In forex trading, technical analysis is reliant on the fact that history tends to repeat itself. The way to recognize these repetitions is through forex chart patterns alongside other methods. Forex chart patterns are diverse and for effectiveness, we will be discussing only the most common and accurate ones.
Forex chart patterns are recognized in the forex market to predict the next move of the market. There are two broad categories of forex chart patterns. These are reversal chart patterns and continuation chart patterns.
Forex Reversal Patterns
Forex reversal chart patterns are spotted at the end of a trend and they signal a trend turning. Recognizing them can be huge as you get to catch the new trend early on. Examples of forex reversal patterns can be seen below.
The double top pattern signals the reversal of an uptrend into a downtrend. It is of course spotted at the end of an uptrend. A double bottom pattern is the exact opposite. It is spotted at the end of a downtrend and signals the reversal of a downtrend into an uptrend.
Head and Shoulders/ Reverse head and shoulders pattern
The head and shoulders signal a reversal of an uptrend into a downtrend. The reverse head and shoulders signals the reversal of a downtrend into an uptrend.
The triple top pattern appears at the end of an uptrend and signals the start of a downtrend, while the triple bottom is the exact opposite. The triple bottom pattern appears at the end of a downtrend and signals the start of an uptrend.
Forex Continuation Patterns
Forex continuation patterns occur midtrend during the resting phases of the market. These patterns signal the continuation of the preexisting trend.
Examples includes cup and handle, pennants, flags and triangles.
Cup and Handle Pattern
The cup and handle pattern is a continuation pattern that appears in an uptrend. It starts it formation with a rounding bottom – the cup base, before moving up and retracing to form the handle. It signifies the continuation of the uptrend.
There are two types of pennants. These are the bullish pennant and the bearish pennant. The bullish pennant signifies the continuation of a bullish trend. The bearish pennant signifies the continuation of the bearish trend.
There are also two types of flags. They are the bullish flag signifying the continuation of a bullish trend and the bearish flag signifying the continuation of a bearish trend.
In conclusion, chart patterns are a great way to analyze the market, with good accuracy.
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