The following cheat sheet will help you to identify the most common technical chart patterns that appear in the forex markets. Click each heading for more information.
The pattern resembles a megaphone with an upwards slant. It can appear in either an uptrend or a downtrend and at virtually any time scale. It forms with a pair of diverging support/resistance lines.
In forex the ascending broadening wedge (ABW) is a weak bearish signal. But there can be pointers that make it bullish such as a break through of the upper resistance line.
This chart structure is the reverse of the ascending broadening wedge and looks like a megaphone with a downwards tilt. It doesn’t show a preference to uptrends or downtrends. Like the ABW the price funnels out from a lower support and upper resistance line.
The descending broadening wedge (DWB) is a a weak bullish signal. A break of the lower support line once the pattern is identified is a strong hint that the trend is likely to extend downwards for some time.
A rising wedge in forex is usually a bearish sign, especially when it appears as a minor correction in a downtrend. It’s traded as a continuation signal.
Rising wedges form as the price funnels between a support and resistance that are pointed towards each other. The market will be making higher highs.
Falling wedges are classically bullish signs and are seen as being stronger if they appear as a brief correction in an upwards trend.
Like the rising wedge, the falling wedge often ends with a volatility breakout when either the lower support line breaks or the upper resistance breaks and the pattern ends.
The broadening wedge forms when the price is between a support and resistance area that is moving apart.
Volatility is typically on the rise. Broadening wedges can be either bullish or bearish and each one has to be examined on a case by case basis.
A rectangle pattern forms when the price moves within a horizontal channel.
Support is at the base and resistance is above. Rectangles are traded as range patterns.
A channel pattern appears in a chart when the market is trending between two roughly parallel lines. These form the support and resistance area.
Channels can extend for long periods of time. They are usually traded as range patterns.
An ascending triangle is usually a bullish sign when it appears in a forex chart.
The pattern has a flat or nearly flat upper edge and a rising lower support line that forms as the market makes higher lows. They tend to end in an upside break and the odds are slightly better than chance.
The descending triangle is typically a bearish sign, especially in a downtrend.
There’s a flat lower edge and the market will be making lower highs at the upper edge as the pattern forms. Descending triangles are traded as technical breakouts.
Symmetrical triangles are neutral and can end either with an upwards or downwards breakout.
The pattern shows slightly better than chance at predicting a trend continuation so that the break moves in the direction of the trend in which it appears.
Flags are small channel patterns that appear as the market consolidates. These are continuation patterns.
A bullish flag stands at the top of a flag pole or mast and this points towards the expected direction of the breakout.
Bearish flags usually appear in down trends and are also continuation patterns.
A bearish flag sits at the bottom of the mast – the breakout is generally downwards as the market continues in the same direction.
Bullish pennants are also continuation patterns that appear on a mast. They form in brief consolidation periods.
A bullish pennant is like a small triangle but it forms after the market has made a strong upwards move. The break is typically upwards.
Bearish pennants are patterns that suggest a down trend will continue.
They usually form as the market consolidates after a strong downwards move hence what looks like an upside down mast.
A double top is a pattern that looks like an “M”. It forms when the market reaches a trend top and fails to break upper resistance.
The pattern has a neckline at the base and a resistance on top.
A double bottom pattern looks like an “W” and is generally a sign that the down trend is weakening and will possibly reverse.
The pattern has a neckline at the top and a support at the bottom.