Back
Compare Forex Brokers
  • Broker Awards
    • Best brokers by category
      • Best brokers for beginners
      • Lowest spread forex brokers
      • Best CFD brokers
      • Best crypto brokers
      • Best brokers for scalping
      • Lowest commission brokers
      • High leverage forex brokers
      • Best spread betting brokers
    • Country-specific recommendation
      • Australia
      • United Kingdom
      • United States
      • Canada
      • Singapore
      • United Arab Emirates
      • New Zealand
      • Malaysia
  • Trading Platforms
    • Best MT4 brokers
    • Best MT5 brokers
    • Best cTrader brokers
    • Best TradingView Brokers
    • Best automated trading software
    • Best copy trading platforms
  • Broker Reviews
    • Best Rated Forex Brokers
      • Pepperstone review
      • IC Markets review
      • Oanda Review
      • Saxo Markets review
      • Interactive Brokers review
      • Admirals review
      • IG Markets Review
      • All REVIEWS
  • About Us
    • The team
    • Our Methodology
    • Contact
  • Broker Awards
    • Best brokers by category
      • Best brokers for beginners
      • Lowest spread forex brokers
      • Best CFD brokers
      • Best crypto brokers
      • Best brokers for scalping
      • Lowest commission brokers
      • High leverage forex brokers
      • Best spread betting brokers
    • Country-specific recommendation
      • Australia
      • United Kingdom
      • United States
      • Canada
      • Singapore
      • United Arab Emirates
      • New Zealand
      • Malaysia
  • Trading Platforms
    • Best MT4 brokers
    • Best MT5 brokers
    • Best cTrader brokers
    • Best TradingView Brokers
    • Best automated trading software
    • Best copy trading platforms
  • Broker Reviews
    • Best Rated Forex Brokers
      • Pepperstone review
      • IC Markets review
      • Oanda Review
      • Saxo Markets review
      • Interactive Brokers review
      • Admirals review
      • IG Markets Review
      • All REVIEWS
  • About Us
    • The team
    • Our Methodology
    • Contact
menu
Home » Forex Trading » forex patterns

Forex Patterns

Forex patterns are a critical tool in a forex trader’s arsenal for predicting movements in the forex market. These charts can signal entry or exit points for successful trading. This guide will show you the read forex patterns.

Written by Justin Grossbard

Edited by Sean A'Hearn

Fact Checked by David Levy

Edited by Sean A'Hearn

Fact Checked by David Levy

Updated: 20/09/2023

What Changed?

Each month we update average spreads data published by the brokers the retail brokers lose %

Fact Checked

We double-check broker fee details each month which is made possible through partner paid advertising. Learn more this here.
Forex Chart Patterns

Our forex comparisons and broker reviews are reader supported and we may receive payment when you click on a link to a partner site.

  1. Trading Pattern To Help You Analyse Forex Markets
  2. Beginners Guide To Reading Forex Pattern Charts
  3. How Candlestick Charts Are Constructed
  4. Popular Chart Patterns For Forex Trading
  5. Reversal Chart Patters
  6. Continuation Chart Patterns
  7. Price Action Cheat Sheet
  8. Final Thoughts

Learn How to Read Forex Patterns the Right Way

If you want to learn how to read forex patterns the right way, the most important trading tool you’ll come across is a live forex chart. Forex trading without a chart can be a daunting task because forex chart patterns allow seeing at first glance what the financial markets are doing. This will provide an effective way to time the market.

In other words, trading without forex charting software and forex patterns is like a blind man trying to cross the road. Forex traders can develop a complete trading strategy by simply using forex chart patterns.

While there is a variety of forex patterns, only a handful of them have a statistical edge and reliability. The most commonly used forex chart patterns can help you know the right time to buy and sell. If this sounds interesting, you must learn the art of price action trading.Candlestick Price Action

By the end of this price action trading guide you’ll learn:

  • The best way to analyse the forex market,
  • How to read a forex chart if you’re a beginner,
  • How candlestick charts are constructed,
  • Trading secrets about the candlestick’s body length and wicks,
  • The most popular forex chart patterns in forex trading (head and shoulder, double tops and bottoms, wedges, triangles, etc.).

The Best Way to Analyse the Forex Market

The best way to track the price movements of your favourite currency pair is through live forex charts. There are many different alternatives to keep up with the most recent price moves in the forex market.

