Bullish & Bearish Divergence Pattern

Divergence is a term which often comes back in forex technical analysis, it occurs when the price of the underlying currency pair and the indicator move in opposite directions. A bullish divergence can predict future upturns, while a bearish divergence can predict future downturns. Currency traders make trading decisions by identifying situations of divergence, where the price of a currency pair and indicators, such as the MACD, are moving in opposite directions. Bullish Divergence  Bullish divergence occurs when the price of the underlying currency pair makes a new low while the indicator fails to make a new low or heading higher suggesting the downtrend may be nearly over. When identifying bullish divergences, a currency trader will look for BUYING opportunities. Bearish Divergence  Bearish divergence occurs when the price of the underlying currency pair makes a new high while the indicator fails to make a new high or heading lower suggesting the up trend may be nearly over. When identifying bearish divergences, a currency trader will look for SELLING opportunities.

Forex Symmetrical Triangle Chart Pattern

This pattern shows two converging trendlines (support levels & resistance levels) and is (1) a bearisch formation that usually forms during a currency pair downtrend as a continuation pattern (downtrend will continue) or (2) a bullish formation that usually forms during a currency pair uptrend as a continuation pattern. (uptrend will continue) This pattern is confirmed when the currency pair price breaks out of the symmetrical triangle formation (1) to the downside and closes below the lower support trendline in order to continue the downtrend or (2) to the upside and closes above the upper resistance trendline in order to continue the uptrend. What does a Symmetrical Triangle Formation look like?  The symmetrical triangle is marked by two important trend lines. At its top, there is a line of resistance where traders are willing to sell the currency pair. This resistance line communicates the fact that bearish currency traders are over time willing to pay lower and lower prices for the currency pair indicating a possible break out to the downside. At it's bottom, the support line communicates the fact that bullish currency traders are over time willing to pay higher and higher prices for the currency pair indicating a possible break out to the upside. How to trade this pattern?  For it's best prediction, an established trend should exist, either a strong down or a strong uptrend. Once the currency pair breaks out the symmetrical triangle, most likely, the price will continue it's previous trend. Trade the breakout! Chart example USD/JPY 4 Hour Chart Symmetrical Triangle continuation pattern. Please note how the previous trend is an uptrend, once it breaks out the symmetrical triangle, it's uptrend continue!

Forex Descending Triangle Chart Pattern

This pattern is similar tho the ascending triangle chart pattern but reverse, it shows two converging trendlines (support levels & resistance levels) and is a bearisch formation that usually forms during a currency pair downtrend as a continuation pattern (downtrend will continue). This pattern is confirmed when the currency pair price breaks out of the descending triangle formation to the downside and closes below the lower support trendline. However, when the currency pair price breaks out to the upside, the descending triangle now is a reversal pattern. What does a Descending Triangle Formation look like?  The descending triangle is marked by two important trend lines. At its top, there is a line of resistance where traders are willing to sell the currency pair. This resistance line communicates the fact that bearish currency traders are over time willing to pay lower and lower prices for the currency pair indicating a break out to the downside. At it's bottom, we notice the support trend line where forex traders are willing to buy the currency pair. How to trade this pattern?  Sell the currency pair when price breaks out of the descending triangle formation to the downside and closes below the lower support trendline. Chart example GBP/USD 1 Hour Chart Ascending Triangle continuation pattern.

Forex Ascending Triangle Chart Pattern

The ascending triangle chart pattern shows two converging trendlines (support levels & resistance levels) and is a bullish formation that usually forms during a currency pair uptrend as a continuation pattern. This pattern is confirmed when the currency pair price breaks out of the ascending triangle formation to the upside and closes above the upper resistance trendline. However, when the currency pair breaks out to the downside, the ascending triangle now is a reversal pattern. What does an Ascending Triangle Formation look like?  The ascending triangle is marked by two important trend lines. At its top, there is a line of resistance where traders are selling the currency pair. At it's bottom, we notice the rising support trend line where forex traders are willing to buy the currency pair. This support line communicates the fact that bullish currency traders are over time willing to pay higher and higher prices for the currency pair indicating a break out to the upside. How to trade this pattern?  Buy the currency pair when price breaks out of the ascending triangle formation to the upside and closes above the upper resistance trendline. Chart example GBP/USD 15 Min Chart Ascending Triangle continuation pattern.

