Making money in the forex market might be tricky, so traders check price movements and act accordingly with the help of chart patterns. As stated in a report by Modern Trader, 4.3 million people have started trading in 2021, raising the value of the forex market to $702 billion in the same year.
Unfortunately, there are many different patterns, and traders find it challenging to understand which are the most efficient for determining how prices will move soon.
This article outlines the most beneficial forex patterns to help your trading journey. Keep reading and become familiar with them to increase your profit.
Table of Contents
Most Efficient Forex Patterns
Price movement analysis began when the first price chart showed up. In their essence, forex charts show the history of a currency pair’s fluctuation. On them, investors seek patterns that could help them set out a future possibility for a value of a specific coin pair.
Today, traders check the forex chart using computer software. You can find many of these patterns on any B2B forex trading platform such as Fazzaco, but to make the job easier, here are the most efficient ones.
Head and Shoulders (H&S)
The head and shoulders pattern is among the most common forex patterns. It might seem not very easy, but an H&S is simple. Namely, when a currency reaches a high during an uptrend, it comes to a stop and returns to the trend line. Another high follows, bigger than the previous one, before returning to the trend line. The final point reaches the third top and drops lower than the trend line.
This variation of the financial instrument makes the H&S pattern resemble two shoulders and a head between them. Traders who understand this pattern use it often as they can isolate several hypothetically great forex trading opportunities.
An inverse head and shoulders pattern works similarly and is a mirror image of the standard head and shoulders. Here, the price drops low during a downtrend, returns to the trend line, then reaches a lower low point again before climbing back to the trend line. It dips low for the third time and finally breaks out and ends above the trend line.
Rising and Falling Wedges
Wedges, or triangles, are a pattern that occurs when price movements gradually narrow the range before breaking out, thus forming a triangle.
Rising wedges patterns typically point to downtrends. The wedge trend lines move closer as time passes, resulting in a sell-off, pushing the currency’s price below the lower trend line.
Opposite of rising wedges, falling wedges are bullish patterns, meaning they precede uptrends. When value consolidation drops, a currency touches a few lower lows and lower highs before breaking out higher than the trend line.
Bull and Bear Flags
Bull and bear flags are one of the most efficient forex patterns when the trading market isn’t stable. The name comes from the form of these patterns present on a chart. Namely, a continuous rising or falling of a currency presents the flagpole, whereas the moment it stays more or less flat throughout some period, it forms the flag.
A bullish flag is when the price rises steadily, creating the flagpole, then stops for some time, varying around some price value. Bullish traders usually wait for the breakout, which would signal that the price will continue following the previous trend.
A bearish flag suggests the opposite. It occurs when the flagpole points to a downtrend, steadying at a lower price. The breakout here also indicates the continuation of the previous trend, which is why many use it as a stop-loss level.
Cup and Handle
The forex cup and handle pattern are simple to identify. You can see it when a price drops and then gradually rises until it reaches the original value.
Once the price goes up to its original value, you can see the form of a cup’s bottom on the pattern, and when a minor drop and rise shows, it forms the “handle.” This forex pattern is a bullish indicator that may last from 7 to 65 weeks.
Conclusion
Forex technical analysis patterns can help you improve your trading experience. If you spend more time learning to trade and focus more on a particular chart, it will work out for you and increase your passive or active income significantly.
Becoming a fruitful trader is all about discovering an approach to the forex market that matches your style, describes your unique trading plan, and refines the basic trading rules when you gain more experience.
Sign up for a demo account at your broker and try out these patterns. When you are sure of your pattern reading skills, dive into the actual forex exchange!
