Forex for a trader
Forex chart patterns

Forex chart patterns3 Best Chart Patterns for Intraday Trading in Forex. One of the most important ingredients for the successful Forex trading is the chart patterns technical analysis. Recognizing figures on the graph is an essential part of the Forex strategy of every trader. It is vital that you learn chart patterns and their meaning. Therefore, I have decided to spare some time to show you how to trade chart patterns like the pros. In this article, I will reveal to you the three best chart patterns for intraday trading and the rules you need to follow when approaching them. Understanding Chart Patterns in Technical Analysis. Chart patterns are a crucial part of the Forex technical analysis. Patterns are born out of price fluctuations, and they each represent chart figures with their own meanings. Each chart pattern indicator has a specific trading potential. This is why Forex traders spot chart patterns for day trading – to profit from the expected price moves. In fact, chart patterns represent price hesitation. When you have a trend on the chart, it is very likely to be paused for a while before the price action undertakes a new move. In most of the cases this pause is conducted by a chart pattern, where the price action is either moving sideways, or not very persuasive with its move. This is a brief sketch of how a chart pattern indicator could look like on the chart. In the example above we have a trend that turns into a consolidation, and then the trend gets resumed again.

Types of Chart Patterns in Forex. There are three types of chart pattern figures in Forex based on their potential: neutral, continuation, and reversal chart patterns. I will share with you a Forex chart patterns cheat sheet for each of the three types. Continuation Chart Patterns. Continuation chart patterns are the ones that are expected to continue the current price trend, causing a fresh new impulse in the same direction. Example: If you have a bullish trend, and the price action creates a continuation chart pattern, there is a big chance that the bullish trend continues. Some of the most popular continuation chart patterns are Flag, Pennant, and Wedges. This chart patterns cheat sheet shows six of the most common continuation chart patterns in Forex trading. Each of these six formations has the potential to activate a new impulse in the direction of the previous trend.

Reversal Chart Patterns. Reversal patterns are opposite to continuation patterns. They usually reverse the current price trend, causing a fresh move in the opposite direction. Example: If you have a bullish trend and the price action creates a trend reversal chart pattern, there is a big chance that the previous bullish trend gets reversed. This is likely to cause a fresh bearish move on the chart. Some of the most popular reversal chart patterns are Double Tops and Bottoms, Head and Shoulders, Wedges, Expanding Triangles, Triple Tops and Bottoms, etc. Notice that the Rising and the Falling Wedge could act as reversal and continuation patterns in different situations. This depends on the previous trend. Just remember that the Rising Wedge has bearish potential and the Falling Wedge has bullish potential, no matter what the previous trend is. Neutral Chart Patterns. The neutral chart patterns are the one that induce a price move, but the direction is unknown. In the process of the pattern confirmation, traders realize the pattern’s potential and tackle the situation with the respective trade. Example: The Forex pair is trending in the bullish direction. Suddenly, a neutral chart pattern appears on the chart. What would you do in this case? You should wait to see in which direction the pattern will break. This will hint you about the potential of the pattern.

The most popular neutral chart patterns are the Ascending Triangle, Descending Triangle, Symmetrical Triangle, and Symmetrical Expanding Triangle. These are the most common neutral chart patterns that have the potential to push the price in either bullish or bearish direction. Now you have 20 different chart pattern examples. But which are the best chart patterns to trade? This wWill discuss in the next point of the article. 3 Best Chart Patterns to Trade in Forex. Now that I gave you a brief visual guide to chart patterns, I will tell you which three of these are the best chart patterns for intraday trading. Then I will give you a detailed explanation about the structure and the adjoining rules of each one of the best chart patterns. Flags and Pennants Chart Patterns. The Flag and the Pennant are two separate chart patterns that have price continuation functions. However, I like to treat these as one since they have similar structure and work exactly the same way. The Flag chart pattern has a continuation potential on the Forex chart. The bull Flag pattern starts with a bullish trend called a Flag Pole, which suddenly turns into a correction inside a bearish or a horizontal channel.

Then if the price breaks the upper level of the channel, we confirm the authenticity of the Flag pattern, and we have sufficient reason to believe that the price will start a new bullish impulse. For this reason, you can buy the Forex pair on the assumption that the price is about to increase. Place your Stop Loss order below the lowest point of the Flag. The Flag pattern has two targets on the chart. The first one stays above the breakout on a distance equal to the size of the Flag. If the price completes the first target, then you can pursue the second target that stays above the breakout on a distance equal to the Flag Pole. Check out this Flag chart pattern example to see how it works in real trading situations: This is an example of a bullish Flag chart pattern on the 15-minute chart of the USDCHF for February 17, 2017. The two pink arrows show the size of the Flag and the Flag Pole, applied starting from the moment of the Flag breakout. The Stop Loss order of this trade stays below the lowest point of the Flag as shown on the image. The Pennant chart pattern has almost the same structure as the Flag. A bullish Pennant will start with a bullish price move (the Pennant Pole), which will gradually turn into a consolidation with a triangular structure (the Pennant).

