Top Ten Popular Chart Patterns in Forex Trading

Chart patterns are an integral aspect of technical analysis, they can help forex traders recognize trends, movements and the patterns developed from the price fluctuations of currency pairs. By learning about these chart patterns, you will be able to learn how to profit from these technical price patterns.

There are a number of chart patterns and we have previously showed some basic powerful candlestick patterns. In this article, we will give you a list of another top Ten common chart patterns that you should know when trading in the forex market.

1. Head and shoulders

Head and shoulders is considered to be one of the most reliable reversal chart patterns. True to its name, this pattern is comprised of a large peak in the middle and smaller peaks on the either sides, which looks like a head with two shoulders. The head and shoulders pattern forecasts a downward movement of the price.

As the chart above, 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.

2. Reverse Head and shoulders

Conversely, the reverse head and shoulders pattern appears after a bearish trend, forecasting an upward movement. While the HS signals the end of an uptrend, a HS bottom indicates that a downtrend is over and prices could be about to rise.

The pattern is identified when the price action meets the following characteristics: the price falls to a trough and then rises; the price falls below the former trough and then rises again; finally, the price falls again but not as far as the second trough.

3. Double Top

A double top is another bearish reversal pattern that traders use a lot. It has two peaks, indicating waning interest among buyers and the possibility of a downtrend. The “tops” are peaks that are formed when the price hits a certain level that can’t be broken. After hitting this level, the price will bounce off it slightly, but then return back to test the level again.

In the chart above you can see that a top was formed after a strong move up and then retrace back to a level of support. It will then form a peak once more before reversing back from the prevailing trend.

4. Double Bottom

On the contrary, the double bottom pattern is bullish reversal pattern that is totally opposite of double top. This pattern has two low price valleys which predict an upward trend as buyer interest is piqued.

You can see from the chart above that after the previous downtrend, the price formed two valleys because it wasn’t able to go below a certain level. Then the price broke the neckline and made a nice move up.

5. Rising Wedge

Wedges form as the price movements tighten between two sloping trend lines. There are two types of wedge: rising and falling. Rising wedge occurs when the price is rising over a time. Rising wedges denote a reversal of a bullish trend, to form a bearish market scenario.

6. Falling Wedge

Conversely, falling wedges have a bullish character. A falling wedge occurs between two downwardly sloping levels. A falling wedge is usually indicative that the price will rise and break through the level of resistance, as shown in the example below.

7. Ascending Triangle

The ascending triangle is a bullish continuation pattern which signifies the continuation of an uptrend. Sometimes it can be also created at the end of a downward trend as a reversal pattern, but it more commonly considered as a continuation chart pattern. An ascending triangle forms when the price follows a rising trend line, and then consolidates.

8. Descending Triangle

Just like the ascending triangle, the descending triangle is also a continuation chart pattern. The only difference is that it is a bearish continuation pattern and it is created during the downtrend.

Sometimes it can be also created at the end of an uptrend as a reversal pattern, but it more commonly considered as a continuation chart pattern.

9. Symmetrical Triangle

Symmetrical triangle patterns are made up of an upper trendline connecting a series of declining peaks and the lower trendline connecting a series of rising troughs. This patterns usually signals a period of consolidation within a trend, after which the trend might resume. In addition, volatility usually declines as the pattern advances. Symmetrical triangles can signal bearish or bullish markets, while a breakout in either direction indicates a new trend.

10. 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.