7 Best Chart Patterns For Trading Forex and Gold
If you are studying chart parts, I prepared for you the list of 7 price action patterns you should never miss.
In this article, I will share with you powerful chart patterns for trading forex or any other financial market.
These patters work perfectly for day trading, swing trading and scalping.
We will study real market examples. I will explain the psychology and meaning of each pattern and explain to you how to trade them.
The first chart pattern that we will discuss is double top.
The pattern is formed on the edge of a bullish impulse.
It is based on 2 equal highs and a higher low between them.
A higher low composes a minor support.
A strong bearish signal is a breakout of a neckline and a candle close below that. Entry is on its retest. Stop loss is above the highs.
Target is the closest strong support.
The bullish version of a double top pattern is called double bottom
The pattern is formed on the edge of a bearish impulse.
It is based on 2 equal lows and a lower high between them.
A lower high composes a minor resistance.
A strong bullish signal is a breakout of a neckline and a candle close above that. Entry is on its retest. Stop loss is below the lows.
Target is the closest strong resistance.
The second powerful pattern is a descending triangle formation.
The pattern is formed on the edge of a bullish impulse.
It is based on at least 2 equal lows and 3 lower highs between them.
A falling trend line should respect the lower highs.
A strong bearish signal is a breakout of a neckline and a candle close below that. Entry is on its retest. Stop loss is above the highest high.
Target is the closest strong support.
A bullish variation of a triangle pattern is called an ascending triangle.
The pattern is formed on the edge of a bearish impulse.
It is based on at least 2 equal highs and 3 higher lows between them.
A rising trend line should respect the higher lows.
A strong bullish signal is a breakout of a neckline and a candle close above that. Entry is on its retest. Stop loss is below the lowest low.
Target is the closest strong resistance.
Chart pattern number 5 - Cup & Handle pattern.
Cup & handle pattern is the variation of a double bottom.
The only difference between 2 patterns is 1 lower low and a consequent higher low, instead of 2 equal lows.
Entry trigger and trade execution rules are absolutely the same as with a double bottom.
Stop loss is strictly below the lower low.
A bearish version of a cup & handle is called an inverted cup & handle.
Inverted cup & handle pattern is the variation of a double top.
The only difference between 2 patterns is 1 higher high and a consequent lower high, instead of 2 equal highs.
Entry trigger and trade execution rules are absolutely the same as with a double top.
Stop loss is strictly above the higher high.
The last and the most powerful chart pattern is the range .
Range is a strictly horizontal parallel channel where the price sets equal highs and equal lows, respecting the support and the resistance of the range.
This chart pattern signifies that the market found equilibrium, a fair value.
A strong bullish signal is a breakout of a resistance of the range and a candle close above that.
Target will be the next strong resistance, stop loss should lie below the lows of the range.
A strong bearish signal is a breakout of a support of the range and a candle close below that.
Target will be the next strong support, stop loss should lie above the highs of the range.
Of course, there are more patterns to study but these 7 are essential .
Your ability to recognize them is the key for accurate price action trading.
Learn to spot these patterns and good luck in your trading..
Let me know which patterns do you want to study in the next article.
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