Notice that the consolidation is likely to have ascending bottoms and descending tops. If the price breaks the upper level of the Pennant, you can pursue two targets the same way as with the Flag. The first target equals the size of the Pennant and the second target equals the size of the Pole. At the same time, your Stop Loss order should go below the lowest point of the Pennant. The bearish Flag chart pattern works exactly the same way but in the opposite direction. This time we approach the 5-minute chart of the USDJPY for January 6, 2017. The image gives an example of a bull Pennant chart pattern. As you see, Flags and Pennants technical analysis works exactly the same way. The only difference is that the bottoms of the Pennant pattern are ascending, while the Flag creates descending bottoms that develop in a symmetrical way compared to the tops. This is the reason why I put the Flag and Pennant chart patterns indicator under the same heading. Double Top and Double Bottom Chart Pattern. The Double Top is a reversal chart pattern that comes as a consolidation after a bullish trend, creates couple tops approximately in the same resistance area and starts a fresh bearish move. Conversely, the Double Bottom is a reversal chart pattern that comes after a bearish trend, creates couple bottoms in the same support area, and starts a fresh bullish move. We will discuss the bullish version of the pattern, the Double Top chart pattern, to approach the figure closely. To enter a Double Top trade, you would need to see the price breaking through the level of the bottom that is located between the two tops of the pattern.

When the price breaks the bottom between the two tops, you can short the Forex pair, pursuing a minimum price move equal to the vertical size of the pattern measured starting from the level of the two tops to the bottom between the two tops. Your Stop Loss order should be located approximately in the middle of the pattern. The 5-minute chart of the GBPUSD for January 13, 2017, shows an example of a Double Top pattern technical analysis. The pink lines and the two arrows on the chart measure and apply the size of the pattern starting from the moment of the breakout. After the breakout entry signal on the chart, you need to short the GBPUSD Forex pair placing a stop loss order inside the pattern. In our case I use a small top after the creation of the second big top to position the Stop Loss order. Notice that the Double Bottom chart pattern works exactly the same way but in the opposite direction. Head and Shoulders Chart Pattern. The Head and Shoulders is another famous reversal pattern in Forex trading. It comes as a consolidation after a bullish trend creating three tops. The first and the third tops are approximately at the same level. However, the second top is higher and stays as a Head between two Shoulders. This is where the name of the pattern comes from. The Head of the pattern has a couple bottoms from both of its sides. The line connecting these two bottoms is called a Neck Line.

When the price creates the second shoulder and breaks the Neck Line in a bearish direction, this confirms the authenticity of the pattern. When the Neck Line breaks, you can pursue the bearish potential of the pattern that is likely to send the price action downward on a distance equal to the size of the pattern – the vertical distance between the Head and the Neck Line applied starting from the moment of the breakout. Your Stop Loss order in a Head and Shoulders trade should go above the second shoulder of the pattern. Above you can see a real Head and Shoulders chart pattern on the H1 chart of the GBPUSD for August 19-30, 2016. The inclined pink line is the Neck Line of the figure. The two arrows measure and apply the size of the Head and Shoulders starting from the moment of the breakout through the Neck Line. The red circle shows the head and shoulders chart pattern breakout. You need to hold a bearish trade until the price completes the size of the pattern in a bearish direction. At the same time, your Stop Loss order should go above the second shoulder as shown on the chart. As the other patterns we discussed, the Head and Shoulders chart pattern has its opposite version – the Inverse Head and Shoulders pattern.

It acts absolutely the same way, but everything is upside down. Chart Patterns Indicator MT4. After all my years dealing with financial markets, I found a very useful tool: a chart pattern recognition indicator. Even better, it is built in within the default version of the MT4 trading platform. The indicator is called ZigZag. What it does is to represent the general price action with straight lines by neglecting smaller price fluctuations and putting emphasize on the real-deal price moves. This way you can vary easy visualize a real pattern on the chart. Let me show you my chart pattern recognition algorithm in action: Above you can see the 5-minute chart of the EURUSD for February 7, 2017. The chart includes the ZigZag indicator expressed by the straight red lines on the chart. In the middle of the chart, we see that the ZigZag lines are creating descending tops and descending bottoms, which is a symptom of a Falling Wedge chart pattern. See that the highs and the lows of the pattern stand out in a very pleasant way thanks to the ZigZag indicator. You can hardly miss the pattern on the chart. In the red circle we see the breakout through the upper level of the pattern – the confirmation. Then we can trade for the two targets of the pattern. The first one equals the size of the wedge – marked with the smaller pink arrow.

