support and resistance.
- Breakout direction signals the continuation of the trend.
Candlestick Chart Patterns
Candlestick patterns are shorter-term signals that appear in one or more candlesticks.
1. Doji
- Candle with little to no body.
- Indicates indecision in the market and possible reversal.
2. Engulfing Pattern
- Bullish Engulfing: A large bullish candle fully covers the previous bearish candle.
- Bearish Engulfing: A large bearish candle fully covers the previous bullish candle.
3. Hammer and Inverted Hammer
- Hammer: Appears after a downtrend, long lower wick suggests buying pressure.
- Inverted Hammer: Signals possible reversal at the bottom.
4. Shooting Star
- Appears after an uptrend, with a small body and long upper wick.
- Indicates selling pressure and possible bearish reversal.
Unique Forex Chart Patterns
Some patterns are less common but can still provide powerful trading signals.
1. Cup and Handle
- Looks like a tea cup: a rounded bottom (cup) followed by a small pullback (handle).
- Usually signals a bullish continuation.
2. Rounding Bottom
- Long-term reversal pattern forming a smooth “U” shape.
- Indicates a slow shift from bearish to bullish sentiment.
3. Wedges (Rising and Falling)
- Rising Wedge: Usually bearish, signals trend reversal down.
- Falling Wedge: Usually bullish, signals trend reversal up.
Conclusion
Understanding forex chart patterns is crucial for both beginners and experienced traders. By recognizing reversal, continuation, candlestick, and unique patterns, you can anticipate market behavior more accurately.
👉 Remember: no pattern guarantees 100% success. Always combine chart patterns with other tools like volume analysis, support & resistance levels, and technical indicators before entering trades.