One of the best and probably the most basic ways to trade forex successfully is you trade according to the forex chart patterns. They are like a signal that can give you a head-up about where the prices are heading. The below are the most common forex chart patterns in the market and how you should trade when you encounter them.
Double Bottom chart pattern
This is a reversal pattern that occurs after a period of decline. The price creates two bottoms because it cannot fall below the lower support line, the one connecting the middle top (also called the neckline). The second bottom is not lower than the first, which shows that the sellers have weakened and a reversal is imminent. Enter a Buy order when the price breaks the neckline with the target close to the height of the two bottoms.
Reverse Head and Shoulders chart pattern
After a downtrend, the price creates the first bottom, which is the Left Shoulder, followed by the second bottom, which is deeper than the Head, and the last is the third bottom, which is higher than the Head and called Right Shoulder. The line connecting the two tops above is called the neckline. Enter a Buy order when the price breaks above the neckline with the target close to the depth of Head (the distance from the top of the head to the neckline).
Falling Wedge chart pattern
This can be a reversal, a continuation pattern, or a bullish pattern. The falling wedge means that the price is going to increase. Here, I’ll just talk about the reversing aspect of the falling wedge. A bearish wedge is formed at the bottom of a downtrend, represented by lower lows and lower highs. The line connecting the tops is steeper than the line connecting the bottoms, and these two lines tend to converge. Enter a Buy order when the price hits the upper edge with the target close to the wedge height.
Double Top chart pattern
In contrast to the Double Bottom pattern, this pattern occurs when the price created a second top but failed to break the first one, indicating that the bulls were exhausted and the reversal was imminent. Enter a Sell order when the price breaks the neckline with the target close to the height of the two tops.
Head and Shoulders chart pattern
Bitcoin specifically has fallen so many times with this head and shoulders pattern, so you should pay special attention to this forex chart pattern. The head and shoulders are created when the price is made up of a top (the left shoulder), then a higher top (the head), and finally a lower one (the right shoulder). The line connecting the lower bottom is called the neck line. The neckline can be either up or down. Usually if the neckline is down, the pattern is more reliable. Enter a Sell order when the price breaks down to the neckline with the target close to the height of the Head (distance from the top of the head to the neckline).
Rising Wedge chart pattern
Like the falling wedge, the Rising Wedge pattern is a bearish pattern regardless of whether it’s continuation or reversal. If you see a bullish wedge, just Sell everything you have. The rising wedge is made of higher tops and higher bottoms. The line connecting the tops is steeper than the line connecting the bottoms, and these two lines tend to converge at one point. Enter a Sell order when the price of the lower edge of the wedge rises with the target close to the wedge height.
These are the most encountered forex chart patterns according to numerous professional traders. Learn them by heart if you want to make money from this market.