Basic continuation and reversal patterns you should learn about during Forex training
There are many chart patterns available for use but throughout trading history there have always been a few that are most commonly used. Some are continuation patterns which are used to continue trading in the current trend direction whilst others are reversal patterns used when a new opposite trend is about to start. These patterns should be learnt during the initial stages of Forex training as they are widely used today.
Continuation chart patterns
The flag – this chart patterns consists of three elements – the pole, consolidation (the flag) and the continuation. The reason why it is called a flag is because it looks like one. The first section is the pole which is essentially the trend rising in the upward direction. Prices then have a break and consolidate for a while thus making the flag shape. Lastly, prices breakout above the consolidation and continue to rise upwards.
Wedge/triangle – the reason for the name of this pattern is because connecting the highs and lows in this huge consolidation area makes a triangular shape. Similarly to the flag, we usually see a trend taking place. The prices then consolidate within a huge price area but not really going anywhere. Consolidation gets smaller and smaller, until it makes a pointed shape – the wedge/triangle. Once price breaks out, we begin to trade.
Reversal chart patterns
Double bottom – this is probably one of the most used reversal patterns out there. It focuses on the fact that the bears have failed on two attempts to push price downwards. It is because of these attempts that prices create 2 troughs. Once these troughs are made the double bottom pattern is starting to form. The trick is this; once the price shoots up from the second trough and makes its way past the peak placed between the two troughs, we begin the trade. It is this simplicity that is responsible for the pattern’s popularity.
Head and shoulders – in order for this pattern to form we are looking for three troughs. The difference is that the first and last troughs are above the middle trough, which is normally referred to as the ‘head’. So, the troughs will appear in this order:
- 1st trough (left shoulder)
- 2nd lower trough (the head)
- 3rd higher trough at a similar level as the first one (right shoulder)
On the other side of the troughs we obviously have peaks. Once those peaks are joined by a straight line, we have a breakout area. Once prices reverse and shoot past this breakout area, we begin to trade.
Both continuation and reversal chart patterns are key subjects to learn during Forex training. They provide basic understanding of market behaviour from which other patterns and strategies can be devised. Ensure that these patterns are learnt, watched and tested with success at the Forex training stage of your development first before using them in live markets.