Things that happened tend to happen again.
This is the same in the world of economics.
Just like the economic recession and the revolution of economic.
What about in the trading world?
Market price tend to repeat by itself in a certain way.
Just like Tony Robbins said, every result happen by a certain type of pattern.
So, If you want to be a millionaire, you need to learn and act as the pattern of a millionaire.
In the market,
if you want to continue to profit,
you have to learn to recognize and trade the same forex patterns of market price as your previous wins.
How Pattern is Identified
Pattern is normally identified by using lines.
Normally two lines.
The lines are Support and Resistance Lines.
By identifying the recent highs and lows of the price, we can draw the lines.
After that, with the shape of lines drawn, we can identify the pattern of the price.
If you are interested or just starting out in trading, have a look at the post where I discussed about Support and Resistance Lines.
It will give you an understanding about how to identify the price support and resistance and draw the lines.
It is important for beginners to master this so that you wouldn’t get confused on identifying the price pattern.
Other than that, there are also curved lines are used to identify certain pattern.
Types of Pattern
There are lots of lots of patterns, but they can categories into 2 categories:
Trend Continuous Pattern and Trend Reversal Pattern.
In the Trend Continuous Pattern, we can use it in the uptrend or downtrend.
Both of the condition are the same but in the opposite direction of the trend.
Trend Continuous Pattern
Trend Continuous Pattern means the price action will continue to trending up or trending down after the pattern appear.
If the chat you looking at is in the consolidation state after a trend, identify the pattern form in the consolidation or retrenchment is a good choice to do.
It is because you can analyze weather the trend will continue or not.
Now, we start with the first pattern…
In this flag pattern, the price is temporary trend down and forming a Flag-like shape.
It has two parallel trend lines act as support and resistance line for the price.
Flag Pattern in bullish and bearish is shows in the next diagram.
The “Flag” is form with two parallel red line.
And the “Flag” is acting as the retrenchment of the trend.
After certain pull back of the price, the price will break the “Flag” Pattern and continue the trend.
Bullish Flag Pattern
The Flag Pattern in the chart below is in the bullish condition.
At the end of the Flag Pattern, the price having a breakout and continue the trend.
As you can see, we can draw two parallel line on the support and resistance of the price.
In this kind of pattern, we can enter the trade after the price breakout.
Bearish Flag Pattern
Next chart is showing the Flag Pattern in the bearish trend.
We can know this is actually just the reverse of the Bullish Flag Pattern.
Remember that the “Flag” is captured by two parallel line – support and resistance line.
As the same in the Bullish Flag Pattern, we can enter the trade after the price break the Flag’s resistance line.
Now, that’s all for the Flag Pattern.
The next pattern we are going to discuss is the…
Pennant pattern is similar to the Flag Pattern.
We can capture the Pattern by the Support and Resistance Line.
But the Lines in Pennant Pattern is not parallel.
Look at below to know The Pennant Pattern look like.
This pattern is having a larger movement at the beginning and the price moving range getting smaller.
It has long candle act like “Flagpole” before the Pennant shape form. The “Flagpole” shows that there is a sudden increase in the price.
After the sudden increase of the price like a “Flagpole”, the movement of the price is reducing and forming the pattern of the Pennant.
As you can see the price is “trap” in the Pennant.
The price will then break out of the Pennant Pattern continue the trend.
Bullish Pennant Pattern
Below shows the Pennant Pattern in the Candles Chart.
Sometimes the Flagpole is not form within one candle. It maybe form in two candles and the candle body is larger than the recent previous candles.
The price continued the up-trend after the breakout of the pennant resistance line.
It is the opportunity to enter the trend after the price break out of the Pennant Pattern.
Bearish Pennant Pattern
Here is also the bearish Pennant Pattern for your reference.
It is like the reflection of the Bullish Pennant Pattern.
The Pennant is consider form in a short period.
So, when the price enter the consolidation of Pennant Pattern, you need to know that it will break the consolidation not long later.
Wedges! But not the potato wedges.
Wedge refer to the shape formed in the price chart.
This pattern is another pattern which also formed by two trend lines.
Below shows the Wedge Pattern.
The forming of this pattern is similar to the Flag Pattern.
But it has two different gradient lines.
Two of the lines are not symmetrical.
Bullish Wedge Pattern
Below are two examples of wedge pattern in the candles chart.
The first one is a small Wedge in the bullish trend.
The second example of Wedge Pattern in bullish trend…
The price in the wedge tends to reverse or retrench at first.
Then, the price will breakout of the Wedge Pattern’s resistance line and continue the up-trend.
Trade when the price breakout from the Wedge.
Bearish Wedge Pattern
Next one, it is the Wedge Pattern in the Bearish trend.
In the Bearish Wedge Pattern, you can see that the price also having a certain retrenchment before the breakout.
If the Wedge Pattern does not retrench but continue the direction of the trend with smaller gradient or slope, then it is not a Trend Continuation Pattern.
