Your complete guide to Forex chart patterns

Forex Chart patterns are a very effective type of technical analysis that focuses more on price action instead of indicators. Even though indicators can be effective, they rely on past data so they're not as accurate as you think. Chart patterns have quite a high success rate but their detection is subjective; you need to have experience with patterns if you want to see the best set-ups.

Rising Wedge and Falling Wedge Chart Patterns

The wedge patterns can have different characteristics depending on when they appear. A rising wedge, when formed during an uptrend, indicates a reversal, however, if it appears during a downtrend it will indicate a continuation. The falling wedge indicates a reversal when formed during a downtrend and a continuation when formed during an uptrend.

A rising wedge is a consolidation pattern that appears when there isn't enough power to move the price in either direction. This is shown on the chart by higher highs and higher lows, the lows should be increasing at a faster rate. This pattern indicates the price is about to move down.

Just as the rising wedge, the falling wedge is a consolidation pattern. This time though, it shows that the price is about to move upwards and it’s signified by lower lows and lower highs, the highs will also become lower at a faster rate.

Symmetrical Triangle, Ascending Triangle, and Descending Triangle Chart Patterns

Triangle patterns have a unique characteristic that can't be found in other chart patterns. They are known as bilateral patterns, meaning they don't indicate the price will move in a certain direction i.e. it could move either way. Profit can still be made regardless of which direction the price moves, so don't neglect this pattern. There are three types of triangle patterns which we will discuss below.

The symmetrical triangle pattern appears when neither buyers nor sellers can push the price in their direction i.e. it is a consolidation. This is signified by lower highs and higher lows, eventually, the price will get to a point where it will break out. You can benefit from this breakout by placing entry orders a few pips (this is subjective) away from the tip of the triangle on each side i.e. both buy and sell orders.

An ascending triangle is in favor of the buyers; you can identify this on the chart when you see higher lows and resistance at the highest point. Even though price action states that the buyers are in control, the price can easily plummet. Place entry orders on both sides just as you would with the symmetrical triangle.

Last of the triangle patterns is the descending triangle. This is the opposite of the ascending triangle and so tells us the sellers are pushing the price in their direction. A descending triangle is signified by lower highs and support at the lowest point. It remains to be bilateral so placing entry orders on both sides is still the best approach.

Bullish and Bearish Pennant Forex Chart Pattern

A bullish pennant pattern will appear after a strong rise in the market, it is a small consolidation but gives no indication that buying power is diminishing and is, therefore, a continuation Forex chart pattern. Place an entry order slightly above the pennant and a stop loss slightly below, this will save you in the result of a fake-out.

The bearish pennant is very similar to the bullish pennant, except it is formed during a downtrend in the market and means the price is about to move lower. Just like with the bullish pennant, make sure you place an entry order below the pennant and a stop loss slightly above to prevent fake-outs.

Bearish Rectangle and Bullish Rectangle Chart Pattern

Bearish rectangle patterns appear after a downtrend in the market; it's a continuation pattern but also signifies consolidation. After a strong move down, sellers won’t be putting much pressure on the market which may result in the support and resistance levels being tested as price moves up and down. To benefit from this set-up, place an entry order slightly below the support line.

Just like the bearish rectangle, a bullish rectangle is continuations pattern but also a consolidation. It appears after a strong move upwards and so the price is most likely to move further upwards on the breakout. Take advantage of this by placing an entry order slightly above the resistance level and be ready for the breakout.

If necessary, you can bookmark this page in case you need to double check a Forex chart pattern while conducting your technical analysis. Being thorough will help you become a successful currency trader.