The patterns are easy to read since they are highlighted and named. Even a beginner will have no difficulties using the advisor. Pattern Graphix sends notifications as a pop-up alerts on the chart or texts to a client's smartphone or email. So-called Expert Advisors are extremely popular among Forex professionals. Using EAs, traders can carry their strategies out in a semiautomatic or even a fully automatic mode. A Forex advisor is a plug-in for the trading platform set by a trader according to her goals.
It is also able to monitor the market closely non-stop. There are numeours Forex advisors out in the market. Some can execute the deals; others simply give ideas for the most profitable trading decisions. A certain type of advisors has gained a special recognition among traders - graphic pattern recognition software for trading charts. One of the best programs in this category is indeed Pattern Graphix. Pattern Graphix keeps traders informed about new emerging trends on the market. It identifies patterns on the trading charts.
One can even select a particular trading instrument, a time frame, or a type of pattern to receive signals about. Traders may choose to receive visual and sound alerts from Pattern Graphix immediately after a pattern is formed. Thus, traders can react to changes in currency rates quicker and place more profitable orders. Click here to find out how Pattern Graphix can help you attract more customers. Pattern Graphix notices things you never would!
As soon as it forms, there is a high probability that a new downtrend will begin. This graphic pattern is a bullish version of the "Head and Shoulders". You can find this pattern at the end of a downtrend, and it signals a possible trend reversal from bearish to bullish. The "Rising Wedge" pattern is formed when the price makes higher highs and higher lows within a narrowing range that moves up.
For this graphical pattern, it is important that all the highs and lows are well aligned so that they can be connected to the trend line. It is clearly seen that the lower trend line is steeper than the upper one. When the price breaks the bottom, it means the end of the uptrend and is a good sign of switching to a downtrend.
A "Falling wedge" is an inverted pattern of an "Rising Wedge". Falling wedge formirit occurs when the price makes lower highs and lower lows within a narrowing range going down. As the price falls into the "Falling Wedge", the trend lines get closer and closer until they touch.
When the bears fail to set a new low, the downtrend ends and a new uptrend begins. At this time, traders may be looking for a good buying opportunity. See also the list of reliable Forex brokers. Flag models are very common and often cause explosive movements. In addition, they are easy to spot. Pennant patterns are very similar in structure to flags. Some sites don't even distinguish between them. What is the difference between pennants and flags? The consolidation phase, which we know as the flag, is less intense for the Bullish Pennant pattern.
Bears have much more problems with containing the uptrend. This makes it impossible to get lower minimums, as with flags. In other words, the Bullish Pennant pattern tells us that buyers are stronger than sellers during consolidation. The rules are similar to the rules of the "Flag" pattern. After a sharp downward movement that broke through the support, the price consolidates in a narrowing range resembling a triangular flag pennant. However, this is a relatively short period of consolidation before the price breaks the bottom.
Thus, the Bearish Pennant pattern is completed, and you can look for an entry to continue the downtrend. The ascending triangle pattern is usually bullish. You can find this pattern during a consolidation period during an uptrend. The price makes higher lows, which we can connect with the trend line at the bottom, but buyers cannot break through the resistance above it.
You would say that the uptrend is probably over, but if you look closely, you will see that the price action is shrinking againit's crumpled. Buyers are gaining strength, and sellers are slowly running out of steam. In the end, the price breaks through the top of the ascending triangle, which often causes a significant movement.
A breakout completes the figure and signals the possibility of buying. This pattern can be recognized by the horizontal bottom, where the price has met strong support. At the top you can see a descending trend line connecting the lower highs.
This structure is created when strong bears continue to push the price down, and weaker bulls try to reverse the trend. Eventually, buyers are exhausted and sellers manage to push the price through the support. The breakdown completes the "Descending Triangle" pattern, and at this moment we can look for an entry into a short position.
In fact, a "bullish rectangle" is nothing more than an uptrend range, which is usually formed on or just before a strong resistance. For a certain period of time, bulls and bears are equal. This creates a range around which you can draw a rectangle. The lower part of the rectangle is the support, and the upper part is the resistance.
The "Bearish rectangle" pattern looks the same, but it takes place in a downtrende, so the effects are reversed. Please note that rectangles are typical examples of graphical patterns that can work both for a reversal and for the continuation of a trend. Fortunately, there are several periods of consolidation and only one reversal inside the trend, so rectangles are more often a continuation of the trend than reversals.
The main disadvantage of graphical patterns is that they need to be searched on the chart. It's not very difficult, but you need practice. It is best to do this on history, then practice on a demo account , and only then switch to real trading. For some traders, when searching for graphical patterns, the transition from a candlestick to a linear chart helps.
