When reading a chart, there are certainly many techniques for reading a market analysis. One of them is analyzing the market using chart patterns. This time we will discuss what a chart pattern is and the types of forex trading chart patterns in full. Chart patterns, especially in forex trading, are techniques commonly used to read the movement of a market price that provides accurate and simple results. The accuracy of this chart pattern will be higher than other traditional candlestick patterns. To find out more about the chart pattern itself, you can understand it through the article related to forex trading below.

Chart Pattern Explanation

Before finding out more about chart patterns and their types, it's a good idea for us to learn a little about what a chart pattern itself is. Chart Pattern is a form of chart pattern of a price movement that is repeated and indicates that it is a major signal, such as a continuation and also a reversal of a trend. This chart pattern or graphic pattern is an integral aspect of technical analysis itself. However, its use certainly requires a habit before it can be used effectively. This graphic pattern will help you in suggesting what to do next based on what you have done before. It is important for you to know the best graphic pattern for your own specific market, because just using the wrong one can also cause you to miss an opportunity to make a profit.

Types of Chart Patterns

After knowing about what a chart pattern itself is, this time we will explore more about what the various types of chart patterns are. It should also be remembered that there is no best chart pattern in how it works and its results, because all will be used to highlight a different trend in various very large markets. The following are the various types of chart patterns. 

Reversal Chart Pattern

As the name implies, this reversal chart pattern is a pattern that indicates a change in a trend and is known as a reversal pattern. This pattern will indicate a period when bulls and bears are running out of steam. The mature trend will eventually stop which will then head in a new direction when other new energy appears on the other side, be it bullish or bearish. For example, for example, the trend is experiencing an increase supported by the enthusiasm of buyers can stop, it will indicate balanced pressure from both bullish and bearish, which will then eventually give way to bearish. This will result in a change from the trend to the negative side. This Reversal Chart Pattern itself is divided into several types of patterns as well. Here are the types:

Double Top dan Double Bottom

This price chart pattern is one of the price patterns that has a high frequency of occurrence because its formation is very easy to recognize by everyone. For this double top formation, it will indicate that the price usually tends to slow down when it has reached its peak. This double top is a bearish version, while the double bottom is the bullish version. This pattern will be identified as a reversal pattern that is usually triggered by the appearance of two tops at the same level. The second top that is unable to pass the first top limit will give a signal of the buyer's inability to raise a price to pass the resistance limit. If the price falls by breaking through a base if drawn from the lowest price, it will produce a confirmed bearish reversal. While for this double bottom consists of two bottoms at the same level, so this pattern can be analyzed through an understanding similar to the double top chart pattern technique.

Triple Top and Triple Bottom

This chart pattern will experience a bearish reversal for the triple top and a bullish reversal for the triple bottom. The triple top signal will be the same as the double top pattern, but in this triple top it will contain three tops that will appear to stand in line. You need to remember, the triple top will appear at the peak of the trend. Although rare, it is considered more valid because it can provide better confirmation of the inability of the price to penetrate the resistance. As for the triple bottom, this pattern will need to convert a bullish reversal signal that will appear when the price is approaching the end of a downtrend. A low price that has tested the level or support three times forms a triple bottom pattern. With the strength of the seller who has reached the maximum value, it will cause the price to bounce up, creating a new movement in the uptrend direction. This can be confirmed after the price has penetrated the base that forms the high price point.

Head and Shoulders Pattern

For the first and second head and shoulders patterns, the size will be smaller than the head as an indication of the weakening of a momentum to maintain the price at its highest point, namely the Head. So when the price has begun to appear and penetrate the neckline, then you can execute the sell order. This Head and Shoulders Pattern is also divided into two more types, namely:
Head and Shoulder
This pattern will indicate the strength of the buyers who are starting to weaken. Even if the next price decline will succeed by breaking through the neckline (the bottom line at the lowest point), then it is likely for the price to continue in the downtrend.
Inverted Head and Shoulder
In this pattern it will be the same as the Head and Shoulder pattern, but the position of the lowest price pattern is the basis for the formation of the head and both shoulders. The points in this high pattern will be used as a basis for determining the neckline itself. When the price has successfully broken out of the neckline, then it is possible for the bullish reversal to be created.