The best free forex charting software for analysing live charts are:

  • best forex trading platform mt4 (MT4) trading platform – with a user-friendly interface and easy-to-follow instructions
  • best broker for metatrader 5 usa (MT5) trading platform – complete charting solution for forex trading and CFDs
  • cTrader – has an interactive graphical interface
  • TradingView – delivers a highly customisable charting package

Forex Chart Patterns

The majority of forex brokers will supply their clients with free forex charting software that allows for studying FX charts. Most forex traders are using trading strategies that are based on price action trading, which inevitably requires them to use a trading platform equipped with forex charting software.

The MetaTrader 4 platform is the starting point for many retail traders as it’s free to download and has easily accessible trading charts.

What is a Forex Chart?

Put simply, a forex chart is a visual representation of the actual movement of prices over a given period of time. The prices of all currency pairs are displayed using the Cartesian coordinate system (x-y axis) where the horizontal axis displays the time while the vertical axis displays the price.

Forex Price Action Chart

How to Read Forex Charts for Beginners

The forex charts are a great tool used to identify the general direction of the market, support and resistance levels, and where to enter and exit the market among other things. Essentially, by using historical price data, forex traders can predict future price movement.

In technical analysis, there are 3 types of forex charts:

  1. Line chart
  2. Bar chart
  3. Candlestick chart

Forex Chart Types

Each chart type is read in a different way. Ultimately, it comes down to your personal preferences about which types of forex chart to use. However, the candlestick charts are regarded to offer a complete view of the price action, which is why it is among the most popular form of charting.

See below how to read different types of forex charts.

Line Chart

Through the line chart, the historical price data is represented by a continuous line. Usually, the line chart represents information about the average closing price. However, line charts can also be used as input for the open, high, or low prices to give a visual representation of the exchange rate.

The main advantage of line charts is their simplicity, but the major drawback is the lack of information about the price action and the trading range over the defined time period.

Forex Chart Types

Bar Chart

The bar chart is also known as the OHLC price chart because it displays information about the opening, closing, highest and lowest prices. The bar charts can be visually recognised by a vertical line with two small dash lines to the left and right of the vertical line.

In a bar chart, the small horizontal dash line to the left represents the opening price, while the horizontal dash line to the right represents the closing price. At the same time, the bottom and top of the vertical line display the highest and lowest prices over the defined time period.

Forex Chart Types

Candlestick Chart

Candlestick charts are similar to line charts as they display the same price information (OHLC prices) but in a visually different way. Candlesticks charts display the price range between the opening and closing price with a rectangle.

The main advantage of candlestick charts is that it’s easy to spot forex chart patterns and very easy to interpret them. Candlestick charts are a good starting point for beginner traders to understand how forex chart analysis works.

Forex Chart Types

How Candlestick Charts Are Constructed?

Candlestick charts are constructed using four main prices:

  • The open price,
  • The high price,
  • The low price, and
  • The close price.

Open High Low Close Prices

These four prices put together can form different candle shapes over a set amount of time. The time frame used can vary from the 1-minute chart all the way up to the monthly chart depending on your chart settings. A new candlestick will be printed on the price chart as soon as the period of time is completed.

Each candlestick is made of a real body (the rectangle shape) and two thinner lines called wicks attached at the top and bottom of the real body. The wicks are also referred to as being shadows or tails.

Types Of Candlesticks In Technical Analysis

In technical analysis, we can recognise two main types of candlesticks:

  1. Bullish candlesticks – usually represented by green colour depending on your chart settings.
  2. Bearish candlesticks – usually represented by red colour depending on your chart settings.

Types of Candlesticks

The bullish candlesticks are pointing upwards and show that the prices have risen over that period. In this case, the bottom of the real body displays the opening price and the top the closing price. The highest point and lowest point of the wicks represents the highest and lowest prices over that period of time.

Conversely, the bearish candlesticks are pointing downwards, and show that the prices have dropped over that period. In this case, the top of the real body shows the opening price, while the bottom the closing price.

Note* If the candlesticks are missing the wicks, that means that the highest and lowest prices are equal to the opening and closing prices. In technical analysis, these types of candlesticks are called Marubozu.

What Does Long Body Candle and Long Wicks Tell Us

A bullish candlestick with a long body shows strong buying pressure where there are more buyers than sellers. A bearish candlestick with a long real body shows strong selling pressure or that there are more sellers than buyers.

At the same time, candlesticks with long shadows above or below the body show price rejections and usually indicate strong levels of support and resistance. These types of candlestick patterns can signal a potential trend reversal.

By analysing the candlestick shape and the types of candles on a price chart, we can tap into the market sentiment and get a sense of market direction. The next section will elaborate more on this along with the most popular forex patterns in technical analysis.

