Top Trading Chart Patterns
Predicting future currency pair prices help in confirming market continuation and reversal signals. Trading chart patterns assist in identifying these potential price movements by using historical price actions of the particular currency pair. In our article, we will discuss the top trading patterns and how to read them.
What are trading chart patterns?
A trading chart pattern is a shape that is formed by connecting several currency pair prices over a period of time. These patterns help traders identify where the market is headed and what possible price turns the market can make based on historical observations. Forex price patterns help traders in making market order decisions accordingly.
Types of chart patterns
1. Continuation chart patterns
Continuation chart patterns signal that the forex currency pair prices are going to continue in the same direction as before. Such patterns occur in the middle of the trend and resume after the pattern is completed. Traders receive buy signals during a continued uptrend and sell signals during a continued downtrend.
2. Reversal chart patterns
Reversal chart patterns signal that the forex currency pair prices are going to reverse in the opposite direction after a particular trend has occurred. Such patterns mostly occur after the prior trend has ended, as they form a completely new trend in the market, sending traders a signal to long or short an order accordingly.
- A prior uptrend suggests that the market is going to reverse and fall, and sends traders a signal to exit the trade.
- A prior downtrend suggests that the market is going to reverse and rise, and sends traders a signal to enter the trade.
3. Bilateral chart patterns
Bilateral chart patterns are a hybrid of the continuation and reversal chart patterns as they signal that the currency pair prices either continue with the prior trend or reverse in the opposite direction and move against the prior trend. One can trade with a bilateral pattern by opening two opposite positions with an assumption that the trade can move in either an upwards or downwards direction.
How to read chart patterns
A chart pattern in the financial market can be read by first understanding the important elements that form a price chart.
1. Price and volume of the asset
You cannot identify the actual buying or selling pressure of an asset by only analysing its price or volume. It is essential to look at the price and volume of the asset together to understand the actual direction in which it is headed. When one compares the asset price change with the volume traded, they receive confirmed market signals that help in placing successful trade orders.
- If a currency pair's price drops with a greater fall in its volume, it signals that most traders are not selling the currency pair, signalling you to keep holding onto the currency pair.
- If a currency pair's price increases with a more significant rise in its volume, it signals that buying pressures are high and it is the right time to enter the market.
2. Moving Average line
Moving Averages determine the average price change in the currency pair over a period of time and compare it with the currency trading price to provide traders with successful trading signals. A Moving Average line depicts several average prices of the currency pair over several periods to smooth out minor price fluctuations. They track the currency pair's price movement and help traders identify where the market is headed.
- When the price of the currency pair falls sharply below the moving average lines, it signals a potential downtrend where traders can exit the market.
- When the price of the currency pairs goes beyond the moving average lines, it signals a potential uptrend where traders can enter the market.
3. Relative Strength Index line
The Relative Strength Index (RSI) is used to measure the changing currency pair prices' speed that helps identify overbought and oversold market conditions. The RSI line helps traders to identify if the currency pair is performing well or depreciating in the market.
- When the RSI line is following an uptrend, it signals that the currency pair is performing well in the market and that traders can open buy positions for the same.
- When the RSI line is following a downtrend, it signals that the currency pair is not performing well in the market and that traders can open sell positions for the same.
Most important trading chart patterns
Triangle chart patterns help in identifying buying and selling pressures in the market. They are drawn by connecting the low or high price points along with a resistance or support level trendline. Triangles are continuation patterns and signal traders to place buy orders during an uptrend and sell orders during a downtrend. There are three types of triangles patterns –
- Ascending triangles are bullish chart patterns that are formed in an uptrend by connecting the rising low currency pair prices (lower trendline) and high currency pair prices (upper trendline). Ascending triangles signal that the uptrend is going to continue, and hence, traders should enter the trade.
- Descending triangles are bearish chart patterns that are formed in a downtrend by connecting the falling high currency pair prices (upper trendline) and low currency pair prices (lower trendline). Descending triangles signal that the downtrend will continue, so traders should exit the trade.