Forex Double Bottom Chart Pattern

Double Bottom formations are reversal patterns and often seen to be among the most common (together with double top formations) patterns for currency trading. Double Bottoms are identified by two consecutive lows of similar (or almost) height with a moderate pull back up in between (neckline peak). The double bottom can be a major reversal pattern (if found on a daily chart or bigger timeframe) that can be formed after an extended downtrend. This pattern is confirmed when the currency pair price breaks from (it's second bottom) below through the neckline, the most likely price direction is now UP. What does a Double Bottom Formation look like?  A double bottom formation is a distinct chart pattern characterized by a rally to a new low (bottom1 or support1) followed by a moderate pull back up(10 -20%) to the neckline (resistance level) and a second rally to test a new low ( bottom1 or support2) again. The two lows (bottoms or support levels) are at approximately the same price level. What follows is a pull back up to above the neck line (resistance). How to trade this pattern?  Go long above the Neck Line (resistance level) when the currency pair price breaks from (it's second bottom) below, the most likely price direction is now UP. Place your stop couple of pips below the second bottom price! Your target must be at least twice the distance from it's second bottom break to the neckline. Example: If the second bottom is at 1.2100 and the neckline is at 1.2150, your target level must be at least 100 pips when trading the break out! Chart example GBP/USD 1 Hour Double Bottom reversal chart pattern

Forex Double Top Chart Pattern

Double Top formations are reversal patterns and often seen to be among the most common (together with double bottom formations) patterns for currency trading. Double Tops are identified by two consecutive peaks of similar (or almost) height with a moderate pull back in between (neckline). The double top can be a major reversal pattern (if found on a daily chart or bigger timeframe) that can be formed after an extended uptrend. This pattern is confirmed when the currency pair price breaks from (it's second peak) above through the neckline, the most likely price direction is now DOWN. What does a Double Top Formation look like?  A double top formation is a distinct chart pattern characterized by a rally to a new high (peak1 or resistance1) followed by a moderate pull back (10 -20%) to the neckline (support level) and a second rally to test a new high ( peak2 or resistance2) again. The two peaks (highs or resistance levels) are at approximately the same price level. What follows is a pull back to below the neck line (support). How to trade this pattern?  Go short below the Neck Line (support level) when the currency pair price breaks from (it's second peak) above, the most likely price direction is now DOWN. Place your stop couple of pips above the second peak price! Your target must be at least twice the distance from it's second peak break to the neckline. Example: If the second peak is at 1.2500 and the neckline is at 1.2425, your target level must be at least 150 pips when trading the break out! Chart example GBP/USD 1 Hour Double Top reversal chart pattern

Forex Falling Wedge Chart Pattern

At it's most basic level, Falling Wedge formations are bullish continuation patterns and look similar to triangle patterns (ascending triangle, descending triangle, and symmetrical) because of the converging trendlines( support and resistance) and narrowing price ranges(forms a cone). Falling wedges slope down and have a bullish bias, they are usually found in up-trending markets. However, they can become a reversal pattern if the currency pair price move below the lower (support) trendline. What does a Falling Wedge Formation look like? How to trade this pattern?  (1) Go long when the currency pair price rises above the upper trendline and place your stop below the lower trendline (support) line. (continuation pattern) (2) Go short when the currency pair price falls below the lower trendline and place your stop above the upper trendline (reversal pattern) Chart examples Falling Wedge Continuation USD/CHF 15 min Chart Falling Wedge Reversal GBP/USD 240 min Chart Please Note: This is a falling wedge reversal pattern (price break through the support line)

