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Skip to search form Skip to main content Skip to account menu. About the Author. Chapter 1. Getting Started In Forex. From Stocks to Forex. Getting to Wall Street. Welcome to the Jungle. Football and Forex. Stock Market Headaches. Welcome to Forex. A New Beginning. Chapter 2. All About Forex. The Canadian Dollar and the U. The Euro and the U. Trading Terminology. Chapter 3. Questions and Answers.
Traders use these repetitive patterns to forecast the market. Chart patterns are made up of price waves or swings on the candlestick chart, such as head and shoulder, double top , and triple top patterns. These two patterns are classified into many chart patterns based on the shape and structure of the market. There are several repetitive chart patterns in the technical analysis, but here I will explain only the top 24 chart patterns.
These patterns have a high winning probability. The double top is a bearish reversal chart pattern that shows the formation of two price tops at the resistance level. After the neckline breakout, a bearish trend reversal happens. The neckline is drawn using the last swing low after two tops. The prior trend to the double top pattern should be bullish, and it must form at the end of the bullish trend.
The double bottom is a bullish reversal chart pattern that indicates the formation of two consecutive lows at the support zone. After the neckline breakout, a bullish trend reversal happens. The neckline is drawn at the last price swing after two price bottoms in this pattern. The prior trend to the double bottom pattern should be bearish, and it must form at the end of the bearish trend.
The tripe top is a bearish reversal chart pattern in which price forms three consecutive tops at the same resistance level. It is the most basic chart pattern, and traders widely use it in technical analysis. The neckline forms after connecting the last two swing lows with a trend line in this pattern. The trend line breakout confirms the triple top pattern.
The triple bottom is a bullish reversal chart pattern in which price forms three consecutive bottoms at the same support level. To learn to trade triple bottom patterns, you should first understand the price swings and impulsive waves. The neckline forms in the triple bottom pattern after connecting the last two swing highs with a trend line.
The breakout of this trendline confirms the trend reversal from bearish into bullish. The highest price swing is called the head, and the other two waves on the left and right of the head are called shoulders. It is a repetitive chart pattern, and after its formation, a bearish trend reversal happens in the market. The inverse head and shoulder pattern is opposite to this pattern, and it is a bullish trend reversal pattern.
A neckline also forms during this pattern. The breakout of the neckline always confirms the trend reversal. This chart pattern can also act as a trend reversal pattern. It depends on the location either it forms during a bullish trend or begins at the end of the bearish trend. It would be best to keep in mind that there is a clear difference between a V-shape wave and a round bottom wave.
A rounded bottom forms rarely on the price chart. It is a reversal chart pattern that shows three consecutive attempts of big traders to break or approach a specific key level. After that, a trend reversal in the market occurs. The 3-drive chart pattern consists of three impulsive waves and two retracement waves.
The number three is also a Fibonacci number, and it has much importance in trading. It shows the trend continuation after a minor pause in the trend. This chart pattern consists of two impulsive waves and three retracement waves. During the retracement wave, the market consolidated inwards, indicating indecision in the market. After indecision, when the price breaks in the trend, the trend continues.
The wedge pattern is a trend reversal chart pattern in which the price structure resembles a wedge shape. A Wedge has a wider outer section and smaller outer section. It is also a natural pattern because it depicts the natural behaviour of price. It consists of two trend lines upper and lower trendlines and more than three waves inside the trend lines.
The size of the waves continues decreasing with time, and after the trend line breakout, a trend reversal happens in the market. Based on the price structure or higher high lower low formation, wedge pattern is classified into two types. The rising wedge shows the bearish trend reversal, and the falling wedge pattern indicates a bullish trend reversal in the market. A diamond pattern is a reversal and continuation chart pattern in which price forms a structure of diamond on the chart.
Two market patterns broadening and inward consolidation combine to make a diamond pattern. The location of the diamond chart pattern decides whether it will be a trend reversal pattern or a trend continuation pattern. If a diamond pattern forms at the top of the trend, a bearish trend reversal will occur. On the other hand, if it begins at the bottom of the bearish trend, then a bullish trend reversal will form.
The descending triangle is a bearish continuation chart pattern in which price forms a triangle-like shape with a horizontal base and vertical line on the left side. In this pattern, price forms swing so that each progressive swing will be smaller than the previous wave.
A support zone also forms at the bottom of swing waves. A bearish trend continuation occurs on the chart when the support zone breaks. The ascending triangle is a bullish continuation chart pattern in which the price forms a triangle-like shape with a horizontal base at the top.
It is the inverse of descending triangle pattern. Swing waves forms, and after a resistance breakout bullish trend continues. It is straightforward to identify these two patterns, and the probability of winning these two patterns is also very high. Tip: GBPJPY is a pair that usually make ascending and descending triangle pattern on the price chart on different timeframes.
The symmetrical triangle pattern acts as a reversal and continuation chart pattern because of its equal probability of a bullish or bearish trend. This pattern shows that market makers are making decisions. So, the price moves sideways and inwards.
Inward consolidation means each progressive wave will be smaller than the previous wave. So how can we identify the trend direction using a symmetrical triangle pattern? Using the breakout method. When this pattern forms, we draw the trendlines meeting the lower highs and higher lows.
It is written for the new or experienced trader who needs specific, useful information to trade the Forex market. Forex Patterns and Probabilities begins with a. terested to calculate the conditional probabilities of upward or downward movements in currency exchange rates based on an observed pattern. level of probability, such as a service level of 99%. It might be Forecasting and Excel ined to ascertain the presence of any obvious patterns.