- Symmetrical triangles are formed in a market that does not follow any particular direction. They are formed by connecting the high and low currency pair prices that indicate upper and lower trendlines, respectively. You can make an order decision as soon as the currency pair price breaks in the current trend's direction. This means if the price breaks above the current uptrend, it sends you a buy signal and if it breaks below the current downtrend, it sends you a sell signal.
A flag trading pattern is one of the forex charts that is formed in both bullish and bearish markets after the currency pair price breakouts in the opposite direction of the current trend. The market continues in the direction in which the currency pair price breaks out temporarily. The sharp incline or decline in the price makes the flagpole, and the temporary price reversal makes the flag's body in a flag pattern. Thereafter, the market continues in the initial direction, making it a continuous pattern.
- A bullish flag is formed during an uptrend after a sharp price incline, followed by a temporary price decline, signalling traders an upward market continuation as currency pair prices start rising again after the temporary fall.
- A bearish flag is formed during a downtrend after a sharp decline, followed by a temporary price incline, signalling traders a downward market continuation as currency pair prices start falling again after the temporary increase.
Wedges are forex price patterns indicating reversal signals that occur either during a downtrend or uptrend. It consists of converging trend lines formed by connecting the currency pair's high price and low price level. As the price breaks out in the current trend, it starts moving in the opposite direction, providing traders with suitable market signals.
- A rising wedge occurs during an uptrend by connecting higher highs and higher lows to form the upper and lower trendlines, respectively. As the currency pair price moves out of either of the two trendlines, a breakout in the downward direction occurs, signalling a downtrend reversal where traders can exit the market.
- A falling wedge occurs during a downtrend by connecting lower highs and lower lows to form the upper and lower trendlines, respectively. As the currency pair price moves out of either of the two trendlines, a breakout in the upward direction occurs, signalling an uptrend reversal where traders can enter the market.
4. Double tops and bottom
The double tops chart is a bearish reversal pattern that is formed in an uptrend after the currency pair price reaches its highest price level twice, consecutively. The second high price is a little lower than the first high price, signalling a downtrend reversal. The reversal is confirmed once the currency pair price falls below the support price, which is equal to the low price level between the two high price levels. The double bottoms chart, on the contrary, is a bullish reversal pattern that is formed in a downtrend after the currency pair price reaches its lowest price level twice, consecutively. The second low price level is a little above the first low price level, signalling an uptrend reversal. The reversal is confirmed once the currency pair price rises above the resistance price, which is equal to the high price level between the two low price levels.
Pennants patterns are forex chart patterns that occur during a significant upward or downward movement in a currency pair's market price, indicating a continued trend. After the large upward or downward movement, the currency pair trades between a price range of its support (where falling prices stop falling and start increasing) and resistance (where rising prices stop rising and start falling) level. Thereafter, the price breaks in the direction of the initial trend and signals traders to place market orders accordingly.
- A bullish pennant occurs during an uptrend wherein, after a large price increase, the currency pairs start trading between a range before finally breaking out in the upward direction and signalling traders to place buy orders.
- A bearish pennant occurs during a downtrend wherein, after a large price decrease, the currency pair starts trading between a range before finally breaking out downward and signalling traders to place sell orders.
An engulfing chart is one of the many candlestick charts that occur in bullish or bearish markets signalling market reversals. It indicates that the currency price has either reached its maximum or minimum price value and will not trade above or below it for the time period.
- A bullish engulfing pattern occurs during a downtrend and indicates an uptrend reversal after the currency price reaches its resistance (maximum) price level in the market. It is formed by two candlesticks, starting with a small body black candlestick, indicating the current close price being more than the previous day's close price. It is followed by a large body white candlestick that indicates a higher level of closing price when compared to its opening price on the same day, confirming the uptrend reversal signal. This pattern sends traders a signal to long the trade.
- A bearish engulfing pattern occurs during an uptrend and indicates a downtrend reversal after the currency price reaches its support (minimum) price level in the market. It is formed by two candlesticks, the first of which is a white candlestick, followed by a larger black candlestick that indicates a confirmed downtrend reversal. This pattern sends traders a signal to short or sell the trade.
