In Forex market, there are a lot of traders who talk about price action patterns but few actually discuss. Here are the Top 5 reliable price action patterns in Forex.
AtoZForex – There are a lot of useful patterns in Forex market but we don't trade these patterns directly. Price action patterns in Forex are very useful to understand the current structure of the market and quickly assess our trading opportunities.
Reliable price action patterns in Forex
The price action patterns only included once they were considered to be complete, which usually means a full break of a support and resistance area or trendline. Here are the top 5 reliable price action patterns in Forex.
Bull Flag and Bear Flag Pattern
The flag is a continuation pattern that can occur after a strong trending move. It consists of a strong bullish trending move followed by a rapid series of lower highs and lower lows for a bull flag, or a strong bearish trending move followed by a rapid series of higher lows and higher highs for a bear flag.
This pattern is considered successful when it breaks the upper trendline in a bull flag (or the lower trendline in a bear flag) and then proceeds to cover the same distance as the prior trending move starting from the outer edge of the pattern.
Ascending Triangle and Descending Triangle Pattern
The triangle pattern usually occurs in trends and acts as a continuation pattern. It's defined by a bullish trending move followed by two or more equal highs and a series of higher lows for an ascending triangle pattern, and a bearish trending move followed by two or more equal lows with a series of lower highs for a descending triangle pattern.
Ascending Channel and Descending Channel Pattern
The channel price pattern is a fairly common sight in trending moves that have good volume and acts as a delayed continuation pattern. Note that the channel pattern is similar to the flag in that they both have periods of consolidation between parallel trendlines, but the channel pattern is generally wider and consists of many more bars which increases its strength and success rate.
This pattern is complete when price breaks through the upper trendline in an ascending channel or below the lower trendline in a descending channel pattern. The pattern is considered successful when price has achieved a movement from the outer edge of the pattern equal to the distance of the initial trending move that started the channel pattern.
Double Top and Double Bottom Pattern
The double top/bottom is one of the most common reversal price patterns. The double top defined by two nearly equal highs with some space between the touches, while a double bottom created from two nearly equal lows. Generally, the wider the gap between touches the more powerful the pattern becomes.
This is actually the first of our patterns with a statistically significant difference between the bullish (double bottom) and bearish (double top) version. As we can see, the double bottom is a slightly more effective breakout pattern than the double top, reaching its target 78.55% of the time compared to 75.01%.
Triple Top and Triple Bottom Pattern
The triple top/bottom is another variation of reversal price patterns. The triple top defined by three nearly equal highs with some space between the touches, while a triple bottom created from three nearly equal lows. Generally, the wider the gap between touches the more powerful the pattern becomes.
The pattern is complete when price breaks below the swing low points created between the highs in a triple top, or when price breaks above the swing high points created between the lows in a triple bottom.
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