Forex Flags And Pennants Chart Pattern

Pennants and Flags are short-term continuation patterns and are among the most reliable of all continuation patterns, they are formed when there is a sharp price movement followed by a consolidation phase (sideways action), thereafter the previous up or down trend is expected to resume. Flags and Pennants are marked by two trend lines. At its top, there is a line of resistance where traders are willing to sell the currency pair. At it's bottom, there is a line of support where traders are willing to buy the currency pair. What do Flags and Pennants Formations look like?  What's the main difference between Flags and Pennants?  A Flag consists of 2 parallel trendlines (support and resistance) that slope against the previous trend. The Pennant consists of two converging trendlines that begins wide and converges and is a very short term Symmetrical Triangle. How to trade these patterns?  Always trade Flag and Pennants in the direction of the previous (main)trend: (1) If the previous trend was up, wait for a break out to the upside and go long when the currency pair rises above the upper resistance trendline. Place your stop a few pips below the lower support trendline. (2) If the previous trend was down, wait for a break out to the downside and go short when the currency pair falls below the lower support trendline. Place your stop a few pips above the upper resistance trendline. Chart examples Bullish Pennant and Bullish Flags

Forex Head & Shoulders Top Chart Pattern

The Head and Shoulders Top marks a "reversal" pattern in an uptrend market and is extremely popular among currency traders. The pattern consists of 2 Shoulders, 1 Head and the Neckline (support): 1) The first point - the left shoulder - occurs as the price of the currency pair in a rising market hits a high and then fall back to the neckline. 2) The second point - the head - happens when prices rise to an even higher high and then fall back again to the neckline. 3) The third point - the right shoulder - occurs when prices rise again but don't hit the high of the head. 4) A key element of the pattern is the neckline and can be horizontal, slope up or slope down and is formed by drawing a line connecting two low price points of the formation. What does a Head & Shoulders Top reversal pattern look like?  The pattern is complete when support provided by the neckline is "broken." This occurs when the price of the currency pair, falling from the high point of the right shoulder, moves BELOW the neckline. Currency analysts will often say that the Head & Shoulders top pattern is not confirmed until the currency price closes below the support neckline - it is not enough for it to trade below the support neckline. Please note: The Head & Shoulders Top looks similar to a Head & Shoulders Bottom but reverse. How to trade this pattern?Go short when the currency price CLOSES below the neckline and put a stop-loss few pips above the last peak (right shoulder). Use a risk reward ratio 1.5 or better to calculate your profit target.(if you risk 50 pips, your target should be at least 75 pips). Chart example EUR/USD 1 Hour Head & Shoulders Top reversal pattern Please note that the Head and Shoulders Top formation does not need to be perfectly symmetrical.

Forex Rectangle Chart Pattern

A Rectangle or Box is a continuation pattern and describes a price pattern where supply and demand seems evenly balanced for an extended period of time. The currency pair moves in a tight range, finding support at the rectangle's bottom and hitting resistance at the rectangle's top. Finally, price will break out the rectangle's range, either by moving through support or resistance. If the prior trend was an uptrend, the most likely direction will be UP, if the prior trend was a downtrend, the most likely direction will be DOWN. However, rectangle's can become a reversal pattern: if the prior trend was an uptrend and the price breaks through support OR when the prior trend was a downtrend and the price breaks through resistance. What does a Rectangle Formation look like?  The Rectangle pattern is easy identifiable by two parallel lines("Upper end of range" and "Lower end of range"). How to trade this pattern?  Always try to trade Rectangle's in the direction of the previous (main) trend: (1) If the previous trend was up, wait for a break out to the upside and go long when the currency pair closes above the upper resistance trendline. Place stop a few pips below the lower support trendline. (2) If the previous trend was down, wait for a break out to the downside and go short when the currency pair closes below the lower support trendline. Place stop a few pips above the upper resistance trendline. Chart example USD/JPY 1 Hour Chart Rectangle continuation pattern. USD/JPY prior trend is down on the chart above, after price breaks the Rectangle's lower support line, it's prior trend resume (DOWN).