The bigger pink arrow measures the size of the Pole. Both should be applied starting from the moment of the breakout. Notice that you should protect your trade with a Stop Loss order that needs to go below the lowest bottom of the Falling Wedge pattern, as shown in the image. As you see, the price action completes both targets. The chart patterns technical analysis is a crucial part of the Forex price action trading. Chart patterns represent price hesitation (consolidation) that comes after a trend. After the consolidation is completed, the price action usually creates a big move. There are many chart patterns in Forex trading and each of them has different meaning and its own There are three types of chart patterns in technical analysis based on their potential. Continuation Chart Patterns: Flag, Pennant, Wedges, etc. Reversal Chart Patterns: Double Tops and Bottoms, Head and Shoulders, Wedges, Expanding Triangles, Triple Tops and Bottoms, etc. Neutral Chart Patterns: Ascending Triangle, Descending Triangle, Symmetrical Triangle, Symmetrical Expanding Triangle, etc. The three best chart patterns for intraday trading are: Flags and Pennants Open a trade when the price breaks out of the FlagPennant in the direction of the previous trend. Put a Stop Loss order at the other side of the pattern. Stay in the trade for a price move equal to the size of the FlagPennant. If this target is reached and the price keeps trending in your favor, stay in the trade for additional price move equal to the size of the Pole applied starting from the moment of the breakout. Double Top and Double Bottom Open your trade when the price breaks the Trigger Line of the pattern. Put a Stop Loss order inside the pattern, somewhere near the mid. point. Stay in the trade for a minimum price move equal to the size of the pattern.

Head and Shoulders Open a trade when the price breaks the Neck Line of the pattern. Put a Stop Loss order beyond the second shoulder. Stay in the trade for a minimum price move equal to the size of the pattern. GET STARTED WITH THE FOREX TRADING ACADEMY. Damyan is a fresh MSc International Management from the International University of Monaco. During his bachelor and master programs, Damyan has been working in the area of financial markets as a Market Analyst and Forex Writer. He is the author of thousands of educational and analytical articles for traders. When being in bachelor school, he represented his university in the National Forex Trading Competition for students in Bulgaria and got the first place among 500 other traders. He was awarded a cup and a certificate at an official ceremony in his university. 3 Easy Triangle Patterns Every Forex Trader Should Know. Your Forecast Is Headed to Your Inbox. But don't just read our analysis - put it to the rest. Your forecast comes with a free demo account from our provider, IG, so you can try out trading with zero risk. Your demo is preloaded with ?10,000 virtual funds , which you can use to trade over 10,000 live global markets. We'll email you login details shortly.

You are subscribed to Gregory McLeod. You can manage you subscriptions by following the link in the footer of each email you will receive. An error occurred submitting your form. Please try again later. Article Summary: With so many currencies to choose from, triangle patterns can help forex traders quickly identify a pair to trade. This article will show you how to use triangles to find a trade setup. Recognizing chart price patterns is an important aspect of technical analysis that Forex traders should master. These patterns act like a highlighter on the chart showing a potential trade. The triangle pattern is one of the most popular price patterns in Forex because it is easy to recognize, has a good risk to reward se tup , and provides clear and concrete price objectives. Symmetrical , ascending, and descending are the the three types of triangle patterns we will explore today as well as a strategy on how to trade them. Learn Forex: Symmetrical triangle in a downtrend.

The first type of pattern is the symmetrical triangle pattern. It is formed by two intersecting trendlines of similar slope converging at a point called the apex. In the above example of a symmetrical triangle you can easily see on the AUDUSD 1-Hour chart the intersection of a rising trendline and a downtrend line at the bottom of a larger trend. Sellers are unable to push prices lower and buyers can’t push price to new highs. This coiling of price between support and resistance is called a consolidation. Usually, within the first 23 of the triangle, a breakout occurs either above trendline resistance or below trendline support as either the sellers or buyers take control. Once a triangle is identified on the chart, traders will wait for a breakout either above the resistance trendline or below support. After a breakout is confirmed with either a closed candle above resistance or below support a stop is placed approximately 10 pips below the last swing low of the triangle. A limit equal to the height of the triangle is then placed. Learn Forex: Triangle breakout with risk management. In the above example, a trader who went long after the clear breakout at 0.9120 with a stop placed at 0.9086 and a limit of 55 pips would have had a profitable trade with a 1.6:1 reward to risk ratio. Though initially, a trader may not know the direction of the move, the triangle pattern alerted traders that a big move was nearby.

In my opinion, if the consolidation exceeds 23 of the triangle and reaches the apex, price action just goes sideways much like a flat bottle of soda. The next type of triangle pattern is the ascending triangle. It is easily recognized by a rising trend line intersecting with a flat resistance line. It is often regarded by traders as a bullish pattern characterized by a breaking out above resistance when completed. However, in the ascending triangle pattern, breakouts can take place below resistance. This can especially be the case when the trend prior to the triangle was down. Learn Forex: Ascending triangle with breakout. Similarly to the symmetrical triangle pattern, traders enter short on a break below the bottom of the pattern with a stop approximately 10 pips above the top of the high with a profit objective equal to the height of the pattern. However, if price rallied above resistance, a stop would be placed below the highest low within the pattern with an additional cushion of approximately 10 pips. The last triangle pattern is the d escending t riangle p attern. The descending triangle is characterized by an area of strong support intersecting a downward sloping trend line.

