An Overview of Forex Chart Patterns
As you progress in your career as a forex market trader you will eventually come across, and must learn to study in depth, forex charts. These charts are instrumental in determining the market trends, and are absolutely essential if you want to make a profit from trading.
Almost all forex charts make use of vertical or horizontal lines spread across price bars, and the shapes, created by the movement of price bars (high low and sideways), determine the name, as well as the meaning, of the patterns.
Wedge forex chart patterns are shaped like the letter "V", with a side slightly more steeped than the other. The significance of the pattern is determined by how the lines conjoin together. If they are rising, it is a pointer to go long (buy). A declining wedge, on the other hand, is a sign that the forex is headed down, as the break will occur at the lower end.
Flag chart patterns can be either Bull or Bear. In Bull Flag patterns, the price bars are aligned in a declining manner, and are used by forex traders as a "buy" sign. Bear Flags, on the other hand, are characterized by a downward angle. When the break occurs, forex traders see it as a time to go short.
Then there are the forex chart patterns known collectively as Top/Bottom patterns. Among the most frequent patterns are ABC Top, which indicates a trend reversal (up to down), at roughly the second point. An ABC Bottom points to the opposite direction, although the alteration signal also emanates from the second point.
When the forex chart pattern assumes the Head and Shoulders shape, it means that a break will most likely take effect at the "neck". An upturned pattern suggests a price upsurge. Downtrends are also likely in Double Top, Triple Top and Rounded Top arrangements; Double Bottom, Triple Bottom and Rounded Bottom are taken to mean the opposite.
It should be noted that all chart patterns, be they Wedge, Flags or Top/Bottom, should be analyzed with regards to the previous or more most recent forex market movement. It is also important to realize that technical indicators are not just the tools you should rely on, but also the fundamental economic issues affecting market prices.
While forex chart patterns may appear complicated at first, a few hours, even minutes, of scrutinizing will render their formations more meaningful. For a forex trader, the more time that is invested in studying forex charts, the better it will serve him/her in the long run.