3 Forex Chart Patterns Categories
After learning various types of chart patterns, now is the time to conclude. Broadly speaking chart patterns can be categorized as Reversal Chart Patterns , Continuation Chart Patterns , and Bilateral Chart Patterns.
Reversal Chart Patterns
So reversal chart patterns are graph patterns that show a reversal of direction from the previous direction. If before reversal chart patterns occur, price movements indicate a downtrend, then it is likely that after this pattern is formed, prices will tend to move up (uptrend). Likewise vice versa if before forming a reversal chart patterns of price movements indicate an uptrend (uptrend), then it is likely that after this pattern is formed the price will move tends to go down (downtrend).
Some Examples of Reversal Chart Patterns
- Double Top
- Double Bottom
- Head and Shoulders
- Inverse Head and Shoulders
- Rising Wedge
- Falling Wedge
How to trade forex using reversal chart patterns is a very easy thing that we open a position in the opposite direction with the previous price movement pattern with the entry points below or above the neckline.
For example, when you encounter a double top pattern, open the BUY position with an entry point below the neckline and set the target take profit price of the peak to the neckline.
In addition to setting the take profit price target we must remember about risk management by installing stop loss with a target price of half of take profit.
Continuation Chart Patterns
A pattern that shows that the previous price movement is an uptrend or downtrend will continue after the end of continuation chart patterns. And usually this pattern is also referred to as a consolidation pattern which indicates that a seller’s trader or buyer takes over the position quickly to resume the previous movement.
Some of the patterns that fall into this category are pennants, wedges, and rectangles. It should be noted that the wedge pattern is also considered a reversal pattern depending on the pattern they form.
Trading methods with continuation chart patterns can be done by opening a position above or below the formation which of course depends on the previous movement pattern. The target of take profit price can be set at least as big as the pattern formed.
Bilateral Chart Patterns
We are rather difficult when this pattern arises because it can show two possibilities, namely continuing the previous pattern or moving in opposite directions. Chart patterns that fall into this category are the triangle chart patterns both symmetrical chart patterns, ascending chart patterns, and descending chart patterns.
Trading with bilateral chart patterns can be done by assuming that both directions will be formed so that we open two positions. If one position is hit, then we cancel the other position, the wrong position. And we must be careful, especially to set the stop loss because if it’s too close then we can get fakeouts or fake signals.