Which chart pattern is best for trading?
Candlestick chart patterns are considered the best for trading as they provide all information about the currency pair's price in the market. Each candlestick provides information about the currency pair's prices for that particular trading period and captures the most important price data like opening price, closing price, high price and low price. Candlestick chart patterns are based on historical and current trends to indicate future market trends. Through these patterns, traders can identify if a market is going to continue or reverse and place trade orders accordingly.
Trade forex with chart patterns to generate results
Using chart patterns in the forex market helps traders determine the potential future price direction of the currency pair. It also helps them identify the overall market direction through continuous and reversal chart patterns. Start trading forex with our platform to enjoy multiple technical analysis tools, tight spreads, and fast order execution. Sign up for a live trading account or try a risk-free demo account.
Top Pivot Point Strategies
Pivot point analysis can predict not only price movements but also help time entries and exits correctly to develop a risk management strategy.
How to Use The Bill Williams Indicator
Bill Williams Indicator is helpful in analysing trending markets, reversals and momentum.
How to Use Relative Vigor Index in Forex
The Relative Vigor Index (RVI) is a technical analysis indicator that helps measure a trend’s strength in forex trading.
Technical Trading Strategies for Day Traders
Technical trading strategies for day traders include technical analysis tools to identify short-term trading opportunities in the market.
How to Use The Force Index Indicator in Forex?
The Force Index indicator combines the currency pair’s price and volume to determine the power of bulls and bears in the market.
The Ultimate Guide to Trading Trends in Forex
Trading trends in forex provides you with opportunities to identify the strong market direction and enter an order accordingly.
MT5 Indicators Every Trader Should Know
MT5 is a forex and stock trading platform that enables traders to place automatic orders.
What is Volume Trading Strategy
Volume trading in forex is all about trading currency pairs with high buying or selling pressure.
Top Low Spread Scalping Strategies For Forex Traders
Scalping strategies allow traders to leverage on the small price changes in the forex market to turn the trends in their favour.
What is Forex Currency Swap?
Forex currency swap helps reduce foreign borrowing costs and mitigate exchange rate risks.
What is Forex Spot Trading
With forex spot trading, one can make significant short-term profits by trading at prevailing prices.
How to Short Sell a Currency
Short selling enables traders to place lucrative forex orders even in a falling market.
How to Use The Chaikin Money Flow Indicator
The Chaikin Money Flow indicator provides future market direction by analysing the strength of the market trend and underlying buying or selling pressures.
What is Momentum Trading? Top Momentum Trading Strategies
Momentum trading leverages market volatility to the trader’s advantage by identifying the strength of the market’s current trend.
How to Trade With VWAP Indicator in Forex
The Volume Weighted Average Price (VWAP) helps eliminate any unwanted price fluctuations during the trading period.
5 Top ADX Trading Strategies
The Average Directional Movement Index (ADX) strategy measures the forex market’s overall strength.
How to Identify a Trend in the Forex Market
Identifying market trends in forex is also helpful in understanding if your trading strategy is going as per plan and where you can improve.
Forex Trading Robots: How Do They Work?
Forex trading robots make multitasking possible by processing multiple conditions like order entries/exits and entering stop loss orders automatically.
What Are Momentum Indicators in Forex
Momentum indicators measure how strong the price change is in the currency pairs.
How to Use Gator Oscillator For Forex Trading
Gator Oscillator helps in identifying a trending or consolidating market.
What is The Exponential Moving Average
Exponential Moving Average (EMA) helps in understanding the market’s trend direction.
Top Forex Volatility Indicators
Forex volatility defines the risk an investor takes in the market. The higher the volatility, the greater the risk and the higher the potential returns.
How to Use Forex Market Sentiment Indicators
Sentiment indicators in the forex market indicate extremely volatile market conditions.
How to Use The Hanging Man Candlestick Pattern For Forex Trading
The Hanging Man Candlestick pattern provides downtrend reversal signals, which helps traders place sell or short orders to profit off falling markets.
