The Best Forex Chart Patterns to Trade in 2022

Forex Chart Patterns

If you are looking for the best chart patterns for Forex Trading. Then there are some most powerful candle stick chart patterns.

  • 1. The Wedge Chart Pattern
  • 2. The Bull and Bear Flag Pattern
  • 3. The Head and Shoulders Pattern

1. The Wedge Chart Pattern

Wedge pattern

falling wedge

As the name implies it is a pattern of technical significance in which price changes towards a narrowing pattern which is also known as an arc.

Contrary to the shoulders and head we talked about and the wedge, it is often thought of as an ongoing pattern. That means, once it has been it is broken, prices tend to follow the direction of the previous trend.

It’s also important not to get caught in trying to anticipate a future direction as long as the pattern remains in place. Only after support or resistance is broken can you begin to look for potential goals.

Reason – Why do Traders trade it?

The wedge was among the very first Forex chart patterns I started trading right after entering the market. By the time I was in 2010 I had not only learned how to trade these patterns, but I had also developed the skills to recognize the most profitable patterns, something that is only gained through years of experience.

The most amazing wedge patterns don’t happen frequently. When I say “really great”, I’m talking about the wedges which appear when you look at the daily charts. Although you can trade them using the 4-hour timeframe I’ve found that the most profitable trade setups occur on the daily timeframe.

Wedges are a pattern that can be played out more quickly than similar patterns like the head-and-shoulders pattern. They also provide a favorable risk-to-reward ratio, particularly larger patterns that appear when you look at the charts for the day.

This allows you to make a profit in an extremely short amount of time. Even though they don’t come frequently it is something you keep an eye on when you are in a long period of consolidation.

Be alert and psychological fit

Three common mistakes I have seen traders make when making trades with the wedge.

The first, and possibly the most common is to make support and resistance levels match. Actually, it is a frequent problem that I observe across the entire spectrum of the trading world, not just wedges.

The wedge pattern is not well-fitted.
As I have always said that if a particular degree isn’t immediately evident, it ought to be avoided. The three points illustrated above do not appear to be in line with the lower and upper levels of consolidation, which negates the structure in terms of the concept of “traceability”.

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Another common mistake is traders who try trading a wedge using lower time frames. Although these patterns may happen more frequently, they’ll not be nearly as reliable and efficient as the price structures that develop in the timeframe of the day.

Last but not least of all is the matter of timing. As you are likely to know timing is an essential aspect to be successful in the field of Forex. When it comes to wedges, the timing of crucial.

Most of the time the moment this pattern breaks and the market retests the level that was broken as a new level of support or resistance. This test provides the ideal opportunity to make an entry but it requires patience to make it happen.

The proper entry point to a wedge pattern

Make sure you enter after the first candle to close outside the pattern, as it is likely that you will experience the possibility of a retrace. This not only gives you a better chance of entering, however, but it can also aid you in making a decision based on emotion about getting out of the position in the event that you were to enter too early.

2. The Bull and Bear Flag Patterns Forex.

Bull flag pattern

bullish flag

The bear flag or bull is a different name for the channel. By including “bull” or “bear” in the title gives it a unidirectional bias. Therefore, as you’d imagine, it’s often used as an ongoing pattern.

As with the shoulders and head, they often appear after a prolonged move either up or down and are the beginning of consolidation. It’s basically an indecision place in the market where bears and bulls are fighting to determine who will take the upper hand.

What is the reason behind trading it?

I am confident that you can trade in nothing more than bear and bull flags, and earn a lot of profit on this Forex market. Of course, this supposes you’ve become an experienced trading price-action expert.

What makes me think this way?

There are several reasons for this, but mostly because these types of formations are quite common. This is the case even in the more time-sensitive frames.

When you say “quite often”, I’m talking about a couple of times per month perhaps. However, you only need to make one profitable trade per month to earn a decent income as a Forex trader.

If that one profitable trade occurs in the form of either a bearish or bullish flag pattern, it’s likely to have a beneficial risk to reward ratio. This is yet another reason why I like having this pricing structure in my trading strategies.

The goal to achieve in this instance usually allows the possibility of several hundred pips on all currencies. Couple that with an exact entry, and a stop loss, which is between 50 and 100 pip away, and you’ll have the possibility of a profit of 3R or higher almost every time.

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Concentrate on your trade and book profit

As with the other patterns, there are a few things to watch look out for when trading this particular pattern.