When chartist see this pattern as part of a larger downtrend, they look for a continuation of the downtrend. A close break and close below the area of support would be a confirmation of this pattern signaling traders to enter short with a stop above the top of the pattern. Learn Forex: Descending triangle with breakout. The triangle pattern represents the forces of buyers unable to push price higher and sellers struggling to push price lower . Usually, the struggle is resolved with a breakout below support as illustrated in the example above. In sum, triangle patterns are easy to spot, and provide good risk reward opportunities . Traders can quickly know that a big move may be near as well the profit objective and the amount to be put at risk. N ow that you have the knowledge of the three powerful price patterns you are steps closer to becoming more confident trader! Triangle patterns are a charting tool that rely on sound trading methods. To learn more about other trading methods check out our free guide 'Top Trading Lessons' that explains the psychology and the strategy needed behind great analysis. DailyFX provides forex news and technical analysis on the trends that influence the global currency markets. Know the 3 Main Groups of Chart Patterns. That’s a whole lot of chart patterns we just taught you right there.

We’re pretty tired so it’s time for us to take off and leave it to you from here… Just playin’! We ain’t leaving you till you’re ready! It’s not enough to just know how the tools work, we’ve got to learn how to use them. And with all these new weapons in your arsenal, we’d better get those profits fired up! Let’s summarize the chart patterns we just learned and categorize them according to the signals they give. Reversal Chart Patterns. Reversal patterns are those chart formations that signal that the ongoing trend is about to change course. Conversely, if a reversal chart pattern is seen during a downtrend, it suggests that the price will move up later on. In this lesson, we covered six chart patterns that give reversal signals. Can you name all six of them? Double Top Double Bottom Head and Shoulders Inverse Head and Shoulders Rising Wedge Falling Wedge. If you got all six right, brownie points for you! To trade these chart patterns, simply place an order beyond the neckline and in the direction of the new trend. Then go for a target that’s almost the same as the height of the formation.

For instance, if you see a double bottom, place a long order at the top of the formation’s neckline and go for a target that’s just as high as the distance from the bottoms to the neckline. In the interest of proper risk management, don’t forget to place your stops! A reasonable stop loss can be set around the middle of the chart formation. For example, you can measure the distance of the double bottoms from the neckline, divide that by two, and use that as the size of your stop. Continuation Chart Patterns. Continuation chart patterns are those chart formations that signal that the ongoing trend will resume. Usually, these are also known as consolidation patterns because they show how buyers or sellers take a quick break before moving further in the same direction as the prior trend. We’ve covered several continuation chart patterns, namely the wedges, rectangles, and pennants. Note that wedges can be considered either reversal or continuation patterns depending on the trend on which they form. To trade these patterns, simply place an order above or below the formation (following the direction of the ongoing trend, of course). For pennants, you can aim higher and target the height of the pennant’s mast.

For continuation patterns, stops are usually placed above or below the actual chart formation. For example, when trading a bearish rectangle, place your stop a few pips above the top or resistance of the rectangle. Bilateral Chart Patterns. Bilateral chart patterns are a bit more tricky because these signal that the price can move either way. Huh, what kind of a signal is that?! This is where triangle formations fall in. Remember when we discussed that the price could break either to the topside or downside with triangles? To play these chart patterns, you should consider both scenarios (upside or downside breakout) and place one order on top of the formation and another at the bottom of the formation. Double the possibilities, double the fun! The only problem is that you could catch a false break if you set your entry orders too close to the top or bottom of the formation. So be careful and don’t forget to place your stops too! Forex Chart Patterns Cheat Sheet. Like we promised, here’s a neat little cheat sheet to help you remember all those forex chart patterns and what they are signaling. We’ve listed the basic forex chart patterns, when they are formed, what type of signal they give, and what the next likely price move may be. Check it out! You never know when you’re gonna need to cheat, hah! Bookmark this thing yo! And as you probably noticed, we didn’t include the triangle formations (symmetrical, ascending, and descending) in this cheat sheet. Confusing I know, but that’s where practice and experience comes in! Like we mentioned, it’s tough to tell where the forex market will breakout or reverse. So what’s important is that you prepare well and have your entryexit orders ready so that you can be part of the action either way! Forex Chart Patterns, Improve Your Trading. Conventional Forex Chart Patterns.

Forex Chart Pattern lmages and Examples. Forex Chart Pattern, Bull Flag Without Retracement. This is a hand drawn sketchillustration of a bull flag chart 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 movement 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 chart pattern example, bear flags also occur for pairs that are in downtrends. Bull flag chart pattern example is below within the context of an uptrend. The price alarm 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 chart 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.

