Trend: Bearish

Powerful reversal patterns, double tops and bottoms reverse strong trends. As the name suggests, they mark a top or a bottom, with huge implications on the future price action.

We should mention here that double tops and bottoms in Forex technical analysis do not refer to an exact level. Because of large market volatility, traders refer to an area as the one that defines double and triple tops.

In any case, the way to interpret the two patterns is the same as in any other market. A double top:

• forms at the end of a bullish trend
• resembles the letter M
• has a neckline and a measured move

For a double top formation, the measured move is the distance from the two tops to the neckline, just as illustrated in the image below.

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Trend: Bullish

A double bottom is similar as Double Top, only that the interpretation differs:

• it forms at the end of bearish trends
• it has the shape of the letter W
• has a neckline and a measured move

While not mandatory, the price tends to retest the neckline after the break. As such, many traders wait for such a retest before trading the measured move.

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Trend: Bearish

One of the most common reversal patterns seen on daily Forex analysis, the head and shoulders formation has clear and simple trading rules.

It has:

• two shoulders (left and right)
• one head
• a neckline
• a measured move

The two shoulders represent consolidation areas, with the left shoulder’s price action misleading traders. The problem is that by the time the price breaks higher after the left shoulder’s consolidation, many traders consider the pattern a continuation one.

However, the break higher is quickly retraced, and another consolidation (on the right shoulder) starts. The quick retracement, or the head of the pattern, is the clue telling us that the market forms a head and shoulders pattern.

The neckline is a support level. Traders wait for the price to break below support, before entering on the short side and targeting the measured move.

Speaking of the measured move, that’s easy to compute: just measure the distance from the highest point in the head’s formation to the neckline and project it from the neckline. That’s the minimum distance the price should travel to confirm the reversal pattern.

As mentioned above, the head and shoulders pattern is a reversal one. Our example so far shows a bearish pattern, in the sense that it forms at the end of a bullish trend. 

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Trend: Bullish

This pattern is the opposite of the popular head and shoulders pattern but is used to predict shifts in a downtrend rather than an uptrend. An inverse head and shoulders pattern is comprised of three component parts: After long bearish trends, the price falls to a trough and subsequently rises to form a peak.

Traditionally, you would trade the inverse head and shoulders by entering a long position when the price moves above the neckline. You would also place a stop-loss order (trade stop at a set point) just below the low point of the right shoulder.

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Trend: Bearish

The Rising Wedge is a bearish pattern that begins wide at the bottom and contracts as prices move higher and the trading range narrows. In contrast to symmetrical triangles, which have no definitive slope and no bullish or bearish bias, rising wedges definitely slope up and have a bearish bias.

Note: Wedges can be considered either reversal or continuation patterns depending on the trend on which they form.

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Trend: Bullish

The Falling Wedge is a bullish pattern that begins wide at the top and contracts as prices move lower. This price action forms a cone that slopes down as the reaction highs and reaction lows converge.

If the falling wedge appears in a downtrend, it is considered a reversal pattern. It occurs when the price is making lower highs and lower lows which form two contracting lines. The falling wedge usually precedes a reversal to the upside, and this means that you can look for potential buying opportunities.

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Trend: Bullish

A bull flag pattern is a chart pattern that occurs when a stock is in a strong uptrend. It is called a flag pattern because when you see it on a chart it looks like a flag on a pole and since we are in an uptrend it is considered a bullish flag.

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Trend: Bearish

The bear flag is an upside-down version of the bull flat. It has the same structure as the bull flag but inverted. The flagpole forms on an almost vertical panic price drop as bulls get blindsided from the sellers, then a bounce that has parallel upper and lower trendlines, which form the flag.

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Trend: Bullish

The ascending triangle is a bullish formation that usually forms during an uptrend as a continuation pattern. There are instances when ascending triangles form as reversal patterns at the end of a downtrend, but they are typically continuation patterns.

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Trend: Bearish

A descending triangle is a bearish chart pattern used in technical analysis that is created by drawing one trend line that connects a series of lower highs and a second horizontal trend line that connects a series of lows.

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Trend: Neutral(can be either bullish or bearish, and they can represent a continuation or a reversal)

Bullish Pennants are continuation candlestick patterns that occur in strong uptrends. The Pennant is formed from an upward flagpole, a consolidation period and then the continuation of the uptrend after a breakout. Traders look for a break above the Pennant to take advantage of the renewed bullish momentum.

Bearish pennant. Bearish pennants are continuation patterns that mark a pause in the movement of a price halfway through a strong downtrend, offering you an opportunity to go short. The downtrend then continues with another similar-sized fall in price.

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Trend: Neutral(can be either bullish or bearish, and they can represent a continuation or a reversal)

Rectangles are continuation patterns that occur when a price pauses during a strong trend and temporarily bounces between two parallel levels before the trend continues.

The bearish rectangle is a continuation pattern that occurs when a price pauses during a strong downtrend and temporarily bounces between two parallel levels before the trend continues.

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Trend: Neutral(can be either bullish or bearish, and they can represent a continuation or a reversal)

A symmetrical triangle is a chart pattern characterized by two converging trend lines connecting a series of sequential peaks and troughs. These trend lines should be converging at a roughly equal slope.

A symmetrical triangle is a chart formation where the slope of the price’s highs and the slope of the price’s lows converge together to a point where it looks like a triangle. Looks as similar as Pennant.

What’s happening during this formation is that the market is making lower highs and higher lows.

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