How to Add MT4 Indicators
MetaTrader 4 comes with several built-in and custom indicators to boost your trading strategy.
Top MACD Trading Strategies
Moving Average Convergence Divergence (MACD) strategies enable traders to measure market momentum and trend strength.
Top Indicators for MT4
MT4 indicators help analyse forecasted currency pair prices and place exit or entry orders accordingly.
How to Trade Bullish and Bearish Divergences
Bullish and bearish divergences enable you to trade market reversals.
Top Support and Resistance Indicators
Support and Resistance indicators identify price points on the forex chart where the markets can potentially reverse.
What is The Donchian Channel Indicator
The Donchian Channel indicator can determine volatility and potential breakout signals in the market.
How to Install MT4: A Beginner's Guide
MetaTrader 4 (MT4) is a powerful forex trading platform with a user-friendly interface and advanced analytical tools for automating trading.
What are Trendlines in Forex Trading?
Trendlines in forex provide clear market signals for placing long or short orders.
Market Order vs Limit Order
Market and Limit orders help execute automatic trading transactions, as per your trading preferences.
Bearish and Bullish Markets
In the trading world, it is essential to be aware of the bull and bear market trends because they define the direction of the market
How to Read Trading Charts
Trading forex live charts can help identify ongoing market trends, which can help you place successful traders.
Top Reversal Patterns For Forex Trading
Reversal patterns provide traders with price levels at which the market can potentially reverse.
How to Find The Best Forex Trading Signals
Forex trading signals are important market triggers that provide traders with ideal entry and exit price levels in the market.
Top Forex Trading Strategies That Actually Work
Trading in forex, you will come across several forex trading strategies -- some more complex than the others. It is immensely crucial to start forex trading with the right strategy.
Scalping vs Swing Trading: What’s the Difference?
Every forex trader has a different purpose, objective, time constraints, and investment capital. The right forex trading style for you depends on your main trading goals and requirements.
What are Volume Indicators
Volume in the forex market can be used to determine the upcoming market trends. Volume indicators are forex trading indicators that can identify if the volume for a particular currency pair is high or low, providing traders with market continuation and reversal signals
Shooting Star Candlestick Pattern
The Shooting Star Candlestick Pattern can identify bearish market reversals and provide traders with ideal price levels to short or exit the trade.
What is Slippage in Forex Trading?
Slippages occur when a currency pair order is executed at a price different from the set market order price.
Buy limit vs Sell Stop Orders in Forex
Placing buy limit and sell stop orders help employ a price control strategy on forex trades. Let's take a look at buy limit vs sell stop orders.
The Best Time Frame For Forex Trading
A time frame is a designated time period where forex trading takes place. Time frames can be measured in minutes, hours, days, weeks, months and years.
Top Technical Indicators in Forex
Technical indicators are a market direction signal based on the current and historical price movement of a currency pair that provides traders with future price expectations
Top Continuation Patterns
A continuation pattern indicates if the current market trend is going to continue in the same direction or not
How to Ace Divergence Trading in Forex
The forex market is all about timing your trades well. Divergences give traders a market reversal signal right before a price trend changes
How To Trade Forex With Japanese Candlesticks?
A Japanese Candlestick is a technical analysis tool used to analyze the currency pair’s price movement in the forex market.
Top Momentum Indicators To Analyse Trend Strength
Momentum indicators are technical analysis tools that determine in which direction the market is headed and how strong or weak the ongoing trend is
Types of Moving Averages Every Trader Should Know
Moving Average is a technical indicator which averages out currency pair prices in a specific time period in order to accurately identify market trend reversals and support-resistance levels.
8 Popular Intraday Trading Indicators
Intraday Trading Indicators help place successful short-term trade orders in the forex market.
What is the Tweezer Candlestick Formation?
The Tweezer Candlestick formation is a reversal pattern that indicates either a market top (strong uptrend) or market bottom (strong downtrend)
Average Directional Index
The ADX is a strength indicator that measures how strong or weak a particular market trend is.
