6 Chart Patterns That You Should Know About

With so many options available, it makes sense to stick with the most widely used approaches to currency trading. A trader may create a comprehensive trading strategy by honing standard and straightforward procedures based on patterns that consistently appear and are easy to recognize with experience. Technical analysis relies heavily on recognizing chart trends, but doing so well takes practice.

In technical terms, a chart pattern is a recognizable structure in a price chart that may be used to forecast future price movements based on current and prior data. Technical analysis relies on recognizing chart patterns, which requires a thorough understanding of both the market and chart patterns. In this article, we’ll overview 5 types of chart patterns that every investor should know about.

Head and Shoulders

The head and shoulders pattern is recognizable on a chart when a high peak is accompanied by two smaller peaks. Head and shoulders formations are used to forecast a negative reversal by traders. In a topping pattern, the price makes a new high, then retraces some of its previous movement, makes a new high, retraces again, and finally makes a new low. A low point ("shoulder"), a retracement, and a lower low point ("head") make up the bottoming pattern (the second "shoulder").

Usually, the first and third peaks are less than the second, but they all retrace to the same level of support, or neckline. After the third high has been corrected to the level of support, a bearish downtrend is expected to emerge.

Cup and Handle

The cup and handle pattern may be seen on charts with very short time horizons, as a one-minute chart, and very long horizons, such as daily, weekly, and monthly charts. Whenever a falling price wave is followed by a period of stability, this is the case. After then, a price increase occurs that almost cancels out the previous price drop. The cup has a rounded bottom and develops when a decline is followed by an upswing. The price moves laterally as the cup develops, creating a trading range to the right as the handle takes shape. In accordance with the cup and handle pattern forex traders are able to catch the Forex gap on the chart pattern, which occurs on charts when the starting price of a candlestick bar deviates significantly (and quickly) from the closing price of the preceding bar. With the use of Forex gap investors can get additional information on how the market performs and feels in a moment.

If the handle price moves higher after breaking out of its trading range, the upward trend will likely continue. As the currency pair producing this pattern retests prior highs, it will likely meet

resistance from sellers who previously purchased at those levels. This resistance will likely cause the price to consolidate with a bias toward a downtrend for four days to four weeks before continuing higher. In a bullish continuation pattern, a cup and handle is utilized to spot entry points for purchases.

Ichimoku Cloud Bounce

The literal meaning of Ichimoku Kinko Hyo is "one look equilibrium chart." In the foreign exchange market, the Ichimoku Kinko Hyo pattern is a special technique of analysis and prediction that utilizes a multi-pronged strategy to track price changes, key support levels, and emerging market trends. You may think of the Ichimoku cloud as a dynamic support and resistance area made up of previous support and resistance levels that have been blended. Simply defined, a bullish signal is in effect when price activity is above the cloud. If the price is trading below the cloud, it is a bearish sign and the cloud will operate as a barrier.

Wedges

When price fluctuations of an asset condense between two sloping trend lines, a wedge pattern develops. Wedge shapes may either rise or fall. The formation of a rising wedge is denoted by a trend line that is sandwiched between two parallel but steeply rising support and resistance lines. Here, support is indicated by a steeper line than resistance. When the price of an asset drops below the support level, it is usually an indication that the downturn will become more persistent. There are two types of reversal patterns: rising wedges, which indicate a bearish market, and falling wedges, which indicate a bullish market.

Rounding bottom

A chart pattern of a "rounding bottom" might indicate either a continuance or a reversal. A falling price of an asset during an uptrend is only a temporary pause before the item’s price resumes its ascent. This is consistent with the bullish trend.

Ascending triangle

A bullish continuation pattern and an ascending triangle indicate that an upswing is likely to persist. To create an ascending triangle, a horizontal line is drawn along the swing highs (representing resistance) and a rising trend line is formed along the swing lows (representing support) on a price chart. Since the price keeps making higher lows, it seems that buyers are more active than sellers.