A few popular forex chart patterns tend to recur in the market. These patterns can give traders an idea of where the price is headed and how to trade it.
Traders can use chart patterns to spot trends, movements, and formations that result from currency pair prices’ fluctuations. Forex chart patterns can assist you in entering a trade on the low and then exiting with a high. A pair’s movement is called ‘riding the wave’ because it resembles surfing on a sea of variable volatility.
Some of the most popular forex chart patterns include:
The Japanese Candlestick Chart Pattern is one of the most widely known chart patterns. It has been said to have originated in Japan in the 1700s.
The following are some examples of Candlestick Patterns:
This design is split into a hanging man and a hammer. The hanging man appears at the zenith or peak of a price rise, indicating an increase in sellers versus purchasers, causing a downward shift. On the other hand, a hammer signals that a price low is approaching and that the pair’s price will rise soon.
The shooting star and the inverted hammer
The latter occurs on a declining trend, indicating that most of the pairs’ sellers have exited their position, and soon buyers will begin to enter. The former happens on an upward trend where sellers exit at a faster rate than buyers in an attempt to raise the price.
When the high values of a forex currency pair converge with the slope produced by the price’s lows, you get a symmetrical triangle pattern. At the apex of a triangle, these two slopes meet. The equilibrium between purchasers and sellers is observed, but the closer the slopes approach the triangle’s apex, the greater the probability of a breakout.
An ascending triangle pattern is created when buyers raise the price to form a steeper slope. The inverse of this formation is a descending triangle in which the lows are generally kept on a straight line, with the highs propelling a downward trend.
The head and shoulders pattern
This reversal pattern occurs when two lower highs follow a peak. The neckline is formed by connecting the lows of the two lower highs. A break below the neckline signals a potential sell-off.
The double top
This reversal pattern occurs when a peak is followed by another high that is not as high as the first peak. The neckline is formed by connecting the lows of the two peaks. A break below the neckline signals a potential sell-off.
The double bottom
This reversal pattern occurs when a trough is followed by another low that is not as low as the first trough. The neckline is formed by connecting the highs of the two troughs. A break above the neckline signals a potential rally.
The triple top
A reversal pattern occurs when a break below support follows three consecutive highs. The triple top is considered a more bearish reversal pattern than the double top.
The triple bottom
This reversal pattern occurs when a break above resistance follows three consecutive lows. The triple bottom is considered a more bullish reversal pattern than the double bottom.
Plus many more
These are just a few of the most popular forex chart patterns. Many other patterns can be helpful for traders, so it’s essential to do your research and identify which patterns work best for you.