This kind of pattern is showing the Reversal Pattern…the Rising/ Falling Wedge Pattern.
We will talk about that in this post later.
So, continue for the next Trend Continuation Pattern…
Cup and Handle
The pattern is just like a cup and its handle.
So it’s called cup and handle.
Below Show how’s the Cup and Handle Pattern be like.
As you look clearly, it is actually a combination of two patterns.
The first pattern is the curved lines, the second is the flag,pennant or a wedge pattern.
The price enter the Cup Pattern and left the Cup Pattern about the same price.
Then it enter the Handle Pattern and breakout the Pattern with the spike of the price and continue the trend.
If you noticed that, the curve line actually very smooth across the Cup Pattern.
Below is the Cup and Handle Pattern in the actual Candlestick chart.
Cup and Handle Pattern has a long period to form it’s pattern.
For a good Cup and Handle Pattern, the Cup depth should not too deep compared to overall price. The cup should have a smooth curve.
Other than that, the handle of the pattern should not be to deep compared to the cup.
For a higher success rate of the pattern, the handle will not deeper than half of the “Cup” depth.
There are also Cup and Handle Pattern that without the Handle…
Cup Pattern is just the Cup and Handle Pattern that without the Handle.
Below is the Cup-only Pattern in the real world chart.
There is no second restrain on the price after the Cup Pattern. The price continue the up-trend after the “U” turn in the Cup Pattern.
Sometimes, there will be one or two Shadows of the Candlestick cross over the Pattern line.
But it is normal,
since there is less possibility that there will be a perfect shape for the pattern.
For the Cup Pattern with a shallower bottom, we will call it as a…
It is actually means the same thing with the Cup Pattern. It just a Shallow Cup Pattern.
Above is the example for the Saucer Pattern.
You can noticed that this Pattern have a longer period or life spand than the first few pattern we are discussed about.
This Pattern is about the same as the Flag, Wedge and Pennant.
The ideal Ascending Triangle Pattern is looks like this:
The Ascending Triangle have a horizontal resistance line (top line) and trending up support line (bottom line).
Both of these lines combine together and form the Ascending Triangle Pattern.
The unique of this pattern is that it have a horizontal line acting as the price’s Resistance Line.
The example in candlestick chart is shown as below.
In the Ascending Triangle Pattern, the price on the support area is getting higher and higher and closer to the resistance level.
Then the price eventually break out from the pattern.
We can enter the trend after the breakout to ensure the continuation of the trend.
Descending Triangle pattern is the reversal pattern for the bearish trend.
Below is the Descending Triangle, which is the reversal of Ascending Triangle.
The Descending Triangle have a horizontal resistance line (bottom line) and trending down support line (top line).
Both of these lines combine together and form the Descending Triangle Pattern.
The example in candlestick chart is shown as below.
In the Descending Triangle Pattern, the price on the support area is getting lower and lower and closer to the resistance level.
Then the price eventually break out from the pattern.
We can open a trade after the breakout.
This pattern is about the same as the Pennant Pattern. Both patterns are trend continuation pattern.
The Symmetrical Triangle in Bullish and Bearish Trends:
The price actions is getting smaller and smaller while the Symmetrical Triangle Pattern is form.
Then the price will breakout of the Pattern when the “space” in the triangle left only little space.
Bullish Symmetrical Triangle Pattern
The Bullish Symmetrical Triangle example in the chart look like:
This Pattern is about the same as Pennant Pattern.
The biggest difference is the Pennant Pattern have a sudden increase in price as a “Flagpole” where Symmetrical Triangle Pattern don’t have.
Symmetrical Triangle Pattern also tends to have a longer forming time until it breakout if compare to the Pennant Pattern.
Bearish Symmetrical Triangle Pattern
The Bearish Symmetrical Triangle Pattern is like the below example.
When drawing the Symmetrical Triangle Pattern, you should make sure it’s gradient of the line is symmetrical so that your Pattern Analysis is valid.
After the Trend Continuation Pattern, now we will continue with the…
Reversal pattern means the price action will move to the opposite direction after the pattern appear.
E.g. That’s means the bearish trend will turn to bullish trend after the pattern. It’s also the same when the trend is bullish. Bullish trend will U-turn and become bearish trend after the pattern.
The first Reversal Pattern we will discussed about is…
Double Top/Double Bottom
Double Top means the Pattern that the price in the bullish trend will touch the support line twice and then may reverse and become a bearish trend.
Double Top Pattern will form the shape of “M” for the price reversal action.
On the other hand, Double Bottom Pattern may reverse the bearish trend into bullish trend.
The Double Top Pattern will form the shape of “W” for the price reversal action.
The ideal shape for both of the pattern are shown at below:
As you can see, the price bounce after the second touch on the Resistance Line.
Double Top Pattern
To have a actual actions in the candlestick chart, the Double Top Pattern is like this:
In the Chart above, you can see that the Upper Shadows of the two Candlestick touched the Resistance Line and then the trend turn into bearish.
Sometimes, the Resistance Line for the Double Top Pattern is not exactly a horizontal line.
