Top 10 Forex Chart Patterns Every Trader Should Know

Head And Shoulders

Source: https://www.forex.academy/chart-patterns-the-head-and-shoulders-pattern/

The infamous head and shoulders chart pattern is one of the most famous indicators of an upcoming trend reversal.

This particular pattern is so famous due to its shape, making it somewhat easier to spot on forex charts. It appears to have a baseline with three peaks, which are almost always easy to spot amid all the chart's noise and disturbances.

The single peak in the center is called the head, and it is always taller than its neighboring peaks. The peaks on the left and the right are called the left peak and right peak, respectively.

This pattern is one of the most reliable chart formations that you can ever hope to come across while trading on the foreign exchange. It can accurately predict when an uptrend is about to meet its end.

It is also helpful in predicting a bullish-to-bearish trend reversal for most traders who use it.

The Double Top Pattern 

Source: https://www.dailyfx.com/education/technical-analysis-chart-patterns/double-top-pattern.html

The Double Bottom Pattern

Source: https://www.dailyfx.com/education/technical-analysis-chart-patterns/double-bottom-pattern.html

The double bottom is the counterpart of the double top pattern. It happens to be the opposite of it in terms of characteristics.

This pattern has two swing lows instead of the highs of the double top. In terms of graphical representation on forex charts, this pattern forms a W instead of an M.

The double bottom pattern is generally seen as the indication of bullish trend reversals, which allows the traders to take advantage of the situation by indulging in a bullish rally.

One thing to take care of while dealing with both the double top and the double bottom pattern is to be entirely sure of their interpretation.

If identified on the right on time and interpreted correctly, both of these patterns can be an invaluable asset to you. However, if misinterpreted, then these or any forex chart patterns can make irreparable your trades.

Wedge Patterns

Source: https://www.chartpatterns.com/wedges.html

Cup And Handle Pattern

Just as the name suggests, the cup and handle pattern represents an actual cup and a handle on the forex charts. This pattern is generally associated with bullish signals. It can stay up anywhere from seven to sixty weeks, depending on the market conditions.

Traders using this technical chart pattern tend to gravitate towards a particular strategy where a stop order is placed just above the upper trend line of the handle so that the stop order may trigger on its own in case the price is observed to be breaking the pattern's resistance.

Traders should note that this pattern takes a while to solidify its legitimacy. Sometimes, it might even take years for this pattern to form fully.

The Rounding Top Pattern

This pattern looks like an inverted U on forex charts, and traders often like to refer to this pattern as the inverse saucer while trading with it.

The rounding top is also one of the very few forex chart patterns that take much longer to form correctly than wedges or the double top/bottom patterns.

However, it doesn't take years to develop like the cup and handle pattern.

The rounding top pattern displays bearish signals for a currency price's upcoming trends. The volume levels may even take flight as the price increases as the trend takes full effect.

The Rounding Bottom

Rectangles

Now the rectangle is not a reversal pattern like the previous entries on this list. Instead, it is a continuation pattern, which means that it is generally used by traders to confirm whether or not a particular trend should go on.

You can either find a bullish rectangle or a bearish rectangle depending on the circumstances that create them. For example, you will find a bullish rectangle during an upward trend and a bearish rectangle during a downward trend.

It essentially depicts a trading area where the bulls and the bears compete with each other where they bulls push the price up when the price nears support. The bears move the price down when the price approaches resistance.

Flags

These are almost similar to wedges in characteristics. The only significant difference between the two of them is the trendline. Trendlines in flags are said to be parallel and not converging like the wedges.

Flags can be both bullish or bearish, depending on the circumstances. Bullish flags can be found during an upward market trend with the trend lines running parallelly above and below the price action. To get the confirmation for the continuation of the trend, look for a breakout just above the flag.

Similarly, you look for bearish flags during downtrends. They will be easy to spot since they form an upward slope.

Triangles

Last but not least, triangles are also continuation signals like rectangle patterns and flags. Triangle patterns are three types: ascending, descending, and the symmetrical triangle, which is the most common of the three.

Ascending and descending patterns are similar to each other. The only difference is that the ascending triangle has a flat upper trendline. In contrast, the descending triangle has a flat lower trendline.

The symmetrical triangle has the unique ability to form during both uptrends and downtrends of the market, and it appears with converging trendlines.

Confirming a continuation is also very simple with the symmetrical triangle as breakout points of the lower trendline during a downward trend is enough indication for the continuation of that downward trend.

Similarly, a breakout of the upper trendline during an upward trend is enough indication for the continuation of that upward trend.