Skip to content

TOP FOREX BROKERS REVIEW

THE INTERNET'S MOST COMPREHENSIVE LIST OF ONLINE FOREX BROKERS AND FOREX REVIEWS. 

Forex Chart Patterns, Double Bottoms and Double Tops, Head and Shoulders Pattern, Wedge Chart Patterns, Rectangle Chart Patterns

Forex Chart Patterns, Double Bottoms and Double Tops, Head and Shoulders Pattern, Wedge Chart Patterns, Rectangle Chart Patterns

When you prepare to leave for the battlefield of the forex market, you need to have a number of tools to come out successfully. Another such tool is the chart patterns which can be studied to make a profit. Chart patterns will help you find potential money-making situations before the occur giving you enough time to get on the trade and earn bucket loads. In this chapter, you will learn basic chart formations and patterns.

These chart formations and patterns if carefully identified can help you get on the trade before it explodes and skyrockets. The goal when studying chart patterns is to find big movements before they happen so that soon, you can swim in a pool of cash wads. These chart patterns are very helpful in determining the big breakouts. They are also useful to understand when a trend is about to reverse.

The different types of chart patterns that we will study are:

1. Bearish and Bullish Pennants
2. Bullish and Bearish Rectangles
3. Triangles (Symmetrical, Ascending, and Descending)
4. Head and Shoulders and Inverse Head and Shoulders
5. Rising and Falling Wedges
6. Double Top and Double Bottom

Learn and understand all these patterns on the chart, and your job of making profits becomes much more comfortable. These patterns and their studies can soon make you the king of forex trading and maybe even take you to the level of Warren Buffet. So read ahead to learn the chart patterns and formations and make a ton of money.

Learn to Trade Double Bottoms and Double Tops

Learn to Trade Double Bottoms and Double TopsIt is common knowledge in the forex market that when a trade hits double bottom or double top chart pattern, the trend is about to turn on its head. In this chapter, lets learn how to understand these charts. The tops that we refer to are peaks which are formed at a price which is certain not to be broken.

This a reversal pattern that shows up after an extended move up. After hitting this level, the price of the trade bounces a little and returns to the test price levels again. If the price again reaches the same level as before, this means that you have now seen a double top. The second top that we observe is generally unable to break the level of the first one. Now, you should place your order below the neckline because you can anticipate a trend reversal. The heights of the double top and that of the drop are generally the same. This can help you in setting targets for profits.

In a double bottom, you should look to go long instead of short. The double bottom can be observed when two bottoms are seen. The double bottoms appear due to inability to go below a certain level. This indicates that the pressure created by selling is now over and there is a trend reversal. Similar to the double top, the change in height is equal in the case of a double bottom and the reversal. Thus you can observe a trend reversal when a trade hits the double top or double bottom.

How to Trade the Head and Shoulders Pattern

Head and Shoulders Pattern is a kind of chart pattern; traders used for trading at FX platform. These patterns are commonly seen during an uptrend and are the reversal in nature. The formation of the head and shoulder pattern is shaped when the trading price reaches a peak value, considered as shoulders and then goes above it. This high peak is called ahead, and after this when the price goes down to a lower height, it makes a shoulder again. When two lower troughs are joined, a neckline gets formed, this line can either be up or down in slope and produces more reliable and trusted signals when in the low hill.

Targets can be calculated by measuring the head’s high point and the neckline. The FX trades focus on these targets and necklines for trading. There is one more concept known as Inverse Head and Shoulder; in this, the pattern gets drawn in the downtrend. The formation consists of a down valley called shoulders then comes a steeper valley termed as head, followed by another shoulder valley. This inverse pattern asks for an extended order to be placed above neckline. Both of the inverse and non-inverse pattern are quite similar, and the targets get calculated in the same way. The distance between the head and the neckline is the range of price, which it will move after breaking the neckline. These patterns help trader and signal the profit earning models, it is advised to trade as per your mind and if you have made a benefit then close your trading counter, however, is the price is going in your way then carry on.