The Resistance Line might have a small gradient.
Double Bottom Pattern
For comparison, below shows the Double Bottom Pattern in Price Chart.
In this Pattern, the Resistance Line is a slope line.
But, as you can see in the Chart, the bottom of the price will not always be in the same level.
For the next Pattern…
Triple Top/Triple Bottom
Triple Top and Triple Bottom Pattern are almost the same as the Double Bottom and Double Top Pattern.
In this Pattern, the Price will touch the Resistance Line three times before the price U-turn.
Look at the diagram below to know more detail.
For the Triple Bottom or Triple Top Pattern, after the second time the price touched the Resistance Line, it will retrench and touch the Resistance Line again before the reversal.
So, We need to have an eye on the price when the price touch the Resistance Line after the second time.
It maybe a Double Top/Bottom, which the trend may “U-turn” after that.
We can use other indicator and oscillator to identify the reversal.
Triple Top Pattern
Now, we look at the Triple Top Pattern.
The example of Triple Top Pattern on the Candlestick Pattern is shows as below.
In the chart, the price upper shadow touched the resistance line three times before the reversal of the trend.
We can actually draw another support line for the price to identify and confirm the breakout from the Pattern.
Triple Bottom Pattern
Below shows the example for the Triple Bottom Pattern.
It’s the same as the Triple Top.
Just a reverse pattern.
Tips: for the breakout or reverse of a trend, it’s better to wait for the retrenchment to confirm the new trend.
The Diamonds Pattern have a small movement at the beginning and the end, but it has a big movement at the middle of the pattern.
In the mathematical term, it is similar as a rhombus.
Look at the below Diamonds Patterns.
The diamond shape sometime will be very confuse.
You need to get more practice to draw and identify it fast.
Top Diamond Pattern
The Top Diamond in the chart below shows you the formation of a Diamond Pattern.
The larger movement at the middle of the diamond will “trick” the traders.
So we need to be aware and analyze with other indicators.
Bottom Diamond Pattern
The opposite of the Top Diamond is the Bottom Diamond.
The Pattern’s shape is the same as the Top Diamond.
Let us continue to the next Reversal Pattern…
Head and Shoulder
The Pattern of head and shoulder is not the shampoo products. LOL
(Not funny and I know.)
Okay, using the diagram below, the left side Head and Shoulder Pattern mean that the level of the resistance level lower than the previous level.
This is mean that the new trend had started with the reversal direction.
In the left diagram above, the lower-high is form after the recent high of the trend.
For the right diagram, the price is having a higher-low after the recent low of the trend.
The newly form lower-high(Head and Shoulder) and the higher-low(Reverse Head and Shoulder) are like the creation of the new trend retrenchment level.
Head and Shoulder Pattern
Here is a chart that shows the Head and Shoulder Pattern.
As you can see from the chart above, the price first touch the Resistance Line, then the price create a higher-high but eventually retrench and touch the Resistance Line again.
After the second shoulder created, the price reverse it directions and going down.
Reverse Head and Shoulder Pattern
The reverse Head and Shoulder Pattern is as the chart below.
The head is actually the bottom of the trend and also the starting point of a new trend.
As you can see in the chart, the Resistance line doesn’t always be horizontal.
It will have a bit of slope.
The next Reversal Pattern we would like to discussed is…
For Expanding Triangle Pattern, it is like the mirror of triangle pattern mentioned in the Continuation Pattern.
The price action will give others a wrong info that the trend is still continuing. As the lower-low of the price get lower every time.
But the different with continuation of trend is…it have a higher-high across the Expanding Triangle.
The price having higher-high and lower-low in the pattern.
Then the price bounce, break the pattern and reverse the trend.
The last Reversal Pattern we will discussed about is…
Wedge Pattern is used in the Continuation Pattern.
In the Rising or Falling of the Wedge Pattern, the pattern did not retrench.
The Rising and Falling Wedge Pattern are like this.
The Wedge Pattern continue the trend direction but with smaller gradient.
At the end of the Pattern, the price will be reverse and breakout from the Rising/Falling Wedge Pattern.
Rising Wedge Pattern
As you can see as below, the Rising Wedge Pattern is pointing upward.
But the gap for the resistance level in the Rising Wedge Pattern is lower than the previous resistance level.
Then now we can know that the trend has weaken and the appear of Rising Wedge Pattern is the sign of the down trend will start.
Falling Wedge Pattern
The Falling Wedge Pattern have the same effect on the trend reversal.
In this chart, the price also harder and harder reaching a lower resistance level.
Then the price eventually move up and break the pattern and reverse its trend.
Trading Forex Patterns not always right.
But using Pattern Trading is very useful to identify the changes in the market.
We need to use other indicator and oscillator to support our trading decision when we use pattern recognition.
To have a higher success rate when using Pattern in trading, it is better to wait for the retrenchment after the breakout to prevent it is a fake breakout.
Thanks for spending your precious time together.
Let us grow and learn together.