To begin with; patterns refer to the distinctive formations made by price movements on charts.  Patterns are the basis for technical analysis. Ideally, patterns are noted by lines which join common price points for a specified period of time.

Top 3 mostly used Forex Charts and Patterns

1.      Reversal Chart Patterns

Reversal Chart Patterns refer to the formations which indicate that the current market trend is just about to change direction. In a scenario where a reversal chart pattern occurs in an uptrend, what this means is that the trend is bound to reverse and price go down shortly. Consequently, when the reverse chart pattern forms during a downtrend, it’s an indication price will go up.

These are some chart patterns that will give reversal signals: -

·         Double top

·         Double bottom

·         Head and Shoulder

·         Inverse Head and Shoulder

·         Rising wedge

·         Falling wedge

 

2.      Continuation Chart Patterns

Continuation Chart Patterns are the chart formations which give the indication that the current trend is bound to resume. They are also referred to as consolidation patterns since they illustrate traders take a quick break then proceed in the same direction as before. Continuation Chart patterns include;

·         Wedges – can be both reversal and continuation, based on the trend they form. Consist 2 converging trend lines, both angled up or down

·         Flags – constructed as 2 parallel trend lines  

·         Pennants – consist of 2 converging trend lines

Continuation patterns are can be viewed as when the trend pauses for bulls to catch their breath in an uptrend or if in a downtrend as when the bears relax for a minute.

3.      Bilateral Chart Patterns

Bilateral chart patterns are not as straightforward as the rest. Usually, they signal that price may go in either direction; can change or resume same trend. That’s why the name bi-lateral (2-way). The triangle formations actually fall in here.

For bilateral chart patterns, you need to consider both price breakouts to either topside or downside and ideally place one order above the formation and the other below the formation. Upon the first order being triggered, you cancel the other. It’s called doubling your chances with the main problem being possibility of catching a false break in the event you set the entry orders very close to the formation at both top and bottom levels.

Practice caution and remember to have your stops in place.