The Only 3 Forex Chart Patterns You Need to Know (and Why I Trade Them) There are a million ways to make money in the Forex market. The key to success in this business is not finding one that works, it’s finding one that works for you . While I started out in 2007 trading nothing but pin bars and inside bars, my “style” today is quite different. Put simply, the way I trade today is much more robust than it was in 2007. Today, I still trade pin bars and inside bars, however over the years I have expanded my trading plan to also include a few choice technical patterns. Why trade these Forex chart patterns in addition to candlestick formations? Think of it like this. Before a developer begins building a mall, big-name shopping stores are signed on in order to provide the best experience possible to shoppers. These are called “anchor stores”. In a similar manner, the three chart patterns below can become the “anchors” to your trading plan.

These are the formations that you can rely on to generate profits on a consistent basis. Exclusive Bonus: Download the Forex chart patterns PDF that will show you exactly how I trade the 3 chart patterns below. Of course they are not the only price structures out there, however, they are the ones that I have come to enjoy trading the most over the years. So without further ado, let’s get started! The Head and Shoulders (and Inverse) This is not only my favorite reversal pattern, but it is also my favorite pattern, period. That includes its inverse, which has similar mannerisms. For those who have followed me for a while now, you may recall that my favorite pattern to trade used to be the wedge. However, the last year of trading has produced a new winner in my book. The head and shoulders is the least common of the three formations we will discuss today. While there may be similar price structures that occur more frequently, a valid and therefore tradable head and shoulders reversal doesn’t come around very often. Put simply, it works. But more than that, it can be quite easy to spot and extremely profitable when you know what to look for and how to trade it. The pattern can offer a precise entry given the fact that the neckline is generally based on several highs or lows. This fact alone takes a lot of the guesswork out of determining when the pattern has confirmed. Another huge benefit, like the other two technical formations below, is that we have a measured objective from which to identify a possible target. Staying out of Trouble.

This is something that you may not know (unless of course you’re one of my members). In order to be considered valid, the two shoulders of the pattern must overlap at some point. Situations where the shoulders don’t overlap are most common when the pattern unfolds at a steep angle. While a break of the trend line (if one exists) may trigger a change in trend, it does not fit the criteria to be called, or traded as, a head and shoulders pattern. Notice how no part of the first shoulder in the illustration above overlaps the second shoulder. This disqualifies the price structure from being traded as a head and shoulders pattern. Another common mistake among Forex traders is to use a measured objective as a “one-stop shop”. In other words, they simply measure out the distance in pips and then set a pending order to book profits at that level. While that may occasionally work out in your favor, a much better approach is to determine whether or not that objective lines up with a pre-existing key level. If it does, perfect, however a more common scenario is one where the market will come in contact with a key level prior to reaching the objective. If this is the case, you’re far better off taking profit at the key level rather than hoping for an extended move to the objective.

Remember that technical analysis is not a perfect science and there are no guarantees, so there’s no sense to risk losing an unrealized gain of 500 pips in order to make an extra 50 pips in profit. Last but not least, the head and shoulders is best traded on the 4-hour chart or higher. However, I have found that the best price structures tend to form on the daily time frame. A formation on the 1-hour chart or lower should always be ignored, regardless of how well-defined the structure may be. As the name implies, the wedge is a technical pattern in which price moves into a narrowing formation, also called a triangle. Unlike the head and shoulders we just discussed, the wedge is most often viewed as a continuation pattern. This means that once broken, price tends to move in the direction of the preceding trend. That said, it’s important not to get caught up in trying to predict a future direction while the pattern is still intact. Only once support or resistance is broken should you begin to identify possible targets. The wedge was one of the first Forex chart patterns I began trading shortly after I entered the market in 2007. By 2010, I had not only become proficient in trading them, but I had also developed the intuition necessary to identify the most profitable formations – something that can only be had after years of practice. The really great wedge patterns don’t come around all that often. By “really great”, I’m referring to the ones that form on the daily chart. While you can trade these on the 4-hour time frame, in my experience the most lucrative trade setups form on the daily time frame. Wedges tend to play out relatively quickly compared to something like the head and shoulders pattern.

However, they also allow for an advantageous risk to reward ratio, especially the larger structures that form on the daily chart. This combination allows you to secure a nice profit in a relatively short period of time. So although they don’t come around all that often, wedges should certainly be something that you watch for during extended periods of consolidation. Staying out of Trouble. There are three common mistakes I see traders making when it comes to trading the wedge. The first and perhaps most prevalent is trying to force support and resistance levels to fit. In fact, this is a common issue I see across all of trading, not just wedges. As I always say, if a level is not extremely obvious, it should be ignored. The three points in the illustration above are clearly not inline with the upper and lower levels of consolidation, which invalidates the formation in terms of “tradability”. The second mistake I see among traders is attempting to trade a wedge on a lower time frame. While these formations may occur more often, they won’t be nearly as reliable or effective as the price structures that form on the daily time frame. Last but not least is the issue of timing. As you may well know, timing is a key factor if you wish to succeed in the world of Forex. And when it comes to wedge patterns, timing is everything. More often than not, when this pattern breaks, the market will retest the broken level as new support or resistance. This retest offers the perfect opportunity for an entry, however it does take patience to achieve.