Wedge Pattern

Not only a continuation pattern, this wedge pattern also has a reversal pattern. For that, this time we will understand what a wedge pattern is along with its types of patterns.
Falling Wedge
For those of you who want to recognize this pattern, there is a very easy way. Just by paying attention to the direction of the slope of a pattern where the falling wedge slope will taper downwards, starting from a price that is trending up, then forming a consolidation pattern of a significant decrease in high prices. And also accompanied by the formation of low prices which will also lead downwards, and make it look tapered when drawn with a trendline.
Rising Wedge
For this rising wedge pattern, it is not much different from the previous pattern, namely Falling Wedge. Which is the opposite pattern. This rising wedge pattern will be formed from an uptrend, which then the consolidation will form a sloping high pattern upwards, followed by a low price that also moves up towards the top.

Continuation Chart Pattern

As the name implies, continuation, this chart pattern is a continuous pattern. So this continuation chart pattern is the emergence of a pattern that provides information about the occurrence of a price continuation from a previous trend. Although this is paused by several small correction candles which are also called retracement movements. However, for the pattern that has been formed as a whole, it also still indicates the trend movement to continue. There are various kinds of continuation chart patterns, including:

Flag Pattern

This pattern is also as the name suggests which resembles a flag and has a formation similar to a trendline and is found on the chart instrument. However, in the line tools it can also be called a trend channel which functions as a way to find out a breakout price area if it later breaks through the resistance limit or support area.
Bullish Flag Pattern
This pattern will act bullishly with a spike in the uptrend price that is likened to a pole and a consolidation price that forms afterwards and forms a flag. When the price is rising, which is then continued by forming at the highest and lowest prices through small patterns that are like triangles, so that the price appears to be experiencing a decline. However, the reversal of this downtrend did not occur. The reason is that when forming the final triangle pattern, the price managed to penetrate the previous highest point area, which then created several retracement or breakout candles. So that the price can continue an uptrend or what can be called bullish.
Bearish Flag Pattern
Like the rules on the bearish flag, only this pattern is the opposite of the bullish flag itself, namely, a price spike from a downtrend which is likened to a pole and the formation of a correction price which is also called a flag. In its operation, you can try to open an entry when the price has experienced a breakout and is perfectly formed. Create a stop loss area that is at the lower high candle breakout for the bullish flag pattern, and you can also create a stop loss in the lower high area for the bearish flag pattern. This is done in order to minimize the risk of loss that will exist later.

Pennant Pattern

If drawn using a trendline, a pennant pattern will have almost the same shape as a wedge pattern. Which is the higher point on the triangle pattern when formed after an uptrend or bullish pennant will tend to slope downwards, and has a lower that slopes upwards. However, if viewed in detail, there will definitely be differences between the two, namely in the degree of slope, the pennant pattern will have a more symmetrical slope, while the wedge pattern will tend more in one direction.
Bullish Pennant
For bullish pennant, it is a continuation of the uptrend. This pattern will occur when the price moves uptrend followed by a correction in the form of a triangle pattern and shows consolidation. However, due to the still sharp bullish sentiment, there will be a continuation of the price to the uptrend by breaking through a resistance line of the triangle pattern.
Bearish Pennant
As for the barish pennant, it is the opposite of the bullish pennant, which means a continuation pattern that occurs in a strong downtrend. This pattern will usually start with a flagpole, followed by a very sharp price drop, and followed again by a pause in the downward movement. That pause will form a triangle pattern later. Then there will also be a breakout so that the downward movement will continue. Traders can see this to enter a short trade on a break below the pennant.

Rectangle pattern

This rectangle pattern is a long continuation pattern. In general, the target of this price continuation can be measured by measuring the width of the rectangle, the distance, or the level of the support or resistance price that will be achieved later. In determining a price target, it is better to identify the pattern in more detail. This rectangle pattern is also divided into 2 more patterns, namely:
Bullish Rectangle
This bullish rectangle pattern is a continuation pattern that can occur in an uptrend, where traders can try to enter by placing a buy position when the price has broken through the support level and closed in the breakout zone. To do a stop loss, it can later be determined through several pips below the support level. While the profit target can usually be determined based on the same height as the rectangle or the distance between the resistance and support levels, using this method, the risk/reward ratio is around 1:1.
Bearish Rectangle
For the opposite of this bullish rectangle pattern, if a price will move downtrend which will then change to sideways or ranging, then there will be a possibility to form a bearish rectangle pattern, namely if later there is a breakout of a price and the price will redeem the support level. However, if there is no breakout or the price movement reverses direction, then it will form a double bottom pattern.

