Forex Chart Patterns, Improve Your Trading
In this lesson we will show traders various forex charts and forex chart patterns. Many examples of the most common forex chart patterns will be illustrated and discussed here.
We will focus on popular forex chart patterns that occur most frequently. This includes many consolidation and retracement patterns. When currency pairs are not moving they are consolidating, and when they consolidate they exhibit behavior patterns that occur frequently and are easily recognizable.
Currency pairs have movement cycles, then they consolidate, day after day. These cycles are repeated, and these movement and consolidations produce the chart patterns. These forex patterns can be easily seen on bare barcharts with no indicators attached, and they look the same on candestick charts. So forex candlestick patterns will look the same as barcharts. We will use clear illustrations and images for guiding traders through the various patterns. Traders will learn how to read forex trading chart patterns
Popular Forex Chart Patterns
Some conventional forex chart patterns occur frequently on the spot forex. Forex traders need to focus on recognizing flags, double tops, double bottoms, ascending and descending wedges, forex reversal patterns, triangles and oscillations. These chart patterns are easy to recognize and occur frequently on the spot forex, they can also help to confirm your trend direction or in some cases a potential reversal.
This lesson is not filled with a lot of general information about forex charts or general chart patterns from all markets. The examples and illustrations in this article are specific to the forex and the 28 pairs we follow. If you look at different time frames across a lot of pairs you will see all of them clearly over time.
As a starting point and to get any trader familiar with some generalized forex chart patterns please check out Chartpatterns.com. This website will get you started and give any forex trader a general feel about popular forex chart patterns and some generalized pictures and sketches. Reviewing Chartpatterns.com is suggested to get you oriented to general chart patterns, specific forex trading chart patterns that occur regularly are presented below in this article.
Please Note: There is a difference between a forex chart pattern and technical analysis. A chart pattern is something you can see on a bare barchart or bare candlestick chart with no indicators added. A bare bar chart is an open high low close chart, without any indicators added at all. Technical indicators mask the bare chart patterns because most forex traders attach so many layers of indicators to their charts you cannot see any basic chart pattern behind them. Forex traders may have a double top chart pattern right in front of them, but can’t see it because of all of the interference from the layers of indicators masking the bare chart pattern. In the charts below with the black background and red and green moving averages, the basic bar chart patterns are very obvious. If you replace the barcharts with candlestick charts they should look the same.
Forex Chart Patterns lmages and Examples
There are two kinds of illustrations and images included in this article. The first kind is an illustration or hand sketch of a particular type of forex chart pattern. The second kind of illustration are actual charts of various pairs we trade with our forex trading system, these charts are on a black background and the basic forex trend indicators we use are set up on top of the bare forex charts.
Bull Flag Pattern Without Retracement
This is a hand drawn sketch/illustration of a bull flag pattern. The pair is in an uptrend and moves up in the main trading session, then it consolidates sideways, then continues higher, very easy to spot and straightforward. This bull flag pattern occurs frequently in trending markets and strong trending markets, in either direction. Traders can set an audible price alert just above the sideways consolidation price level to intercept the next price movements cycle. A bull flag pattern occurs on intra day time frames like the M5 and M15 most frequently, although they can occur on any time frame. This is a bull flag pattern example, bear flag forex patterns also occur for pairs that are in downtrends.
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Bull flag chart pattern example is below within the context of an uptrend. The price alert and breakout point in the direction of the trend should be placed just above the top of the flag for the trend continuation on this high probability trade and bullish chart pattern.
Bear flag pattern example is below within the context of a downtrend. The price alarm and breakout point in the direction of the trend should be placed just below the bottom of the flag for the trend continuation on this high probability trade and bearish chart pattern.
Bull Flag With Retracement
This is a hand drawn sketch/illustration of a bull flag chart pattern, with a retracement. In this case after the pair moves up, it retraces from point 1 to 2, before proceeding higher in the overall uptrend. This chart pattern generally occurs on the intraday time frames like M5, M15 and M30 in a trending market but can it occur on any time frame. The overall trend on this pair is up.
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Forex Chart Patterns, Increasing Tops and Bottoms
This is a hand drawn sketch/illustration of an increasing tops and bottoms chart pattern, within the context of an uptrend. The overall trend is up on the larger trends. These down cycles are actually retracements, and at the bottom of each down cycle a relative low is formed. Each relative low is the trough of the cycle and of the relative lows are entry points when they turn back up into the overall trend. When you see this on a H1 time frame or larger, it can be traded almost every time safely with a fairly tight stop order. Also, this chart pattern can occur in reverse within a downtrend, this would be called decreasing tops and bottoms, as shown in the second image.
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Forex Chart Patterns, Choppy Market
The image below is an example forex chart pattern you would see in a choppy market. This pair is the GBP/AUD and this is the D1 chart. The choppiness occurs because the GBP pairs as a group or the AUD pairs as a group are all choppy, or possibly both groups of pairs. Since this is the D1 chart, you can see movements for 1-2 days in one direction, then reversals for 1-2 days, clearly visible on time frames smaller then the D1. As a trader you can avoid trading the GBP or AUD pairs, or trade less lots on these groups of pairs, with a short term or day traders mindset. You can also move to different currencies or pairs for trading opportunities. Since we trade 8 different currencies, so you would still have 6 other currencies to choose from with our trading system. In choppy markets forex trading becomes more risky, you make less pips and have more stop outs. As a trader we have an article to give traders some alternatives to consider when trading a choppy forex market.
