Forex Trading Patterns
Forex Trading Patterns
Forex trading patterns are visual formations on price charts that help traders predict potential price movements based on historical behavior. They are categorized into candlestick patterns (based on individual or small groups of candles), chart patterns (larger formations over multiple periods), and harmonic patterns (geometric patterns using Fibonacci ratios). These patterns can be bullish (suggesting price rise), bearish (suggesting price fall), continuation (trend persists), or reversal (trend changes).
Use these with other indicators like volume, support/resistance, and risk management (e.g., stop-loss at 1-2% risk per trade). Always backtest in a demo account.
1. Candlestick Patterns
Candlestick patterns are formed by one or more Japanese candlesticks, representing price action over a period. They are used for short-term trades in forex pairs like EUR/USD.
|
# |
Name |
Type |
How It Looks and Works |
How to Trade (Entry & Exit) |
|
1 |
Pin Bar |
Reversal (Bullish or Bearish) |
Small body with long wick (tail); bullish has long lower wick (buyers push up from low), bearish has long upper wick (sellers push down from high). Works as reversal at support/resistance after trend. |
Entry: Buy/sell on next candle close beyond pin bar high/low. Exit: At next resistance/support or trailing stop at 2x risk-reward. |
|
2 |
Reversal (Bullish or Bearish) |
Second candle completely engulfs first; bullish (green engulfs red in downtrend), bearish (red engulfs green in uptrend). Works by showing shift in momentum. |
Entry: Buy/sell after engulfing candle closes. Exit: Target 1:1 risk-reward or at Fibonacci extension. Stop-loss beyond engulfed candle. |
|
|
3 |
Inside Bar |
Reversal/Continuation |
Second candle fully within first's range; shows consolidation. Works as pause before breakout. |
Entry: Buy/sell on breakout of mother's high/low. Exit: At measured move equal to mother bar height. Stop-loss opposite side of mother bar. |
|
4 |
Morning Doji Star |
Bullish Reversal |
Three candles: red, doji (indecision), green; at downtrend bottom. Works as buyers take control. |
Entry: Buy above green candle high. Exit: At previous high or 50% Fibonacci retracement. Stop-loss below doji low. |
|
5 |
Long Legged Doji |
Reversal (Neutral) |
Doji with long upper/lower wicks; open/close near same. Works as indecision at peaks/troughs. |
Entry: Trade in prior trend direction on breakout. Exit: Trailing stop or at next level. Stop-loss beyond wicks. |
|
6 |
Three Outside Down |
Bearish Reversal |
Three candles: engulfing bearish, then smaller red making lower low. Works as confirmation of reversal. |
Entry: Sell below third candle low. Exit: At support or pattern height projected down. Stop-loss above engulfing high. |
|
7 |
Bullish Belt Hold |
Bullish Reversal |
Large green candle after downtrend, opens lower but closes high. Works as strong buyer entry. |
Entry: Buy above candle high. Exit: At resistance or 1:2 risk-reward. Stop-loss below low. |
|
8 |
Bullish Piercing |
Bullish Reversal |
Two candles: red, then green closing above 50% of red body. Works like partial engulfing in downtrend. |
Entry: Buy above green high. Exit: At Fibonacci 61.8% or trailing. Stop-loss below green low. |
|
9 |
Hammer |
Bullish Reversal |
Small body, long lower wick (2x body); at downtrend bottom. Works as buyers reject lower prices. |
Entry: Buy above high. Exit: At resistance. Stop-loss below wick. |
|
10 |
Hanging Man |
Bearish Reversal |
Small body, long lower wick; at uptrend top. Works as sellers test lows. |
Entry: Sell below low. Exit: At support. Stop-loss above high. |
|
11 |
Doji |
Reversal (Neutral) |
Open/close same, small body; shows indecision. Works at extremes. |
Entry: Trade breakout. Exit: Measured move. Stop-loss opposite wick. |
|
12 |
Shooting Star |
Bearish Reversal |
Small body, long upper wick; at uptrend top. Works as rejection of highs. |
Entry: Sell below low. Exit: Downward projection. Stop-loss above wick. |
|
13 |
Inverted Hammer |
Bullish Reversal |
Small body, long upper wick; at downtrend bottom. Works as test of highs. |
Entry: Buy above high. Exit: Upward target. Stop-loss below body. |
|
14 |
Marubozu |
Continuation (Bullish/Bearish) |
No wicks, full body; green for bullish, red for bearish. Works as strong momentum. |
Entry: In trend direction. Exit: At exhaustion. Stop-loss beyond open. |
|
15 |
Spinning Top |
Reversal (Neutral) |
Small body, equal wicks; indecision. Works like doji. |
Entry: Breakout. Exit: Pattern height. Stop-loss beyond wicks. |
|
16 |
Three White Soldiers |
Bullish Reversal |
Three green candles, each higher close. Works as strong upturn. |
Entry: Buy after third. Exit: At overbought. Stop-loss below first. |
2. Chart Patterns
Chart patterns span multiple candles, used for medium-term forex trades.
