Trading technical analysis patterns highlights the advanced level of a trader. Firstly, it’s a matter of mastery and experience to be able to read them quickly. Secondly, the use of patterns as a trade signals proves a trader’s determination and ambition to be a step ahead of the market.
In this article, you will learn about the most popular and efficient patterns and get hands-on advice on trading both Fixed Time and Forex.
For your convenience, the basic material is presented in a gallery.
Four kinds of trianglesThese figures are generally seen as trend continuation patterns. However, markets are changing, it’s becoming more complex. Therefore, it is impossible to clearly determine what these figures predict. We recommend that you to take them as a precursor of increased volatility. Especially if there has not been a powerful trend for a long time.
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An ascending triangle: the upper line of such kind of a triangle is strictly horizontal. The lower line is drawn along rising lows. |
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A descending triangle: the lower line of such kind of a triangle is strictly horizontal. The upper line is drawn along decreasing highs. |
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A symmetrical triangle: the upper line of the pattern is composed of falling highs, and the lower one is composed of rising highs.
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An expanding triangle (a channel) is drawn using rising highs and declining lows.
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ChannelsIt is a useful trend instrument. Trading channels is interesting because we know the approximate price levels, at which the correction will end, beforehand. |
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An ascending channel is a strong uptrend confirmation. Support and resistance levels diagonally run parallel up. |
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A descending channel: the channel lines diagonally run parallel down. The asset chart starts rising after making contact with the lower line, and decreasing after reaching the upper line. |
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A flat (sideways): horizontal support and resistance levels are keeping the chart within a range. |
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Strong reversal patternsFalse breakouts and other baffling movements that occur during such patterns’ formation, ultimately lead to a trend reversal. At the same time, these patterns are highly reliable. |
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Head and shoulders is one of the most important technical analysis patterns. It is formed by three elements:
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Inverted head and shoulders pattern consists of the same elements, with the only difference that the lines return to the base after the chart has declined. |
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A triple top: the chart tried to break the resistance level three times, but it failed. The trend down begins after a breakout of the base level. |
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A triple bottom: the pattern is in inverse proportion to the triple top. |
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A double top: an unfinished triple top, which consists of two cycles of uptrend. |
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A double bottom: a bullish pattern, which is similar to the previous ones. A chart goes down twice, and then a downtrend changes for an uptrend. |
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How to trade patterns?
You should try one of the two approaches. The first one implies trading inside a pattern. This method is more profitable when Fixed Time trading, as the profit on the investment doesn’t depend on how far the price moves.
The second approach is trading a breakout. This method works better when trading Forex. The only exception is channels, they work well in all modes.
Fixed Time trades should be made when a chart reverses from the pattern limits. The expiration time depends on the time frame. However, there is still a general rule that one expiration should equal to two or three candles.
Make Forex trades only after the pattern lines have been broken. And don’t forget to enable Stop Loss inside the broken pattern. Don’t forget that you can open a trade with a trade order.
For example, an experienced trader could place an order at the 1310 level, which if lower than the support level of the ascending channel.
How do I learn to distinguish patterns?
Pay attention only to the highs and lows that you can clearly define in the chart. Take them as dots and connect them with each other. This way, you won’t be distracted by any noise.
How do I construct patterns on a candlestick chart? Should I use the candle bodies or shadows?
There is no clear-cut answer to this question. A pattern construction is a matter of luck. You can try both or even use averaged data.
Additional information
- A pattern can be a part of another one. That’s okay.
- Patterns can be formed at an angle and look slightly distorted, that’s also fine.
- You can use graphical analysis together with candlestick formations or indicators.