Forex Chart Patterns, Oscillations
An oscillation chart pattern is when a particular time frame cycles up and down between the same support and resistance levels. An oscillation can also be viewed as a series of trend reversals. This can occur on any time frame, but when this occurs on a higher time frame like the H4 or larger, you can trade these patterns profitably. Alternating between buys and sells. Trading oscillation chart patterns on the larger trends gives a trader additional pip potential when the market is not trending. So more pips are possible in a non-trending market. If a currency pair is not trending it is likely oscillating in some form or fashion, so look for this chart pattern on larger trends for more trade opportunities. See the example of a forex oscillation chart pattern below, we also have a complete lesson dedicated to range trading oscillating pairs in our forex lesson package for more details.
Forex Triangle Patterns
The image below on the left is an ascending triangle, each down cycle is a consolidation and retracement. Buyers keep coming in until the top resistance is broken. Eventually the pair breaks out to the upside, in the context of an overall uptrend on the higher time frames. This can occur on small or larger trends. Ascending triangles occur frequently in a trending market and signal a trend continuation to the upside. Overall trend direction on the larger trends is up. Breakout point and price alert point is just above the resistance, to intercept price movements.
The image below on the right is a descending triangle, each up cycle is a consolidation and retracement. Sellers keep coming in until the bottom support is broken. Eventually the pair breaks out to the downside, in the context of an overall downtrend on the larger trends. This can occur on small or large time frames. Descending triangles occur frequently in a trending market and signal a trend continuation to the downside. Overall trend direction on the larger trends is down. Breakout point and price alarm point is just below the support.
This is an actual forex price chart of a symmetrical triangle, a near textbook example. When this pair hits the apex of the triangle on the far right, we would expect a continuation of the trend, on the larger trends, which is in this case is up. This pattern can occur on almost any time frame, but in this case the illustration is for an M30 chart on the EUR/GBP. Since the EUR/GBP is in an uptrend on the larger trends, it should continue up. This represents about a two day consolidation cycle to build the symmetrical pattern. Set a price alarm above the short term highs at the apex.
Head and Shoulders Chart Pattern
A head and shoulders chart pattern is basically a forex reversal pattern. In the example chart below, the currency pair is moving up for a long time then retreats, forming the left shoulder. Then the pair moves up one more time creating the head. Then it retreats again and moves up one more time creating a decreasing top on the right, which is the right shoulder. The right half of the chart is now a decreasing top, which is bearish and signals the reversal back down. These types of trading chart patterns are more rare in the forex but they do occur. For a currency pair that is moving down, then reverses back up, you can also have an "inverted" head and shoulders chart pattern, which looks like the image below turned upside down.
Forex Chart Patterns - Rising Wedge, Falling Wedge
Wedge trading chart patterns are continuation patterns in the direction of the trend. In a falling wedge the pair is retracing against an uptrend on the smaller time frames until it reaches an apex, at the point of the apex it reverses back up into the overall trend. The ranges of the up and down cycles contract to form the wedge shape. Ascending and descending wedges can occur when a pair is trending, they do not occur frequently but then they do occur they are obvious and easy to identify.
Forex Reversal Patterns, Double Tops and Double Bottoms
Double tops and double bottoms are forex reversal patterns. This is a hand sketch of an ideal double top on a currency pair. There is a long upward move, sometimes for a few weeks, followed by a double top and reversal back down. Most pronounced double tops are on H4 time frames or larger. The larger the time frame the larger the reversal. Double bottoms also occur. These patterns can occur on any pair, and they occur more frequently on exotic pairs and quite frequently on the JPY pairs. Double tops and bottoms signal reversals after a long move and are fairly reliable reversal indicators.
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Actual chart of a double bottom on the CHF/JPY on the W1 chart. This indicates a reversal on this time frame. Remember that this is a reversal pattern. The pair has a long downward movement, then you have a double bottom. Then you start looking to buy the pair on the ensuing upside breakout/reversal and formation of a new uptrend. We have noticed that these patterns occur more frequently on the JPY pairs. When the CHF/JPY breaks though the red line resistance in the image below. Just check The Forex Heatmap® for a valid entry signal.
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How to Find These Forex Patterns
Every day at Forexearlywarning we analyze the forex market thoroughly using multiple time frame analysis. By doing so we know what pairs are trending, and as we drill down the charts and trends across 28 currency pairs, we can spot these chart patterns. Educating yourself about multiple time frame analysis of the spot forex is easy, just start by reading about it with our illustrated guide. When looking at the various charts across many pairs and you will start to spot these forex chart patterns weekly.
Chart patterns do not provide you with a thorough analysis of the market or entry points into trades all by themselves, but can play a big role in overall market analysis. When you combine forex chart patterns and recognition of the larger trends trends, you have created a powerful analytical combination. Both techniques will assist traders with locating trend continuations as well as reversals.