Common Forex Chart Patterns in Forex Trading

Depending on how the candlesticks are built and their location within the overall market trend, forex traders can recognise two main groups of chart patterns:

  1. Reversal chart patterns – signal a potential change in the trend direction
  2. Continuation chart patterns – signal a potential continuation of the trend

The multitude of combinations of different candlesticks shapes allows for the identification of countless forex chart patterns that can contain one, two, three or multiple candlesticks. Usually, some of the most recognisable candlestick patterns have self-explanatory names, which will be addressed below.

Reversal Chart Patterns

A reversal pattern is a price action formation that marks the end of the prevailing trend and the start of a new trend. In trend analysis, we can recognise two types of reversal chart patterns:

  1. Bullish reversal pattern – marks the end of a bearish trend and the start of a bullish trend. Example of bullish reversal patterns includes the inverse Head and Shoulder pattern or the double bottom pattern.
  2. Bearish reversal pattern – marks the end of a bullish trend and the start of a bearish trend. Example of bullish reversal patterns includes the Head and Shoulder pattern or the double top pattern.

This transition phase from an uptrend to a downtrend and vice versa is what marks high and low points on candlestick charts.

How Reversal Chart Pattern Works

At the most basic level, the reversal pattern helps us to measure the supply and demand imbalances and the shift in market sentiment. In other words, the reversal pattern tracks the buying and selling forces that are behind the movement of all prices and signals when the market trend losses momentum and is about to change direction.

Note* The most important characteristic of reversal chart patterns is that they must develop in a trending market (uptrend or downtrend) and they cannot be used in a ranging market or consolidation.

Below are listed the top 6 reversal candlestick patterns that every trader needs to know:

  1. Head and Shoulders
  2. Inverse Head and Shoulders
  3. Double Top
  4. Double Bottom
  5. Rising Wedge
  6. Falling Wedge

Head and Shoulders Pattern

Head and Shoulders (H&S) are bearish reversal patterns that appear at the end of bullish trending markets. On a price chart, the Head and Shoulders price formation can be recognised by 3 successive peaks, where the middle peak is the highest point of this price formation followed by two outside peaks to the right (right shoulder) and left (left shoulder) of the middle peak. The outside two peaks are about the same height.

Head and Shoulder Forex Pattern

Head and Shoulders Name Interpretation:

The middle peak resembles the head while the two peaks (left shoulder and right shoulder) on both sides of the head resemble two shoulders.

A trendline called the neckline can be drawn by connecting the two valleys (swing lows) below the head. The neckline can be with a flatter slope or pointing upwards or downwards. A breakout of the neckline can potentially signal a bullish-to-bearish trend reversal.

How to Trade the Head and Shoulders Pattern

The most common entry strategy is to sell at the breakout of the neckline. Less common entry methods for the Head and Shoulders pattern are:

    1. Selling near the right shoulder in anticipation of an H&S price forming
    2. After the neckline breakout wait for a price retracement to retest the neckline before selling

The strategy is to place the stop loss above the head or above the right shoulder if you want to minimise the risk. At the same time, the Head and Shoulders profit target is calculated by measuring the price distance between the head and the two valleys and projecting the same price distance from the neckline breakout point.

We also have a bearish version of the H&S pattern called the inverse Head and Shoulders pattern.

Inverse Head and Shoulders Pattern

The inverse Head and Shoulders pattern is a bullish reversal pattern that appears at the end of a downtrend. On a price chart, the inverse Head and Shoulders price formation can be recognised by 3 successive lows, where the low in the middle is the lowest point of this price formation followed by two outside lows to the right and left of the middle-low point. The outside two lows are about the same height.

Inverse Head and Shoulder Pattern

As you might tell, the inverse Head and Shoulders pattern is the upside-down version of the Head and Shoulders pattern. In this regard, we can apply the same trading rules of the Head and Shoulder but in reverse.

Double Top and Double Bottom Pattern

In technical analysis, both the double top and the double bottom work on the same principles. The double top pattern develops at the end of an uptrend and can be found only in bullish markets. On a price chart, the double top can be recognised by two consecutive swing highs (peaks) that are roughly equal in price and indicates a strong resistance level.

Note* The double top resembles the letter “M.”

The double top entry is triggered once the valley (swing low) between the two tops is broken to the downside. The stop loss can be hidden above the two peaks respectively below the two valleys in the case of the double bottom.

Double Top Reversal Pattern

Double Bottom Pattern

The double bottom develops at the end of a downtrend and can be found only in bearish markets. On a price chart, the double bottom can be recognised by two consecutive swing lows (valleys) indicating support and is roughly equal in price.

The double bottom entry is triggered once the peak (swing high) between the two bottoms is broken to the upside.