How to Use Elliott Wave Theory For Forex Trading?
The Elliott Wave Theory analyses a currency pair’s long-term price movement in the forex market.
What are Pivot Points in Forex
Pivot Points help traders identify market reversals. With Pivot Points, traders can predict the support and resistance levels of a currency pair to make entry and exit decisions.
Keltner Channel is a technical indicator that provides traders with strong continuation signals and trend directions by assessing a currency pair's price volatility.
Leading vs Lagging Indicators
Leading and lagging indicators help traders measure the future and current performance of a currency pair, respectively. These indicators can help make successful trading decisions.
What is Relative Strength Index?
Relative Strength Index (RSI) helps traders understand how frequently the currency pair prices change in the forex market to predict the future market prices.
Wide Ranging Bars
Wide Ranging Bars are strong momentum indicators that help traders understand the market direction and identify ideal entry and exit points.
Harmonic Price Patterns in Forex
Harmonic Price Patterns allow traders to predict future price movements and trend reversals to make ideal entry and exit decisions in the Forex market.
Double tops and bottoms
Double Tops and Double Bottoms chart patterns help traders identify solid bullish and bearish trend reversals in the Forex market, and in turn, find the ideal market entry and exit points.
Falling and Rising Wedges
When you are trading currency pairs in the Forex market, it is essential to know when the market can possibly reverse. The Falling and Rising Wedges pattern help identify market reversal signals and accurate market entry and exit points.
Forex Scalping Strategy
Scalping refers to trading currency pairs in the Forex market based on real-time analysis. With Forex scalping, you hold a position for a very short period and close once you see a profit opportunity.
Symmetrical Triangle Pattern
Symmetrical Triangle Patterns help identify market breakdowns (price fall) and breakouts (price rise), and in turn, help you plot the entry and exit prices for profitable Forex trading.
Introduction to Technical Analysis in Forex
Technical analysis in Forex trading provides you with significant market trends, reversals and fluctuations and in turn helps you long and short term trades.
Trading breakouts and fakeouts
Breakout and fakeout trading enable traders to take positions in rising and falling markets.
Fundamental Analysis in Forex Trading Explained
Fundamental analysis in Forex trading is one of the several methods you can use to determine the relative security and intrinsic value of a nation’s currency.
8 Top Commodity Trading Strategies
Commodity trading is one of the best ways to diversify your portfolio and protect yourself from losses incurred due to inflation.
What is a Doji Candlestick?
The Doji Candlestick is a pattern used in technical analyses of trend reversals in a market.
Moving Average: The Complete Guide
Moving Average is used in Forex trading to compare the current currency pair pricing and where it stands with respect to the current average pair prices.
What is Volatility Index (VIX) and How Do You Trade It?
One of the most popular trading markets in the world, the foreign exchange market allows investors to make quick money by trading currencies.
Forex Profit Calculator
On average, a Forex trader can make anywhere between 5 to 15% of the initial amount they invested in the market.
Understanding markets gaps and slippage
The foreign exchange rate reveals valuable details about particular currencies a trader wishes to trade-in.
What is a pip in forex?
When trading in the Forex market, you need to have a close eye on two currencies at the same time. PIP helps you denote the change in a currency pair’s value.
Introduction to Order Types in Forex
Forex has different order types which allow traders to automate entering and exiting positions.
Using orders to manage risk
Forex risk management includes a robust set of rules and regulations that protect you against Forex's negative impacts.
Managing risk in 7 steps
Risk management in Forex is essential to individuals, groups of individuals, and organizations since it enables them to implement measures that help mitigate Forex risk and its negative impact.
Bullish and Bearish Flag Patterns
Blueberry Markets discusses why it is essential to study the bullish and bearish flag patterns in Forex. Learn more.
Master risk management and
become an expert forex trader.
Move on to the advanced course.
Guide to Forex
Enter your details to get a copy of our
Start a risk free
News & Analysis
Catch up on what you might
have missed in the market.