How to Trade Wedge Chart Patterns

Trade Wedge Chart Patterns are part of technical analysis. Their formation directs towards the fact that a pause is going on at FX market. A scenario in which traders are thinking about where to take their trading boat next. These wedges chart patterns can serve either by being a reversal or a continuation pattern. There are two kinds of wedge shape possible at FX –

Rising Wedge –

This kind of wedge forms when the trading price getting consolidated between the rising or upward moving FX, slopping between resistance and support lines. In the rising wedge, the support slope is much sloppy than that of resistance slope. This tells that the market is making higher lows much faster than higher high’s, chances of a bearish reversal pattern are high when the rising wedge is formed after an uptrend. Rising wedge if forms in between of downtrend are called continuation.

Falling Wedge –

A falling wedge can either be a continuation, or a reversal signal is formed at the bottom of the downtrend, it indicates an uptrend is expected. If a falling wedge gets shaped in mid of an uptrend, then it means continuation. A falling wedge signifies a bullish chart pattern.

Both of these are the trading charts aspects, adding to the same a reasonable upside target would be the one at the height or peak of the wedge formed. It is advised to seek input from other tools as well as FX is a dynamic market place and nothing is fixed here.

How to Use Rectangle Chart Patterns to Trade Breakouts

How to Use Rectangle Chart Patterns to Trade BreakoutsBefore heading towards the usage of rectangle chart patterns, first, it is essential to know what rectangle is. Well, yes it is a shape, but in terms of Forex Trading, it is a pattern of the chart which forms when the trading price gets bounded by parallel resistance and support levels. This is a consolidation period between sellers and buyers when the market has not been taken over by either of them. Before reaching the saturation, the price will move several times between the resistance and support levels and then will enter a breakout. The two kinds of rectangle chart patterns are Bearish Rectangle and Bullish Rectangle.

Bearish Rectangle gets formed when the price consolidated for some time when a downtrend is going on. This scenario happens mostly when sellers take rest or a pause, before further lowering their currency pairs. After falling below the support level, the couple tends to formulate a rectangle shape. Talking about the Bullish Rectangle, it forms when there is an uptrend is going on at the FX market. When the pair price consolidated for a while, before rising further, they get shaped in a Bullish Rectangle, These rectangles are very important and holds a significant place in the trading tools of a smart trader. The rectangle chart pattern signifies the pause which stays for a while because the buyers and sellers take time for breathing before getting enrolled further in uptrend and downtrend. This pauses forms rectangles, they are the chart patterns which forms before the price pairs get forwards either up or down.

How to Trade Bearish and Bullish Pennants

Pennants are the chart patterns which are formed after Forex market gets through the strong moves. Just like rectangle patterns, pennants are the small triangle alike figures which are symmetrical in nature, gets reflected on FX charts. After a big and powerful selling or buying move, traders generally takes little rest, this pause is when the pennants are formed. There are two kinds of pennants, Bullish and Bearish which forms after a strong movement happen at FX.

Bearish Pennant is formed when market gets in down, and falls severely in vertical downtrend direction. This price drop makes traders close their trading for the day, while few others continue trading and hope for price to consolidate. Bullish Pennants reflects the rising price and FX market, just like a charging bull. It tells that price will get on the steep, uptrend after the consolidate pause. Trading criteria’s –

For Bearish Pennants – Short orders are preferable and a stop loss should be kept above the pennant. This will help a trader to move out of the trade if the drop didn’t lasted long or was faked out.

For Bullish Pennants –

Ideal way to trade bullish pennants, it is suggested to place long orders overhead the pennants and keeping the stop below the pennant, this will help a trader to stay away from fake-outs. Size of the breakout move is majorly present at the size of the mast. Pennants, despite being small entities should not be underestimated, they sign major and strong movements over FX.

How to Trade Triangle Chart Patterns

Triangles are the trading chart patterns which are quite often used by FX traders. There are three kinds of triangle chart patterns which are ascending, descending and symmetrical. Let’s discuss each one of this triangle one by one.

