These few chart patterns will improve your trading!Hello everyone,
Let's look at few of my favorite chart patterns that I use from day to day in my trading and analyses. These patterns appears in almost every asset, instrument and currency pairs in the financial market and stock market.
Forex chart patterns are on-chart price action patterns that have a higher than average probability of follow-through in a particular direction.
They have 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.
Forex traders tend to identify chart patterns in order to take advantage of upcoming price swings.
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
🔹 Reversal Chart Patterns
🔹 Neutral Chart Patterns
1. Bullish Flag
In the context of technical analysis, a flag is a price pattern that, in a shorter time frame, moves counter to the prevailing price trend observed in a longer time frame on a price chart. It is named because of the way it reminds the viewer of a flag on a flagpole.
The flag pattern is used to identify the possible continuation of a previous trend from a point at which price has drifted against that same trend. Should the trend resume, the price increase could be rapid, making the timing of a trade advantageous by noticing the flag pattern. In this scenario a bullish flag can be a sign that the previous bullish move that occurred prior to this pattern is likely to continue in the same direction. Opposite can be said with the bearish flag.
2. Double bottom
The double bottom is a reversal pattern that occurs after an extended move down. The pattern signals that the market is unable to break through a key support level, and thus is likely to move higher.
This pattern consist of
🔹First bottom
🔹Second bottom
🔹Neckline
Neckline represents a resistance level that forms after the first bottom. A daily close above the neckline confirms the double bottom pattern. A total break through the neckline may confirm a violation of this pattern, long positions can opened once price has closed above the neckline at times a successful retest of price to the neckline can confirm a strong reversal.
The opposite of this pattern is the Double Top which is a sign of reversal in bullish market, signaling a strong move to the downside.
3. Triple Bottom
A triple bottom is a visual pattern that shows the buyers (bulls) taking control of the price action from the sellers (bears) and that price is about to change direction to the upside.
A triple bottom is generally seen as three roughly equal lows bouncing off support followed by the price action breaching resistance.
The formation of triple bottom is seen as an opportunity to enter a bullish position.
The triple bottom consist of:
🔹First bottom
🔹Second bottom
🔹Third bottom
🔹Neckline
The opposite of the triple bottom is a triple top which can signal a move to the downside.
4. Head and Shoulders
A head and shoulders pattern is a chart formation that appears as a baseline with three peaks: The outside two are close in height and the middle is highest.
In technical analysis, a head and shoulders pattern describes a specific chart formation that predicts a bullish-to-bearish trend reversal, while an inverse head and shoulders indicates the reverse.
The head and shoulders pattern is believed to be one of the most reliable trend reversal patterns, but does have its limitations.
5. Rectangle
A rectangle occurs when the price is moving between horizontal support and resistance levels.
The pattern indicates there is no trend, as the price moves up and down between support and resistance.
The rectangle ends when there is a breakout, and the price moves out of the rectangle.
Some traders like to trade the rectangles, buying near the bottom and selling or shorting near the top, while others prefer to wait for breakouts.
6. Symmetrical Triangle
The symmetrical triangle pattern is a continuation chart pattern like Ascending and Descending Triangle patterns.
This pattern is characterized by two converging trend lines that connect a series of troughs and peaks.
The trend lines should be converging to make an equal slope.
This pattern indicates a phase of consolidation before the prices breakout.
7. Ascending Triangle
The ascending triangle is a bullish formation that usually forms during an uptrend as a continuation pattern. There are instances when ascending triangles form as reversal patterns at the end of a downtrend, but they are typically continuation patterns. Regardless of where they form, ascending triangles are bullish patterns that indicate accumulation.
Because of its shape, the pattern can also be referred to as a right-angle triangle. Two or more equal highs form a horizontal line at the top. Two or more rising troughs form an ascending trend line that converges on the horizontal line as it rises. If both lines were extended right, the ascending trend line could act as the hypotenuse of a right triangle. If a perpendicular line were drawn extending down from the left end of the horizontal line, a right triangle would form.
8. Cup and Handle
The Cup and Handle is a bullish continuation pattern that marks a consolidation period followed by a breakout. There are two parts to the pattern: the cup and the handle. The cup forms after an advance and looks like a bowl or rounding bottom. As the cup is completed, a trading range develops on the right-hand side and the handle is formed. A subsequent breakout from the handle's trading range signals a continuation of the prior advance. The opposite of this is the Inverse Cup and Handle that appears in the bearish market and that act as a continuation pattern and sponsor move to the downside after the breakout.
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