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Understanding Chart Patterns in Forex

Forex

Technical analysis plays a huge role in the forex market and perhaps the most common of these analysis techniques is recognising chart patterns. With so many currencies to choose between, chart patterns serve to highlight potential trades. Easy to recognise, providing clear price objectives and with a favourable risk to reward setup, one of the most popular of these is the triangle pattern. Here we explore symmetrical, ascending and descending types and strategies on how to trade them.

Symmetrical Triangle Pattern

The symmetrical triangle pattern is formed when two trendlines (the line that connects two or more lows or highs) of a similar slope intersect and converge at the apex to form a symmetrical triangle shape between rising and downtrend lines.

With equal forces in play from each side (rising and downtrend lines), forex traders face a stalemate in which sellers cannot push prices down and buyers are unable to push prices up. This is known as ‘consolidation’.

On identifying a symmetrical triangle pattern on the forex market, traders wait for a breakout either above or below the triangle line; this usually occurs within the first two-thirds of the triangle. Following the confirmation of a breakout, a stop is placed approximately 10 pips below the triangle’s last swing and a limit equal to the triangle’s height.

Ascending Triangle Pattern

The ascending triangle pattern on the Forex charts are easily identified by its rising trend line that intersects with a flat resistance line. It is generally perceived as an optimistic trend by many traders due to its tendency to break above the resistance line, although this is by no means a given as it can adversely break out below resistance, especially in cases where prior trends were down.

Akin to symmetrical triangle patterns, with the ascending triangle the stop is placed approximately 10 pips above the top of the high and 10 points below the highest low.

Descending Triangle Pattern

The descending triangle, in opposition to the ascending triangle pattern, is recognisable by a strong support line intersecting a downward sloping trend line. When seen as part of a larger, continuous downtrend and confirmed by a close break below the support line, the pattern signals to traders to enter short, with a stop just above the top of the pattern.

In such a descending triangle pattern, the pattern shows sellers who are struggling to push prices down and buyers unable to push them higher. The struggle is resolved with a breakout below the support line.

Easy to spot and offering opportunities to benefit from foreign exchange movements, these three powerful triangle patterns are both useful and rewarding ones. With them, traders can predict forex trends and, resultantly, make the right profit-making decisions.

 

 

 

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