The 5 Most Common Forex Chart Patterns

The 5 Most Common Forex Chart Patterns

Simply put, chart patterns offer critical insights into market movements. More than just ‘fancy’ graphs, these visual representations of price movements in the Forex market help traders predict future price directions.

Here are the five most common chart patterns that every trader should know.

1. Head and Shoulders
The Head and Shoulders pattern is a reversal pattern that signals a change in trend direction. It is made up of three peaks: a higher peak (the head) between two lower peaks (the shoulders).



How the pattern is formed

Left Shoulder
A price rise followed by a peak and a decline.

Head
A higher peak forms after the decline of the left shoulder, followed by another decline.

Right Shoulder
A rise to a peak similar in height to the left shoulder, followed by a decline.

What it means on the charts
When you see a head and shoulders pattern on a forex chart, it usually means that the price might stop going up and could start going down instead.

2. Double Top and Double Bottom
These patterns are reversal patterns that indicate a change in the trend direction. A Double Top signals a bearish reversal, while a Double Bottom signals a bullish reversal (more about this in a bit).

How these patterns are formed

A Double Top is made of two peaks at about the same level, with a trough in between.



A Double Bottom is made up of two troughs at roughly the same level, with a peak between them.



What they mean on the charts

Double Top When the price falls below the trough between the two peaks, it signals a bearish reversal.

A bearish reversal happens when the price of an asset stops rising and starts going down. It means that the upward trend has ended and a downward trend is starting.

Double Bottom
When the price rises above the peak between the two troughs, it signals a bullish reversal.

A bullish reversal happens when the price of an asset, like a currency pair, stops falling and starts going up. It means that the downward trend has ended and an upward trend is beginning.

3. Triangles
Ascending, Descending & Symmetrical

Triangles are patterns that show the price is taking a break before continuing to move in the same direction as before.

How these patterns are formed

Ascending Triangles are formed by a horizontal resistance line and an ascending support line.



Descending Triangles are formed by a horizontal support line and a descending resistance line.



Symmetrical Triangles are formed by support and resistance lines moving closer together, showing that the price could break out in either direction.



What they mean on the charts

When breaking above the resistance line, an Ascending Triangle shows that the price may go up more.

When breaking below the support line, a Descending Triangle suggests that the price might keep going down.

When breaking out in the previous trend's direction, a Symmetrical Triangle indicates the trend could continue.

4. Flags and Pennant s
Flags and Pennants signal short pauses in a trend before prices keep moving the same way.

How this pattern in formed

A Flag is a small rectangular pattern that points in the opposite direction of where prices have been going recently.



A Pennant is a small symmetrical triangle that forms after a strong price movement.



What they mean on the charts A Flag: A breakout in the direction of the prior trend signals a continuation of that trend. Pennant: A breakout in the direction of the prior trend signals a continuation of that trend.

5. Wedges
Rising and Falling
Rising and Falling Wedges are reversal patterns that indicate a change in trend direction.

How these patterns are formed

Rising Wedges are formed by upward sloping support and resistance lines, coming together as the price rises.



Falling Wedges are formed by downward sloping support and resistance lines, converging as the price falls.



What they mean on the charts

When breaking out below the support line, a Rising Wedge signals a bearish reversal.

When breaking out above the resistance line, a Falling Wedge signals a bullish reversal.

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Improving your chart analysis skills is one sure way to help you trade with confidence. By focussing on understanding these common chart patterns, learning to interpret market movements will come a lot more naturally to you along the way.

As your trusted broker, we’re proud to be your go-to destination for easy-to-understand FX knowledge. Once you’ve got the basics down, you know where to find us when you’re looking to learn about the other technical indicators and market conditions that can assist you in making smart trading decisions.