Forex Rising Wedge Chart Pattern

At it's most basic level, Rising Wedge formations are bearish continuation patterns and look similar to triangle patterns (ascending triangle, descending triangle, and symmetrical) because of the converging trendlines( support and resistance) and narrowing price ranges(forms a cone). Rising wedges slope up and have a bearish bias, they are usually found in down-trending markets. However, they can become a reversal pattern if the currency pair price move above the upper (resistance) trendline. How a Rising Wedge Formation look like?  How to trade this pattern?  (1) Go short when the currency price falls below the lower trendline and place your stop above the upper trendline (resistance) line. (continuation pattern) (2) Go long when the currency pair price rises above the upper trendline and place your stop below the lower trendline (reversal pattern) Chart examples Rising Wedge Continuation GBP/JPY 60 min Chart Rising Wedge Reversal USD/CAD 30 min Chart Please Note: This is a rising wedge reversal pattern (price break through the upper trendline)

Forex Triple Bottom Chart Pattern

Triple Bottom formations are reversal patterns with bullish bias, this pattern is not often seen in the forex market (also note Triple Tops, Double Bottoms and Double Tops). Triple Bottoms are identified by three consecutive lows of similar (or almost) height with 2 moderate pull backs up in between (neckline peaks). The triple bottom can be a major reversal pattern (if found on a daily chart or bigger timeframe) that can be formed after an extended downtrend. This pattern is confirmed when the currency pair price breaks from (it's third bottom) below through the neckline, the most likely price direction is now UP. What does a Triple Bottom formation look like?  A triple bottom formation is a distinct chart pattern characterized by a rally to a new low (bottom1 or support1) followed by a moderate pull back up (10 -20%) to the neckline (resistance level), a second rally to test a new low ( bottom2 or support2) followed by a moderate pull back up(10 -20%) to the neckline (resistance level) and finally a third rally to test a new low ( bottom3 or support3). The three lows (bottoms or support levels) are at approximately the same price level. What follows is a pull back up to above the neck line (resistance). How to trade this pattern?  Go long above the Neck Line (resistance level) when the currency pair price breaks from (it's third bottom) below, the most likely price direction is now UP. Place your stop couple of pips below it's third bottom price! Your target must be at least twice the distance from it's third bottom break to the neckline. Example: If the third bottom price is at 1.2300 and the neckline is at 1.2400, your target level must be at least 200 pips when trading the break out! Chart example USD/JPY Daily Chart Triple Bottom reversal chart pattern

Forex Triple Top Chart Pattern

Triple Top formations are reversal patterns with bearisch bias, this pattern is not often seen in the forex market (also note Triple Bottoms, Double Bottoms and Double Tops). Triple Tops are identified by three consecutive highs of similar (or almost) height with 2 moderate pull backs in between (neckline). 

The triple top can be a major reversal pattern (if found on a daily chart or bigger timeframe) that can be formed after an extended uptrend. This pattern is confirmed when the currency pair price breaks from (it's third peak) above through the neckline, the most likely price direction is now DOWN. 

What does a Triple Top formation look like? 

A triple top formation is a distinct chart pattern characterized by a rally to a new high (peak1 or resistance1) followed by a moderate pull back (10 -20%) to the neckline (support level), a second rally to test a new high ( peak2 or resistance2) followed by a moderate pull back (10 -20%) to the neckline (support level) and finally a third rally to test a new high ( peak3 or resistance3). 

The three peaks (highs or resistance levels) are at approximately the same price level. What follows is a pull back to below the neck line (support). 

How to trade this pattern? 

Go short below the Neck Line (support level) when the currency pair price breaks from (it's third peak) above, the most likely price direction is now DOWN. Place your stop couple of pips above it's third peak price! 

Your target must be at least twice the distance from it's third peak break to the neckline.

Example: If the third peak price is at 1.2300 and the neckline is at 1.2250, your target level must be at least 100 pips when trading the break out! 

Chart example


USD/JPY Daily Chart Triple Top reversal chart pattern