Be careful of entering on the first closed candle outside of the pattern as you will likely get a retrace of some sort. This will not only give you a more favorable entry, but it will also help you avoid making an emotional decision about exiting the position in the event you entered prematurely. The Bull and Bear Flag. The bull or bear flag is another name for a channel. However, by adding “bull” or “bear” to the designation, we’re giving it a directional bias. So as you might expect, it is most often traded as a continuation pattern. Like the head and shoulders, flags often form after an extended move up or down and represent a period of consolidation. It’s essentially an indecision point in the market, where the bulls and bears are battling to see who will win control. I feel confident in saying that you could literally trade nothing but bull and bear flags and make very good money in the Forex market.

This, of course, assumes that you have become a proficient price action trader. Why do I think so? There are a few reasons, but mostly due to the fact that these formations occur quite often. This is true even if you are trading the higher time frames. Of course when I say “quite often”, I’m referring to a few times per month, at most. That said, you only need one profitable trade each month to make good money as a Forex trader. If that one good trade comes in the form of a bullish or bearish flag pattern, it is likely to have an extremely favorable risk to reward ratio attached to it. This is another reason why I love having this price structure included in my trading plan. The measured objective in this case often allows for several hundred pips on most currency pairs. Combine that with a precise entry and a well-placed stop loss that is 50 to 100 pips away, and you have a recipe for a profit potential of 3R or better just about every time. Staying out of Trouble. Like the other patterns above, there are a few things you should watch out for when trading this formation. The first is perhaps the most obvious – never cut off the highs or lows in order to make the channel fit. If it isn’t obvious before you even draw the channel tool on your chart, it isn’t likely something you’ll want to trade.

The illustration below shows price action that you would want to ignore completely. Notice how the two points above don’t match up with support and resistance. Calculating the measured objective also tends to give traders fits. Just remember that the measurement should include the consolidating price action. The correct measurement in the illustration above covers the entire “flag pole”, not just the price action leading up to the consolidation. Using chart patterns to trade the Forex market isn’t for everyone. However, if you enjoy using raw price action to identify opportunities, the three formations above would make a great addition to your trading plan. You don’t have to know and trade every price structure available in order to make consistent gains as a Forex trader. Doing so will only slow the learning process and also send you chasing trades in every which direction. Becoming a successful trader is about finding an approach to the markets that fits your style, defining your trading plan and then refining those rules as you gain experience. So if you enjoy trading technical patterns, as I do, be sure to give some consideration to the three we just covered; they truly are all you need to become consistently profitable. Are you ready to start using the chart patterns above?

If so, you definitely want to download the free Forex chart patterns PDF that I just created. It contains all three price structures you studied above and includes the characteristics I look for as well as entry rules and stop loss strategies. Click the link below and enter your email to get instant access to the cheat sheet. I’m a fan of these patterns too, thanks to your teaching. These three patterns are easy to spot, simple to trade and highly effective. Kiwi, absolutely! They really are the only three patterns you need to become profitable. Hi Justin, thank you for your great and consistent work. Can this flag be valid? Doesn’t look to be, just confirming. Having read a previous post re: this pair and the h&s pattern that now seems to be realized, this q aims to define the invalidation point of the certain - appears to be - bullish flag. I wouldn’t call that a flag. The touches off of support and resistance aren’t very well defined. Awesome post Justin. What I like about these patterns is that once they form on the charts they are for the most part consistent and predictable.

You’re not going to win 100% of the time with them, but as I said they are consistent and do perform well. My favorite one is the pennant. I love the way it bounces or rockets in its intended direction. It is a pattern that I myself is comfortable with and even teach it to my clients. Stick with what works for you and you’ll get consistent results. I hope you all have a magnificent day on PURPOSE! Tareeq, you got it! There is no approach to trading that will work 100% of the time. It’s about finding something that fits your style, developing an edge that stacks the odds in your favor and always maintaining a favorable risk to reward ratio. It doesn’t happen overnight but it does work given the right amount of time, effort and patience.

Real world trading looks very different to nicely drawn illustrations. Maybe if you offered trade examples from actual trading within a third-party verified account you could be taken seriously. The thing is this: my five year old niece does drawings similar to those in this article. But she’s no trader. I would’ve expected something different from a guy who calls himself a professional trader and who has ads in Forbes and Washington Post (that’s how I landed here). Hi JLTrader, perhaps you should have a look around the site before making such a drastic judgement call. The reason I used these drawings in this lesson is simply because it’s easier to explain the patterns. If you want “real-world trading” examples, have a look at the following links: These are but a few of the real-world examples I publish every week. Have a good one. They work.

