Forex chart patterns can be divided into the three main categories: Reversal, continuation and bilateral. Each one of them, can be used according to market conditions, together with forex indicators or trendlines. It is up to trader to couple the chart pattern with other forex trading tools for best results. (Forex strategies using forex chart patterns).
Reversal forex patterns
They signalize that current price movement is getting likely to reverse. Those patterns can be found in any part of forex trend. They can be coupled with forex indicators and following signal may vary according to market conditions, direction of trend and position of formation within trend
Reversal patterns found on the top/bottom of the trend signalize its likely reversal. This can be confirmed by signs of accumulation/distribution (VSA), or with forex indicators reaching predetermined zones (RSI reaching overbought/oversold zone). Reversal patterns found at the end of a corrections may also signalize end of that correction and continuation of main trend.
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Main forex reversal patterns include:
Head and Shoulders forex pattern
Inverse Head and Shoulders forex pattern
Continuation forex patterns
With continuation forex patterns it is more likely that price will continue in its previous direction. They are great entry patterns to follow the trend in forex. Coupled with other tools of market analysis, they can be extremely effective. They are also known as small consolidation zones, often understood as market taking a break before continuing in its direction. Smaller continuation patterns can be also found in the corrections within trend. In that case they can help tremendously with position timing, clearly stating – correction is not over yet.
Main forex continuation patterns
Bullish rectangle forex pattern
Bearish rectangle forex pattern
Bilateral forex patterns
Bilateral forex patterns are not a clear sign of price direction. Once we recognize bilateral pattern, price can move to either direction. This market situations can be traded as a fakeout or breakout. Pattern itself cannot give us any clue about following price movement. However, we can look on price behavior before entering the formation for some clues. Price is slightly more likely to continue in its previous direction - previously established trend.
Main bilateral forex patterns