Among the advantages, graphical patterns are a reliable signal for entering trades, they do not lag like indicators , and with their help you can easily determine the goals of take profit for example, the height of the figure and stop loss levels the opposite level of the pattern.
Read also the article "Forex Candlestick Analysis". What are Forex Graphic Patterns? Types of graphic patterns There are two types of graphic patterns: Reversal patterns. Reversal patterns report a possible change of an uptrend to a downtrend and vice versa. Trend continuation patterns.
These models report a temporary pause in the trend and indicate that the previous direction of the price will remain. In other words, they offer traders the opportunity to join the market or expand an existing position for long-term investors. Reversal patterns of graphical analysis In this section, we will look at reversal patterns that you can use to determine the moment of a trend reversal and enter a trade at its very beginning.
Double Top Let's start with the simplest, most common and one of the most effective patterns — the "Double Top", which occurs at the end of an uptrend. This pattern is formed as follows: The price makes a new high, but faces resistance. We are returning to short-term support as traders take profits on their long positions below this resistance. Buyers are trying to re-enter the market, but they cannot break this resistance, as a result of which the price reaches new lows.
Stages of formation of the "Double bottom" pattern: The price makes a new low, but reaches the support level. Traders fear that the trend is coming to an end, and close their positions, causing the price to roll back to short-term resistance. The bears are making desperate attempts to break the support, but in the end the bulls take control.
Instead of breaking the support, the price breaks through the maximum of the pullback.
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Now you have around 20 different chart pattern examples. But which are the best chart patterns to trade? Now that we have shared the chart patterns basics, we would like to let you know which are the best chart patterns for intraday trading. Then we will give you a detailed explanation of the structure and the respective rules for each one.
The Flag and the Pennant are two separate chart patterns that have price continuation functions. However, we like to treat these as one as they have a similar structure and work in exactly the same way. The Flag chart pattern has a continuation potential on the Forex chart. The bull Flag pattern starts with a bullish trend called a Flag Pole, which suddenly turns into a correction inside a bearish or a horizontal channel.
Then if the price breaks the upper level of the channel, we confirm the authenticity of the Flag pattern, and we have sufficient reason to believe that the price will start a new bullish impulse. For this reason, you can buy the Forex pair on the assumption that the price is about to increase.
Place your Stop Loss order below the lowest point of the Flag. The Flag pattern has two targets on the chart. The first one stays above the breakout on a distance equal to the size of the Flag. If the price completes the first target, then you can pursue the second target that stays above the breakout on a distance equal to the Flag Pole. For instance, this Flag chart pattern example to see how it works in a real-life trading situation:. In addition, the two pink arrows show the size of the Flag and the Flag Pole, applied starting from the moment of the Flag breakout.
The Stop Loss order of this trade stays below the lowest point of the Flag as shown on the image. The Pennant chart pattern has almost the same structure as the Flag. A bullish Pennant will start with a bullish price move the Pennant Pole , which will gradually turn into a consolidation with a triangular structure the Pennant.
Notice that the consolidation is likely to have ascending bottoms and descending tops. Moreover, if the price breaks the upper level of the Pennant, you can pursue two targets the same way as with the Flag. The first target equals the size of the Pennant and the second target equals the size of the Pole. At the same time, your Stop Loss order should go below the lowest point of the Pennant. The image gives an example of a bull Pennant chart pattern.
The only difference is that the bottoms of the Pennant pattern are ascending, while the Flag creates descending bottoms that develop in a symmetrical way compared to the tops. This is the reason why we put the Flag and Pennant chart patterns indicator under the same heading.
The Double Top is a reversal chart pattern that comes as a consolidation after a bullish trend, creates a couple of tops approximately in the same resistance area and starts a fresh bearish move. Conversely, the Double Bottom is a reversal chart pattern that comes after a bearish trend, creates a couple of bottoms in the same support area, and starts a fresh bullish move.
We will discuss the bullish version of the pattern, the Double Top chart pattern, to approach the figure closely. To enter a Double Top trade, you would need to see the price breaking through the level of the bottom that is located between the two tops of the pattern. When the price breaks the bottom between the two tops, you can short the Forex pair, pursuing a minimum price move equal to the vertical size of the pattern measured starting from the level of the two tops to the bottom between the two tops.
Your Stop Loss order should be located approximately in the middle of the pattern. The pink lines and the two arrows on the chart measure and apply the size of the pattern starting from the moment of the breakout. To clarify, we use a small top after the creation of the second big top to position the Stop Loss order.