Symmetrical Triangle – It is a chart formation in which price high and price low slopes meet together at a point, which gives a representation of the triangle. Traders conclude from this triangle pattern that the market is neither getting bearish nor bullish as no one is pushing it. It is a tie condition, and it is unpredictable to know when the market will break out.

Ascending Triangle – This is a pattern which gets drawn when there is a high lows slope along with a resistance level. This pattern tells that buyers cannot go further a degree and there are significant price lows present at the trend. The conclusion of this pattern is a different thing as it may take any direction out of being strongly resistant or breaking up by buyers.

Descending Triangle – This triangle means that there is an array of lower highs which draws the upper line of the chart. The lower edge of this triangle represents the support level where the price cannot be a break. This triangle symbolizes that sellers are dominating against the buyers and are earning gains. It is advised to place your entry at the top of the triangle, aiming toward a target as high as the trend height as it will yield high profits to you.

Know the 3 Main Groups of Chart Patterns

Know the 3 Main Groups of Chart Patterns . Forex platform has various chart patterns which traders use for trading and earning profits. Chat patterns are broadly divided into three main groups, and it is advised to study the chart properly which one has decided to use. Let’s discuss each one of them.

Reversal Chart Patterns –These are the chart patterns which are used to determine when the ongoing trend which changes its course. If an FX trend is rising smoothly, a reversal chart patterns signal when the current trend will take a U-turn and start to fall and vice- versa. These chart patterns are used by placing the target cording to the neckline, either below it or above it. The following are the six reversal chart patterns.

• Double Bottom
• Double Top
• Falling Wedge
• Rising Wedge
• Head and Shoulders
• Inverse Head and Shoulders

Continuous Chart Pattern –

This chart patterns hints that the ongoing rising trend will keep going, or will get resumed. Unlike reversal chart patterns, it signals that the price of the running direction will keep rising. Continuous chart patterns like rectangle, pennants, and wedges are used to reveal the fact about the FX market. Wedges are the patterns which can be used for both, reversal and continuous chart patterns depending upon the running trend.

Bilateral Chart Patterns –

These are the trickier chart patterns which can signal in either of the rising or falling direction. All the triangles formation falls in this criteria, which include Symmetrical, ascending and descending triangles. These chart patterns are used for upside and downside chart formations, and thus a trader should consider both the scenarios.

Forex Chart Patterns Cheat Sheet

As we know that Forex is a giant market place, there so many chart patterns which traders use for trading and determine the running trend. It is important for a trader to understand and study the chart pattern and indicator which they are going to use in their trading. However, in the fast-paced FX world, it is common to use FX chart patterns cheat sheet to get a quick reminder and analytics to decide the action. Given below are the common chart patterns and their forms along with their significant signals and next moves.

Chart Patterns Forms Signal Types Upcoming Move

  • Double-Top Up-trend Reversal Signal Low
  • Double-Bottom Down-trend Reversal Signal High
  • Head and Shoulders Up-trend Reversal Signal Low
  • Inverse Head & Shoulders Down-trend Reversal Signal High
  • Rising-Wedge Down-trend Continuation Signal Low
  • Rising-Wedge Up-trend Reversal Signal High
  • Falling-Wedge Up-trend Continuation Signal High
  • Falling-Wedge Down-trend Reversal Signal High
  • Bearish-Rectangle Down-trend Continuation Signal Low
  • Bullish-Rectangle Up-trend Continuation Signal High
  • Bearish-Pennant Down-trend Continuation Signal Low
  • Bullish-Pennant Up-trend Continuation Signal High

The list provides a quick cheat sheet to trade faster and smarter, one thing which you might be thinking is that there is no cheat sheet for triangle patterns. The reason behind this is that the triangle patterns can take any of the shapes depending upon the market. Their signals and move are not fixed and are massively probable. It is advised to take a print or bookmark this cheat sheet and keep it in sight while trading when your entry and exit points are ready.

Leave a Comment





Top Forex Brokers Review
Top Forex Brokers Review
Scroll To Top