Note* The double bottom resembles the letter “W.”

Another reversal pattern that resembles the double top/bottom is the triple top and triple bottom which has an additional peak (triple tops) respectively an additional valley (triple bottoms).

Rising Wedge Pattern

Understanding the rising wedge and falling wedge chart patterns is quite easy. Both forex chart patterns signal a trend reversal. The rising wedge signals a bearish reversal, while the falling wedge signals a bullish reversal.

The rising wedge is a price formation that can be identified by a series of higher lows followed by successive higher highs. This is where the length of each subsequent price movement between the low and the high becomes smaller and smaller.

Rising Wedge Forex Patterns

If we connect the rising highs with a trendline and the higher lows with another trendline, the two trendlines will converge toward what is known as the apex point.

Note* A key characteristic of the rising wedge is that the support line has a steeper slope compared to the resistance line, which leads to the wedge-like price formation.

How to Trade the Rising Wedge

The price compression between the two trendlines will eventually lead to a breakout. In this regard, a sell position is triggered by the breakout of the ascending trendline. The logical place to place the stop loss is on the opposite side of the rising wedge price formation, while a trailing stop loss can be used to lock in profits.

Falling Wedge Pattern

The falling wedge is a price formation that can be identified by a series of lower lows followed by successive lower highs where the length of each subsequent price movement between the low and the high becomes smaller and smaller.

Unlike the rising wedge, the falling wedge develops a resistance line with a steeper slope compared to the support line.

Falling Wedge Chart Pattern

Important Note* The wedge patterns (rising and falling) can also be considered as continuation patterns. For example, if the rising wedge appears at the bottom of the downtrend, it could signal the continuation of the bearish trend. On the other hand, the falling wedge can be considered a continuation pattern if it appears at the top of an uptrend because it is seen as a simple pause within the trend. Trading this way requires an ECN account, not a market maker broker.

Continuation Chart Patterns

The continuation chart patterns are price action formations that usually appear in the middle of the trend. As the name suggests, a continuation chart pattern signals a pause in the trend before the prevailing trend resumes. On the price action chart, reversal patterns are recognised by a period of temporary consolidation of different durations.

In trend analysis, we can recognise two types of continuation chart patterns:

  • Bullish continuation patterns – can be found during an uptrend. The expectation is for a breakout in the direction of the prevailing trend (bullish). Examples of bullish continuation patterns: ascending triangles and bullish pennants.
  • Bearish continuation patterns – can be found during downtrends. The expectation is for a breakout in the direction of the prevailing trend (bearish). Examples of bearish continuation patterns: descending triangles and bearish pennants.

Below are listed the top 7 continuation patterns that every trader needs to know:

  1. Symmetrical triangle
  2. Ascending triangle
  3. Descending triangle
  4. Bearish rectangle
  5. Bullish rectangle
  6. Bullish Pennant
  7. Bearish Pennant

Triangle Patterns

In technical analysis, the triangle pattern is one of the most popular continuation chart patterns. The ideal market environment for the triangle pattern to emerge is when the forex market is entering an ongoing consolidation period.

In the study of technical analysis, there are 3 types of triangle patterns:

  1. Symmetrical triangle
  2. Ascending triangle
  3. Descending triangle

Symmetrical Triangle Pattern

The symmetrical triangle is a price action formation formed by consecutive higher lows and lower highs. If we connect the series of higher lows with a downward-sloping trendline and the series of lower highs with an upward-sloping trendline, at some point these two trendlines will converge where it looks like a triangle.

Symmetrical Triangle Forex Chart Pattern

The price contraction between the two trendlines shows a fierce battle between the buyers and sellers. But, as soon as these two trendlines get closer to each other it signals that a breakout is imminent.

As a general rule, the breakout will happen in the direction of the prevailing trend. In this regard, if the symmetrical triangle develops within a bullish trend, it will break higher. Conversely, if the symmetrical triangle develops within a bearish trend, it will break lower.

Ascending Triangle Pattern

The ascending triangle pattern is a price formation that can be identified by its flat top and an upward-sloping support trendline that connects a series of higher lows. At some point, these two lines will converge where it looks like an ascending triangle.

Ascending Triangle Forex Chart Pattern

As a general rule, the ascending triangle is a bullish continuation price action that appears in the middle of an uptrend. A breakout of the resistance levels will be the trigger for the trend to resume.

The rising higher lows and the multiple retests of the top of the triangle keep putting pressure on the horizontal resistance levels and as a result, a breakout is bound to happen.

Descending Triangle

The descending triangle pattern is a price action formation that can be identified by its flat bottom and a downward-slopping trendline that connects a series of lower highs.

