Ever since technical analysis has been carried out, traders have begun to notice zones on the charts in which the price has behaved the same way. These zones began to be marked and systematized.
As soon as the same pattern appears on the chart, it becomes easy for a trader to guess how the price will change further. Price figures got their names because of the similarity with geometric figures: rhombus, triangle, cube. After some time, each of the models was analyzed in detail and described in order to make it clear when to open and close deals to get the maximum profit.
For successful trading, it is important to distinguish between all price action patterns and to be able to correctly use their signals. This is possible only with experienced hands and taking into account many nuances.
Types of Patterns
Technical analysis distinguishes between reversal patterns, trend continuation patterns, double-sided patterns, and indefinite patterns. Now let’s look at each of these categories in a little more detail for a basic understanding of what they are and how to work with them to achieve profits.
- Reversal patterns are formed based on strong levels or historical lows and highs. Reversal patterns include classic patterns such as “head and shoulders” or “double top pattern Forex”.
- Trend continuation patterns. When the trend continuation pattern completes, the trader should expect movement in the same direction. The main ones in this category are the pennant, rectangle, flag and pennant patterns.
- Uncertain patterns and two-sided patterns can signal both the continuation of a trend and its end. The exact direction of the price can be judged by the slope of the pattern line relative to the current trend. In this category, the most popular patterns are the descending or ascending triangle, as well as the bullish or bearish wedge, diamond bottom pattern, etc.
Not everyone likes to deal with rare patterns because they are little known, they are easily confused with other formations, and it is difficult to talk about the advisability of diving into the study of such patterns. For example, “a cup with a handle” can be easily confused with a regular triangle, a “diamond” with two mirrored triangles, a U-turn, or a wedge.
Since there is already a lot of raw data in technical analysis that has to be taken into account, professionals advise focusing on basic models, instead of looking for Butterfly pattern Forex or Diamonds. If you are just getting started with the topic of trading, start with the simplest and most understandable patterns, and only after you learn to recognize them and work with them, it will be easy and interesting to continue to get acquainted with other patterns. It is impossible to cover everything at once, especially including rare patterns and does not bring direct financial benefits.
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