Over 80% success on trades taken on these patterns. When people are buying signals they are buying tips on these patterns. It’s a shame considering that a five year old can trade these patterns and make money especially on longer (4H and greater-especially 1D time frames). Justin, I am regular reader of your blog, I want to know that the patterns you explained is only for forex or can be applied in any instrument like commodities or stocks. Anil, these patterns can be effective in any market so long as there is sufficient liquidity. Good job ! Thanks for the lesson. I’ll surely try them out. You’re welcome, Hendrix. Let me know if you have any questions. I’m interested of this pattern of trading and I’m trying it, thank you for this nice and clear explanation. Thank you for this nice and clear explanation. Hi, Justin, Thank You for all done. It’s realy help me learn price action. Great work.

Thank you very much….you make it easier for us. If the price action doesn’t retest the broken level, at how many pips would one consider the break not a fake? Great price pattern . Thanks for the lesson. Great price pattern. Thanks for the lesson. wow! good explanation. In your article, you said both Wedge and Flag are most viewed as “Continuation” pattern. For what I have known, continuation or not should take the combination of 1)The trend type before the Wedge or Flag and 2) The formation type of Wedge or Flag into consideration. Say for example, if the previous trend is “up” and the flag is “ascending”, this flag pattern is most viewed as a “Reversal” pattern.

Same applied to Wedge. If you agree with that , I will be very happy to see you updated this great article to make it more complete. Anyway, this is a great pattern article for beginners. Keep you good work! Thanks very much…I can’t waiting to get fantastic skills please help me to know forex trick..From East Africa (Tanzania) Disclaimer: Any Advice or information on this website is General Advice Only - It does not take into account your personal circumstances, please do not trade or invest based solely on this information. By Viewing any material or using the information within this site you agree that this is general education material and you will not hold any person or entity responsible for loss or damages resulting from the content or general advice provided here by Daily Price Action, its employees, directors or fellow members. Futures, options, and spot currency trading have large potential rewards, but also large potential risk.

You must be aware of the risks and be willing to accept them in order to invest in the futures and options markets. Don't trade with money you can't afford to lose. This website is neither a solicitation nor an offer to BuySell futures, spot forex, cfd's, options or other financial products. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed in any material on this website. The past performance of any trading system or methodology is not necessarily indicative of future results. High Risk Warning: Forex, Futures, and Options trading has large potential rewards, but also large potential risks. The high degree of leverage can work against you as well as for you. You must be aware of the risks of investing in forex, futures, and options and be willing to accept them in order to trade in these markets. Forex trading involves substantial risk of loss and is not suitable for all investors. Please do not trade with borrowed money or money you cannot afford to lose. Any opinions, news, research, analysis, prices, or other information contained on this website is provided as general market commentary and does not constitute investment advice. We will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from the use of or reliance on such information.

Please remember that the past performance of any trading system or methodology is not necessarily indicative of future results. Copyright 2018 by Daily Price Action, LLC. Please log in again. The login page will open in a new window. After logging in you can close it and return to this page. Most Commonly Used Forex Chart Patterns. With so many ways to trade currencies, picking common methods can save time, money and effort. By fine tuning common and simple methods a trader can develop a complete trading plan using patterns that regularly occur, and can be easy spotted with a bit of practice. Head and shoulders, candlestick and Ichimoku forex patterns all provide visual clues on when to trade. While these methods could be complex, there are simple methods that take advantage of the most commonly traded elements of these respective patterns. (For more on charts, read "Charting Your Way to Better Returns.

") TUTORIAL: Analyzing Chart Patterns. While there are a number of chart patterns of varying complexity, there are two common chart patterns which occur regularly and provide a relatively simple method for trading. These two patterns are the head and shoulders and the triangle. Head and Shoulders (H&S) The H&S pattern can be a topping formation after an uptrend, or a bottoming formation after a downtrend. A topping pattern is a price high, followed by retracement, a higher price high, retracement and then a lower low. The bottoming pattern is a low (the "shoulder"), a retracement followed by a lower low (the "head") and a retracement then a higher low (the second "shoulder") (see Figure 1). The pattern is complete when the trendline ("neckline"), which connects the two highs (bottoming pattern) or two lows (topping pattern) of the formation, is broken. This pattern is tradable because it provides an entry level, a stop level and a profit target. In Figure 1 there is a daily chart of the EURUSD and an H&S bottoming pattern that occurred. The entry is provided at 1.24 when the "neckline" of the pattern is broken. The stop can be placed below the right shoulder at 1.2150 (conservative) or it can be placed below the head at 1.1960; the latter exposes the trader to more risk, but it has less chance of being stopped before the profit target is hit. The profit target is determined by taking the height of the formation and then adding it to the breakout point. In this case the profit target is 1.2700-1.1900 (approx) = 0.08 + 1.2400 (this is the breakout point) = 1.31. The profit target is marked by the square at the far right, where the market went after breaking out. (For more on the Head and Shoulders pattern, see "Price Patterns Part 2: Head-and-Shoulders Pattern.

