Understanding the 3 Key Types of Forex Chart Patterns
In forex trading, identifying chart patterns is a powerful skill that can help you forecast future price movements. But with so many patterns out there, where should you begin?
Let’s simplify it.
Chart patterns are broadly classified into three main categories: Reversal, Continuation, and Bilateral patterns.
Knowing the difference between them can help you make smarter, more profitable trades.
🔁 Reversal Chart Patterns
Reversal patterns signal a change in the current trend direction.
- In an uptrend, they suggest a possible downtrend ahead.
- In a downtrend, they hint at a potential bullish reversal.
✅ Common Reversal Patterns:
- Double Top
- Double Bottom
- Head and Shoulders
- Inverse Head and Shoulders
- Rising Wedge
- Falling Wedge
Trading Tip:
Place your trade beyond the neckline in the direction of the reversal. Set your target to match the height of the pattern, and place your stop-loss halfway between the pattern’s high and low to manage risk.
🔁 Continuation Chart Patterns
Continuation patterns indicate a pause in the trend, followed by a likely continuation in the same direction.
They reflect temporary consolidation before the trend resumes.
✅ Common Continuation Patterns:
- Bullish and Bearish Pennants
- Rising and Falling Wedges
- Bullish and Bearish Rectangles
Trading Tip:
Enter trades at the breakout point—either above or below the pattern—depending on the existing trend. For wedges and rectangles, target at least the height of the formation. For pennants, target the length of the prior trend (the mast).
Set stop-loss orders just beyond the opposite end of the pattern for protection.
⚖️ Bilateral Chart Patterns
Bilateral patterns are neutral—they signal that price could break in either direction. These patterns reflect a market in indecision.
✅ Common Bilateral Patterns:
- Symmetrical Triangle
- Ascending Triangle
- Descending Triangle
Trading Tip:
Place both buy and sell stop orders above and below the formation. Cancel the opposite order once one gets triggered. Be sure to avoid placing entries too close to the triangle’s edges to minimize the chance of false breakouts.
Always use a stop-loss just outside the pattern to protect your trade.
🧠 Final Thoughts
Chart patterns are your visual roadmap to price behavior. They help answer key trading questions:
- When should I enter?
- Where should I exit?
- What’s the likely direction?
✅ Reversal patterns = trend change
✅ Continuation patterns = trend pause and resume
✅ Bilateral patterns = either direction breakout
The more familiar you are with these formations, the better you’ll be at spotting high-probability setups in real time.
👉 Keep practicing. Keep analyzing.
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