Descending Triangle Forex Chart Patterns

As a general rule, the descending triangle is a bearish continuation price action that appears in the middle of a downtrend.

In the case of the descending triangle pattern, the battle between the buyers and the sellers is won by the sellers and subsequently, the price breaks the flat support line.

Pennant Chart Patterns

Bullish Pennant

The bullish pennant is a price action formation that appears within an uptrend and signals a trend continuation. The ideal pennant pattern would appear after strong price moves, which are often referred to as the flagpole. This is then followed by a tiny ranging zone that often takes the shape of a small-scale symmetrical triangle, which is called a pennant.

As a general rule, the breakouts in the direction of the flagpole are considered to yield better results.

Bullish Pennant Chart Pattern

Bearish Pennant

The bearish pennant is a price action formation that appears within a downtrend and signals a trend continuation. As a general rule, the downside breakouts are considered to yield better results for the bearish pennant.

There are 2 key characteristics of the bullish and bearish pennants:

  1. They are formed during sharp selling and buying pressure that results in almost vertical uptrends (downtrends)
  2. The consolidation period is characterised by a small trading range

Bullish Rectangle and Bearish Rectangle

The rectangle pattern is a price action formation that can be recognised by prices being confined by two horizontal support and resistance levels. The rectangle unveils a pause in the overall trend where prices are consolidating.

In technical analysis we can recognise two types of rectangle patterns:

  • Bullish rectangle pattern – appears within uptrends. The resistance breakout is favoured in this market scenario.
  • Bearish rectangle pattern – appears within downtrends. The support breakout is more favoured in this market scenario.

Rectangle Pattern Forex

To draw a rectangle pattern, we only need two tops and two bottoms with the tops acting as a resistance level and the bottom acting as a support level.

Price Action Cheat Sheet

Forex chart patterns are great for identifying potential entry and exit points, establishing profit targets, and stopping losses which are the basic elements of a trading strategy.

The price action cheat sheet below will help you remember all the forex chart patterns learned through this trading guide and what they signal. We’ve listed the most popular forex patterns, along with what type of trends they work, the signals they generate, and if they are forecasting upward or downward prices.

Forex Pattern When They are Formed Type of Signal Price Forecast
Head and Shoulders Uptrend Reversal Down
Inverse Head and shoulders Downtrend Reversal Up
Double Top Uptrend Reversal Down
Double Bottom Downtrend Reversal Up
Bearish Rectangle Downtrend Continuation Down
Bullish Rectangle Uptrend Continuation Up
Bullish Pennant Uptrend Continuation Up
Bearish Pennant Downtrend Continuation Down
Symmetrical Triangle Uptrend & Downtrend Continuation & Reversal Up & down
Ascending Triangle Uptrend Continuation Up
Descending Triangle Downtrend Continuation Down

Closing Thoughts

Forex patterns are a great tool to forecast future price movements. However, it’s important to use other forms of technical (Fibonacci retracement, pivot points, moving average, etc.) and fundamental analysis (USD economic calendar) alongside forex chart patterns to increase the probability of your trading edge.

Risk Disclaimer: Forex trading carries a high level of risk due to the use of leverage and may not be suitable for all forex traders. In this regard, it’s recommended to start trading first on a demo account until you master the art of reading forex price charts. Nowadays, most leading forex brokers offer risk-free demo accounts that you can try to hone up your trading skills.

About the author: Justin Grossbard

Justin Grossbard is the co-founder of CompareForexBrokers and since 2014 with the role of Strategic Head Of Research. He is a member of the AICD and holds a Master's and Bachelor's Degree in Commerce. He previously worked with the banking sector, including ANZ and is a contributor to Finance Magnates, Kiplinger and Forbes. He has also published a book on alternative investments which is available on Amazon.

Ask an Expert

Subscribe
Notify of
guest

guest

0 Responses
Inline Feedbacks
View all comments

Other Education

  • Drawdowns
  • Interest Rates
  • Forex Signals
CompareForexBrokers Logo
  • ASIC Regulated Brokers
  • FCA Regulated Brokers
  • CIRO Regulated Brokers
  • CFTC Regulated Brokers
  • About Us
  • Our Methodology
  • Privacy Policy
  • Terms Of Service
  • Contact Us

Compare Forex Brokers Pty Ltd is an Authorised Representative of Guildfords Funds Management Pty Ltd Australian Financial Services Licence No. 471379 (A/R No. 001274082).
CompareForexBrokers is Copyright With All Rights Reserved. Trading Forex and CFDs with leverage poses significant risk of loss to your capital.

Back to top