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How to read forex chart patterns

Forex chart patterns run the gamut. There are bullish patterns, bearish patterns, reversal patterns, continuation patterns, and so on. There are entire courses on recognising forex chart patterns, but there are a few basic essentials that you need to know regardless of the system that you are trying to trade, or the pattern for that matter.

The first thing that you should keep in mind is that forex chart patterns tend to be much more reliable on longer time frames than they are across shorter periods of time.

This is because it takes much more volume and trading to form a candlestick or pattern on a higher timeframe such as a weekly chart. On a one-minute chart, you are talking about something that’s much more likely going to be attributed to 'noise' than anything else.

With that in mind, it’s not that forex chart patterns can’t work on short-term charts, it’s just that the reliability is going to be much less than other scenarios.

Furthermore, on the whole it tends to be much more reliable for analysis when the pattern coincides with the longer-term trend. That doesn’t necessarily mean that it has to be a continuation pattern.

For example, if you get a pullback in an uptrend that forms a reversal pattern, that reversal actually coincides with the longer-term trend in general. In those situations, it tends to be much more comfortable for traders to hang onto. Ultimately, the reversal pattern moves toward becoming a continuation pattern.

Forex chart patterns typically have a beginning, middle, and end. Typically, what happens is that the pattern starts the form itself, the pattern will have some type of 'measuring stick' built into it, meaning that there is an expected target when the pattern forms. Furthermore, there is also a level where you need to get out because the trade isn’t working.

Keep in mind that just because a pattern forms, it doesn’t necessarily mean you are entitled to profits. It’s merely a suggestion as to what is more likely to happen than not.

You should also note that forex trading patterns aren’t all created equal. Some will tend to be a little bit more reliable than others, and some that you may find more viable for your trading style.

The one thing that is going to be crucial for anybody trying to trade a forex chart pattern is that they understand what the trigger is going to be, what the target is going to be, and when the pattern fails.

Interestingly, there are also potential trades signalled when a pattern does fail, as a failed pattern will trap a lot of traders on the wrong side of the market.

In fact, a pattern is quite often simply a sign that a lot of traders are on the wrong side of the market and finding themselves currently trapped in and taking a loss. Some of the most common forex trading patterns are head and shoulders, rectangle, cup with handle, triangles, wedges, both bullish and bearish flax, and so on. Most traders will find a couple of patterns that they like more than others, and simply stick to those.

A lot of times they will include something like a moving average in order to define whether or not they should be taking that trade as well. For example, if a rectangle breaks out to the upside and the 50 day moving average goes higher as well, a lot of traders will look at that as some form of confirmation to put their money to work.

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