Understanding Price Pattern: 10 Important Patterns for Forex Beginners

Pattern in price analysis or Chart Pattern refers to the recurring movement patterns of prices. Many Forex traders use this tool to predict price directions and identify trading opportunities. The advantage of chart patterns is that they are simple, making them suitable for beginners.

What is a Pattern and Why Does It Occur?

In fact, price pattern records the battle between buyers and sellers. Besides being a forecasting tool, it also reflects market behavior. When Forex traders understand how patterns form, they can better identify trading opportunities.

Classification of Patterns into 3 Types

1. Reversal Pattern (Reversal Pattern)

Signals that the current trend is about to end. Forex traders often use it to catch turning points. These patterns often occur at the highest or lowest points of a price cycle.

2. Continuation Pattern (Continuation Pattern)

Indicates that the current trend will continue. It’s similar to a brief pause before the price resumes in the same direction.

3. Bilateral Pattern (Bilateral Pattern)

Uncertain about which way it will move. It’s like the price making a move before a winner in the battle is decided.

10 Patterns Forex Traders Must Know

1. Head and Shoulders

A reversal pattern indicating an uptrend is about to turn into a downtrend. It resembles a human head and shoulders. When the right shoulder breaks down, it’s a sell signal to take profits.

2. Double Top

Like lifting weights twice and then falling. It signals that buyers have lost, and the price is preparing to decline.

3. Double Bottom

Opposite of Double Top. It signals that sellers are retreating, and the price is preparing to rise.

4. Rounding Bottom

A continuation of a downtrend, but gradually slowing down and turning back up. The upward move this time tends to be quite strong.

5. Cup and Handle

This pattern looks like a coffee cup with a handle. Forex traders favor this pattern because it provides a clear bullish signal.

6. Wedges (Rising Wedge and Falling Wedge)

Narrowing reversal patterns. Rising Wedge indicates the uptrend will break down, while Falling Wedge suggests a bounce back in a downtrend.

7. Flags and Pennants

Continuation patterns indicating the trend will resume in the same direction. Often occur during high-speed price movements in Forex trading.

8. Ascending Triangle

A continuation pattern in an uptrend. The top line remains flat, but the bottom line rises gradually. The bullish signal is stronger when breaking upward.

9. Descending Triangle

Opposite of Ascending Triangle. The bottom line declines, while the top line remains flat. The bearish signal is stronger when breaking downward.

10. Symmetrical Triangle

A bilateral pattern where the direction is uncertain. Both buyers and sellers have equal strength, and a breakout is needed to determine the trend.

Things to Watch Out for When Using Price Patterns

Trading with patterns is not 100% guaranteed. Especially on shorter timeframes, patterns can produce false signals more easily. Experienced Forex traders often combine patterns with trading volume and other indicators to improve accuracy.

Additionally, patterns formed with low trading volume are more susceptible to manipulation by large traders.

Summary

Price patterns are fundamental yet powerful tools for Forex beginners. Understanding what chart patterns are and being able to read them is a crucial skill to develop. Success in trading does not rely solely on patterns but on the combination of multiple tools and accumulated experience.