Notice that the Double Bottom chart pattern works exactly the same way but in the opposite direction. Similarly, the Head and Shoulders is another famous reversal pattern in Forex trading. It comes as a consolidation after a bullish trend creating three tops. The first and third tops are approximately at the same level. However, the second top is higher and stays as a Head between two Shoulders. This is where the name of the pattern comes from.
The Head of the pattern has a couple of bottoms from both of its sides. The line connecting these two bottoms is called a Neck Line. When the price creates the second shoulder and breaks the Neck Line in a bearish direction, this confirms the authenticity of the pattern.
When the Neck Line breaks, you can pursue the bearish potential of the pattern that is likely to send the price action downward on a distance equal to the size of the pattern — the vertical distance between the Head and the Neck Line applied starting from the moment of the breakout.
Your Stop Loss order in a Head and Shoulders trade should go above the second shoulder of the pattern. The inclined pink line is the Neck Line of the figure. The two arrows measure and apply the size of the Head and Shoulders starting from the moment of the breakout through the Neck Line. The red circle shows the head and shoulders chart pattern breakout. You need to hold a bearish trade until the price completes the size of the pattern in a bearish direction.
At the same time, your Stop Loss order should go above the second shoulder as shown on the chart. As with the other patterns we have discussed, the Head and Shoulders chart pattern has its opposite version — the Inverse Head and Shoulders pattern. It acts absolutely the same way, but everything is upside down. If you would like to learn more about the Head and Shoulders chart pattern, check this live trading example.
One of the best-kept secrets from seasoned traders lies around a chart pattern recognition indicator. The good news is you can also have it. It is built into the default version of the MetaTrader 4 trading platform. The indicator is called ZigZag.
What it does is to represent the general price action with straight lines by neglecting smaller price fluctuations and putting emphasis on the real-deal price moves. This way you can very easily visualize a real pattern on the chart. To clarify, let me show you our chart pattern recognition algorithm in action:. The chart includes the ZigZag indicator expressed by the straight red lines on the chart. In the middle of the chart, we see that the ZigZag lines are creating descending tops and descending bottoms, which is a symptom of a Falling Wedge chart pattern.
See that the highs and the lows of the pattern stand out in a very pleasant way thanks to the ZigZag indicator. You can hardly miss the pattern on the chart. In the red circle we see the breakout through the upper level of the pattern — the confirmation. Visual analysis is based, in addition to psychology, on the economic factors and reflects a constant search for balance between bulls and bears. The models help not only determine the direction but also set approximate target levels that the price should achieve in the process of working out the figure.
The trader only needs to identify the patterns correctly and make a decision to enter the market according to the recommendations verified on the price history. There are no obvious trading signals either — only the forecast of the most probable direction and some key levels. Any trading technique works with two groups of figures: the continuation of the trend and its reversal. Technical analysts still identify double-interpretation figures with unlikely trading signals. Trend continuation patterns define the current state of the market as a technical pause, after which the price moves in the same direction: various flag versions pennants, wedges , rectangles and zigzags, as well as some price gap options.
It means that such a model takes much longer to form. Graphic analysis must necessarily be supplemented by an analysis of trading volumes, since the result strongly depends on the fundamental background see Using Indicators. The market most often does not work out the models completely and money management in such trading should be tough.
Sustainable models need deals lasting at least a few hours. If the graphic model was formed on D1, then you need to open and accompany transactions on this timeframe. You can never rely solely on visual perception and you always need to confirm the entry points with additional indicators. As you can see, backtesting is quite simple activity in case if you have the right backtesting tools. To check this or any other graphical analysis you can download Forex Tester for free. In addition, you will receive 21 years of free historical data easily downloadable straight from the software.
Forex Tester is a software that simulates trading in the Forex market, so you can learn how to trade profitably, create, test and refine your strategy for manual and automatic trading. Forex historical data is a must for back testing and trading. Forex data can be compared to fuel and software that uses this data is like an engine.
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ES JP. What is historical data? Symbols and currency pairs Data sources Buy data subscription. Download Free Desktop Application Test your trading strategies at sonic speed on 20 years of real historical data. A bit of a history Charles Dow, the author of the famous stock index and editor of the Wall Street Journal, was the first modern trader to pay attention to the visual patterns of prices and formulate the principles for determining entry points of transactions with minimal risk.
Gartley Butterfly: Standard Edition. Basic Forex Graphic Models Visual analysis is based, in addition to psychology, on the economic factors and reflects a constant search for balance between bulls and bears.
Discover 10 chart patterns that every trader should be able to recognise during their time on the markets. Pattern Graphix keeps traders informed about new emerging trends on the market. It identifies patterns on the trading charts. Besides, our advisor helps traders. Greatly improve your forex trading by learning these commonly used forex chart patterns that provide entries, stops and profit targets.