Learn Forex Trading For Beginners Pdf – Twenty-four chart examples are discussed in this article. Retail traders make extensive use of chart patterns to forecast price using technical analysis.
In this article, you will find a brief description of each chart pattern. You can also learn trading strategies and chart patterns by clicking on the Learn More button. At the end of the article, you will find a PDF download link of a sample graph for backtesting purposes.
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Graphic patterns include triangle pattern, wedge pattern, etc. There are examples of natural values that resemble the shape of natural objects. These patterns are repeated over time due to natural events. Traders use these recurring patterns to forecast the market.
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Chart patterns consist of price waves or swings on candlestick charts, such as the head and shoulders, double top and triple top patterns.
These two patterns are further classified into several chart patterns based on the size and structure of the market.
There are many recurring chart patterns in technical analysis, but here I will only explain the top 24 chart patterns. These patterns have higher chances of winning.
A double top is a bearish reversal chart pattern that signifies the formation of two price peaks at a resistance level. After breaking the neckline, a bearish reversal occurs.
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The neckline is drawn using the last swing after two vertices. For a double top pattern, the previous trend should be bullish and should form at the end of an uptrend.
A double bottom is a bullish reversal chart that indicates the formation of two consecutive lows in the support zone. After crossing the neckline, there is a reversal of the uptrend.
In this pattern the neck line is drawn on the last price change after the lower of the two prices. A double bottom pattern should precede a bearish trend and it should form at the end of a downtrend.
A trip peak is a bearish reversal chart pattern where the price forms three consecutive peaks at the same resistance level. This is the most basic chart pattern and is widely used by traders in technical analysis.
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In this pattern, the neckline is formed after connecting the last two swings with the trend line. The break of the trend line confirms the triple top pattern.
A triple bottom is a bullish reversal chart where the price makes three consecutive bottoms at the same support level.
A neckline is formed in the triple bottom pattern after the last two swing peaks are joined by the trend line. The break of this trend line confirms the trend reversal from bearish to bullish.
The Head and Shoulders is a reversal chart pattern consisting of three price movements. The highest price wave is called the head, and the other two waves to the left and right of the head are called the shoulders. That’s why it is called head and shoulders pattern.
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It is a recurring chart pattern, and after its formation, a bearish trend in the market reverses.
The Inverse Head and Shoulders pattern is the opposite of this pattern and is an uptrend reversal pattern.
A cup and handle is a continuation chart pattern where the price forms a round bottom with a thread shape at the end of the pattern.
This chart pattern can also act as a trend reversal pattern. This depends on whether it started either during an uptrend or at the end of a bearish trend.
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It is better to note that there is a clear distinction between a V-shaped wave and a round-bottomed wave. A price chart rarely has a round bottom. So you need to test this pattern properly.
This is a reversal chart pattern that shows three consecutive attempts by larger traders to break or reach a particular key level. After this the trend changes in the market.
The 3-driver chart pattern consists of three impulsive waves and two retracement waves. The number three is also a Fibonacci number and is very important in trading. Therefore, the three-drive model is also a natural phenomenon.
Pennant is a continuation chart pattern with five waves ABCDE. It shows the continuation of the trend after a short break in the trend.
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This chart pattern consists of two impulsive waves and three retracement waves. During the pullback wave, the market consolidated inward, indicating indecision in the market. When price breaks out in a trend after indecision, the trend continues.
The wedge pattern is a trend reversal chart where the price structure resembles a wedge shape. The outer part of the wedge is wide and the outer part is short. It is also a natural pattern as it describes the natural behavior of the price.
It consists of two trend lines (up and down trend lines) and more than three waves within the trend lines. The size of the waves tends to decrease with time and after the trend line is broken, the market reverses the trend.
Based on the price structure or high high low low formation, wedge patterns are classified into two types
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A rising wedge indicates a bearish trend reversal and a falling wedge pattern indicates a bullish trend reversal in the market.
A diamond pattern is a reversal and continuation chart pattern where the price forms a diamond on the chart. Two market patterns (extension and internal consolidation) combine to form a diamond pattern.
The location of the diamond chart pattern determines 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 starts at the bottom of a bearish trend, an uptrend reversal will form.
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A descending triangle is a bearish continuation chart pattern where price forms a triangle-like shape with a horizontal base and a vertical line to the left.
In this model, price patterns swing in such a way that each progressive swing will be smaller than the previous wave. A support zone also forms at the bottom of the swing waves.
It also functions as a reversal chart pattern, but is mainly used as a trend continuation pattern.
An ascending triangle is a bullish continuation chart where price forms a triangle-like shape with a horizontal base above.
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Note that a key or support zone is formed at the bottom of the descending triangle, whereas in the ascending triangle pattern, a key zone/resistance zone is formed at the top of the chart.
This is the opposite of the descending triangle pattern. Swing waves are formed, and after breaking the resistance, the uptrend continues. Both these patterns are easy to identify and the winning probability of both these patterns is also very high.
Tip: GBPJPY is usually a pair that forms an ascending and descending triangle pattern on the price chart on different time frames.
The symmetrical triangle pattern acts as a reversal and continuation chart pattern due to the equal likelihood of an uptrend or a bearish trend.
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This example shows that market makers make decisions. Thus, the price moves side to side. Internal consolidation means that each progressive wave will be smaller than the previous wave.
When this pattern occurs, we draw trend lines that meet the lower high and higher low. A break of the trend lines indicates that buyers will take control or that sellers will beat the market.
The flag pattern is a trend continuation chart consisting of an impulsive wave and a retracement wave.
The flag chart pattern is the most widely used and advanced one. Since the psychology of this chart pattern is very deep, it can be used in a number of ways to predict the direction of the Forex market.
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An impulsive bullish wave and a bearish pullback wave combine to form a flag pattern in a bullish trend. The impulse wave is shaped like a flagpole, and the retreating wave is like a flagpole. The breaking of the flag indicates the continuation of the uptrend.
A bearish impulse wave and a bullish wave combine to form a flag pattern in a bearish flag.
An extension pattern is a chart pattern where each successive wave is larger than the previous wave, creating a megaphone-like structure in the price chart.
This pattern also reflects indecision in the market and is also a sign of a major trend reversal.
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In an ascending extension pattern, price makes lower lows and lower highs, while in a descending extension pattern, price makes higher and higher lows.
The bump and run pattern is a chart pattern that consists of two phases of a market bump and run.
During the bump phase, price moves up/down with extreme strength, representing a breakdown of a major key level. After the bump phase, the run phase begins and in this phase the price moves in the opposite direction to the shock phase.
Trend channels refer to price channels that show horizontal price movement between a resistance zone and a support zone.
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This pricing model reflects the equal powers of buyers and sellers in the market. This is the reason why the price moves sideways. The breakout price of trend channels predicts the direction of the trend. When the support zone is broken, a bearish trend occurs, and when resistance is formed, an uptrend occurs.
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