|
# |
Name |
Type |
How It Works |
How to Trade (Entry & Exit) |
|
1 |
Ascending Triangle |
Bullish Continuation |
Horizontal resistance, rising support; buyers gain strength, breakout up. Looks like right triangle pointing up. |
Entry: Buy breakout above resistance. Exit: Target = pattern height added to breakout. Stop-loss below support. |
|
2 |
Descending Triangle |
Bearish Continuation |
Horizontal support, falling resistance; sellers dominate, breakout down. Looks like right triangle pointing down. |
Entry: Sell breakout below support. Exit: Target = height subtracted from breakout. Stop-loss above resistance. |
|
3 |
Symmetrical Triangle |
Neutral Continuation |
Converging lines, consolidation; breakout in trend direction. Looks like equilateral triangle. |
Entry: Trade breakout direction. Exit: Height projected from breakout. Stop-loss opposite side. |
|
4 |
Pennant |
Bullish/Bearish Continuation |
Small triangle after sharp move (flagpole); pause before continuation. Looks like small pennant flag. |
Entry: Breakout in trend. Exit: Flagpole height projected. Stop-loss inside pennant. |
|
5 |
Bullish Flag |
Bullish Continuation |
Rectangular consolidation sloping down after up move. Looks like flag on pole. |
Entry: Buy breakout above flag. Exit: Pole height added. Stop-loss below flag. |
|
6 |
Bearish Flag |
Bearish Continuation |
Rectangular sloping up after down move. Looks like flag. |
Entry: Sell breakout below flag. Exit: Pole height subtracted. Stop-loss above flag. |
|
7 |
Rising Wedge |
Bearish Reversal |
Converging up-sloping lines in uptrend; momentum slows. Looks like narrowing wedge up. |
Entry: Sell breakout below support. Exit: Height projected down. Stop-loss above wedge. |
|
8 |
Falling Wedge |
Bullish Reversal |
Converging down-sloping lines in downtrend. Looks like narrowing wedge down. |
Entry: Buy breakout above resistance. Exit: Height projected up. Stop-loss below wedge. |
|
9 |
Double Top |
Bearish Reversal |
Two peaks at same level, 'M' shape; reversal after uptrend. |
Entry: Sell below neckline. Exit: Height projected down. Stop-loss above peaks. |
|
10 |
Double Bottom |
Bullish Reversal |
Two troughs at same level, 'W' shape; reversal after downtrend. |
Entry: Buy above neckline. Exit: Height projected up. Stop-loss below troughs. |
3. Harmonic Patterns
Harmonic patterns use Fibonacci ratios for precise reversals in forex, often with geometric shapes like 'M' or 'W'.
|
# |
Name |
Type |
How It Looks and Works |
How to Trade (Entry & Exit) |
|
1 |
Reversal (Bullish/Bearish) |
5 points (XABCD); bullish 'M', bearish 'W'. Works with Fibonacci ratios (AB=61.8% XA, etc.); predicts reversal at D. |
Entry: At D (78.6% XA). Exit: Targets at 61.8% AD, then A. Stop-loss beyond X. |
|
|
2 |
Reversal (Bullish/Bearish) |
Similar to Gartley but AB=38.2-50% XA, D=88.6% XA. Looks like bat wings. Works for tighter reversals. |
Entry: At D. Exit: TP1 at B, TP2 at A. Stop-loss below X. |
|
|
3 |
Reversal (Bullish/Bearish) |
AB=61.8% XA, BC=113-224% AB, D=88.6-113% XA. Looks like shark fin. Works for aggressive reversals. |
Entry: At D. Exit: At 50% Fibonacci of CD. Stop-loss beyond C. |
|
|
4 |
Butterfly |
Reversal (Bullish/Bearish) |
AB=78.6% XA, CD=1.618-2.618 AB. Looks like butterfly wings. Works for extended reversals. |
Entry: At D (1.27 XA). Exit: TP1 at B, TP2 at A. Stop-loss beyond 1.618 XA. |
|
5 |
Cypher |
Reversal (Bullish/Bearish) |
AB=38.2-61.8% XA, BC=1.272-1.414 XA, D=78.6% XC. Looks like asymmetrical M/W. Works in volatile markets. |
Entry: At D. Exit: At A. Stop-loss below X. |
|
6 |
Crab |
Reversal (Bullish/Bearish) |
AB=38.2-61.8% XA, CD=2.618-3.618 AB, D=1.618 XA. Looks like crab claws. Works for deep reversals. |
Entry: At D. Exit: TP1 at B, TP2 at 161.8% AD. Stop-loss beyond X. |
Analytic Dave
AnalyticalDave is a personal financial analysis portfolio that captures my Derivatives trading, stock, and investing journey. My portfolio does NOT act as a financial advisor to any community. It is only purposed for journaling my story as a self-taught trader and investor.