") Triangles are very common, especially on short-term time frames. Triangles occur when prices converge with the highs and lows narrowing into a tighter and tighter price area. They can be symmetric, ascending or descending, though for trading purposes there is minimal difference. Figure 2 shows a symmetric triangle. It is tradable because the pattern provides an entry, stop and profit target. The entry is when the perimeter of the triangle is penetrated – in this case, to the upside making the entry 1.4032. The stop is the low of the pattern at 1.4025. The profit target is determined by adding the height of the pattern to the entry price (1.4032). The height of the pattern is 25 pips, thus making the profit target 1.4057, which was quickly hit and exceeded. (For more on triangles, read "Triangles: A Short Study in Continuation Patterns.

") Candlestick charts provide more information than line, OHLC or area charts. For this reason, candlestick patterns are a useful tool for gauging price movements on all time frames. While there are many candlestick patterns, there is one which is particularly useful in forex trading. An engulfing pattern is an excellent trading opportunity because it can be easily spotted and the price action indicates a strong and immediate change in direction. In a downtrend, an up candle real body will completely engulf the prior down candle real body (bullish engulfing). In an uptrend a down candle real body will completely engulf the prior up candle real body (bearish engulfing). The pattern is highly tradable because the price action indicates a strong reversal since the prior candle has already been completely reversed. The trader can participate in the start of a potential trend while implementing a stop. In Figure 3 we can see a bullish engulfing pattern that signals the emergence of an upward trend. The entry is the open of the first bar after the pattern is formed, in this case 1.4400. The stop is placed below the low of the pattern at 1.4157. There is no distinct profit target for this pattern. (For more on candlestick charting, read "The Basic Language of Candlestick Charting.") Ichimoku Cloud Bounce. Ichimoku is a technical indicator that overlays the price data on the chart.

While patterns are not as easy to pick out in the actual Ichimoku drawing, when we combine the Ichimoku cloud with price action we see a pattern of common occurrences. The Ichimoku cloud is former support and resistance levels combined to create a dynamic support and resistance area. Simply put, if price action is above the cloud it is bullish and the cloud acts as support. If price action is below the cloud, it is bearish and the cloud acts as resistance. The "cloud" bounce is a common continuation pattern, yet since the cloud's supportresistance is much more dynamic that traditional horizontal supportresistance lines, it provides entries and stops not commonly seen. By using the Ichimoku cloud in trending environments, a trader is often able to capture much of the trend. In an upward or downward trend, such as can be seen in Figure 4, there are several possibilities for multiple entries (pyramid trading) or trailing stop levels. (To learn more about Ichimoku charts, check out "An Introduction to Ichimoku Charts in Forex Trading.") In a decline that began in September, 2010, there were eight potential entries where the rate moved up into the cloud but could not break through the opposite side.

Entries could be taken when the price moves back below (out of) the cloud confirming the downtrend is still in play and the retracement has completed. The cloud can also be used a trailing stop, with the outer bound always acting as the stop. In this case, as the rate falls, so does the cloud – the outer band (upper in downtrend, lower in uptrend) of the cloud is where the trailing stop can be placed. This pattern is best used in trend based pairs, which generally include the USD. There are multiple trading methods all using patterns in price to find entries and stop levels. Forex chart patterns, which include the head and shoulders as well as triangles, provide entries, stops and profit targets in a pattern that can be easily seen. The engulfing candlestick pattern provides insight into trend reversal and potential participation in that trend with a defined entry and stop level. The Ichimoku cloud bounce provides for participation in long trends by using multiple entries and a progressive stop. As a trader progresses, he or she may wish combine patterns and methods to create a unique and customizable personal trading system. (For more, check out "How to Become a Successful Forex Trader.") Tutorials on Chart Patterns. What do the chart patterns stand for? How much are they helpful for you? What are the basics you should know? How to use them? How to implement the best method to calculate the price targets? Continuation Chart Patterns.

Trend continuation patterns are formed during the pause in the current market trends and mainly mark the movement continuation. These patterns indicate that the price action displayed is a pause in the prevailing trend. They help traders to differentiate pause in the price movement from its complete reversal and show that upon breaking out of the pattern the price trend will continue in the same direction. Reversal Chart Patterns. Trend reversal patterns are essential indicators of the trend ending and the start of a new movement. They are formed after the price level has reached its maximum value in the current trend. The main feature of trend reversal patterns is that they provide information both on the possible change in the trend and the probable value of price movement. Learn Trading with IFC Markets. 4 simple steps to learn trading. Forex & CFD Trading Tutorials Library.

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