The first one is probably the most obvious: never cut off the lows or highs in order to fit the channel. If the channel isn’t clear prior to drawing channels on your charts, it’s likely that you’ll be able to invest in it.

The image below illustrates the price movement that you might like to avoid completely.

The pattern of the bull flag has been forced

Take note that the above two factors do not coincide with support or resistance.

The calculation of the measured objective can cause traders to get agitated. Be aware that the measurement should incorporate the consolidating price move.

Correctly measuring an objective and an appropriate flag pattern

The exact measurement shown in the above illustration encompasses the entire “flag pole”, not just the price action that leads until the point of a consolidation.

3. The Head and Shoulders pattern and Inverted head and shoulders pattern

Head and shoulders pattern

Head and Shoulders pattern

This isn’t just my favorite reversal pattern in forex, it’s my absolute very favorite pattern, in general.

This includes its reverse, which has the same features.

If you’ve been following me for a while I am sure you will remember my most-loved trading pattern was the wedge.

But, the past season of trade has brought an exciting new win in my books.

This is probably the most popular of the three types we’ll be discussing this morning. While there are similar price structures that occur more often, a legitimate and therefore tradeable head and shoulder reversal does not occur very often.

Why do traders trade it?

Simply put, it’s a good thing. More importantly, is that it can be easy to identify and extremely profitable once you know what to look out for and when to take a trade on it.

The pattern may provide an accurate entry, due to the fact that the neckline is usually dependent on a variety of highs or lows. This alone takes the uncertainty out of knowing whether the pattern is valid.

Another significant benefit, as with the two other technical forms below one, is that we have a clear objective from which we can determine an achievable goal.

Staying Out of Trouble

This is something you may not have heard of (unless obviously, you’re among my friends). To be legitimate both shoulders have to be overlapping at least at some point.

The situations where the shoulders do not meet are more common when the pattern is unfolding at a steep angle. Although a break in an angle of the trend line (if there is one) can result in a shift in direction, it does not meet the criteria needed to be referred to or traded as the head and shoulders pattern.

There is no overlap between shoulders and head

Note how none of the shoulders shown in the image above is overlapping that of the other shoulder. This blocks any price structures from trading in a head and shoulders pattern.

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Another mistake that is common that is often made by Forex traders is to utilize an objective that is measured as a “one-stop shop”. That is they measure how much distance they need to travel in pip, and then create a pending order to record profits at the level they are.

Although this may sometimes result in your favor, however, the better strategy is to check whether the goal is compatible with an existing key level. If so, then great but a more typical situation is when the market comes in contact with an important level prior to hitting the target.

Profit level to reverse pattern

If that’s the case then you’re better off making profits at the initial level instead of hoping for an extended run to the desired level. Keep in mind that technical analysis isn’t an exact science and there’s no assurance that is 100% accurate, therefore there’s no reason to lose a potential profit of 500 pip in order to earn 50 more pips of profits.

Last but not least, the head and shoulders should be traded on the chart of 4 hours or higher. But, I’ve found that the most effective price structures usually develop on a daily timeframe. Any formation occurring on the one-hour chart or lower must never be avoided, no matter how precise the structure may be.

The Conclusion of forex patterns

Utilizing chart patterns to trade in the Forex market isn’t suitable for all. If you’re interested in using raw price action to spot opportunities, then the three patterns above are a fantastic option to add to your trading plan.

It is not necessary to understand or trade each price format in the market to be able to consistently make gains as a trader Forex trader. This will slow down the process of learning and will also lead to chasing trades in all directions.

Being a successful trader is about finding a way to approach the market that matches your personality, establishing your trading strategy, and refining those rules as learning.

If you are a fan of trading technical patterns, like I do, you should be sure to pay attention to the three patterns we have covered. They can be all you require to make a steady profit.

FAQS

1. What is the Forex Chart pattern?

The name suggests Forex chart patterns are patterns that appear on charts of prices. They arise due to psychological triggers since traders are more likely to concentrate on similar patterns on the market.

2. Which are your most lucrative Forex trading patterns?

Head and shoulder channels (bull and bear flags), as well as wedges (rising and falling), are just three of my favorite patterns.

3. What time period is most effective to discern these patterns?

My experience is that the more advanced time frames, like weekly and daily, are the most effective to spot and chart patterns for trading. The 4-hour is a good option also, but the daily and weekly time frames should be first in my opinion.

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