Bilateral Chart Pattern

This bilateral chart pattern is a pattern that has 2 possible prices that will reverse or even decrease. To be able to use this type of chart, you should consider two things, namely upside and downside at the time of the breakout. You can place one order from these two things at the top of the formation and one other order at the bottom of the formation. If one of these orders starts to be executed, then you can cancel one of the orders. This Bilateral Chart Pattern will be divided into several patterns, namely:

Symmetrical Pattern

This symmetrical pattern has a pattern similar to a pennant pattern. This pattern will be quite difficult when predicting a price. Because when a symmetrical pattern or symmetrical triangle appears, it will form a high and low price line pattern that forms a symmetrical line. So that later it will be necessary to take a wait and see action or wait to be able to follow up on the price, whether it will move in continuation or reversal.

Ascending Pattern

This pattern is also categorized as part of a bullish signal. This can be marked by the presence of a lower low point at a price that is getting smaller, while the high value will remain stable. Which means, when the seller's strength is weak, where the buyer's side still looks stable and dominant, which causes the breakout price sign to support and succeed by breaking through the higher value of the flat pattern from the previous price and the trend continues bullish.

Descending Pattern

Meanwhile, for this descending pattern, it will be categorized as a bearish signal which is the opposite of the ascending triangle pattern. This pattern is a point where the high continues to decline, while the low will appear stable. This can indicate a weakness in the strength of the buyer, where the seller will dominate the market more and the breakout price that successfully penetrates the lower flat of the previous price pattern. Which in the end the trend will continue to bearish.

Cup and Handle Pattern

Cup and handle is a continuation pattern of bullish which will mark a period of consolidation which will be followed by a breakout. This pattern has two parts, namely the cup and the handle. The cup will form when the trend is down followed by an uptrend and then it will look like a bowl or a rounded bottom. When the cup is finished forming, the price will move sideways and form a handle pattern.

Testing Chart Patterns

How do you test chart patterns? This is not an easy question to answer. If you are using publicly available software that tests trading strategies, you will input rules for a double bottom pattern, for example. When price closes above the top of the pattern, this signals an entry, so the software simulates a buy. What about exit signals? When do you sell? Should you use a stoploss order or a signal from the MACD or even a moving average crossover? No. Why not? Because you are not testing chart patterns. You are testing how well the stop-loss order works or you are testing a MACD or moving average crossover system. So I came up with two tools that I call the highest and the lowest to solve the testing problem. Let's look at a chart so I can explain how they work and you will understand the statistics in this article.

How to Trade Using Chart Patterns

If you want to apply this chart pattern to your trading chart, then there are ways that you must apply to use this chart properly and correctly. Here are some ways that you must apply, namely:

How to Trade Using Reversal Patterns

If this reversal chart pattern is seen during an uptrend, then it is an indication that the price will reverse down later. Likewise, if the reversal chart is experiencing a downtrend, then it indicates that the price will increase. You can place the entry by passing the neckline line that matches the estimated trend direction that will occur later. After that, you can set your profit target as high as the formation that will occur. You must also set a stop loss between the chart formation lines that have been formed.

How to Trade Using Continuation Patterns

On this type of chart pattern, it will indicate a consolidation pattern where buyers and sellers will experience a break for a moment, just before continuing the movement of a price in the same direction as the previous price. You need to know that, you also need to make sure about the uptrend or downtrend that is happening first, then you can place an entry position above or below the formation that has been formed. Also put a profit target that is far from the pattern that has been formed. You also need to remember, you have to put a stop loss of several tips from the formation that has been formed.

How to Trade Using Bilateral Patterns

In this bilateral pattern, you need to examine it very carefully because this pattern can do a reversal or even continue the trend that occurs, in other words, it can go up or down. For that, you must consider both possibilities. Therefore, you can place the entry position above with another one below the formation. This is done to guard against the trend being uncertain where it will form.

Benefits of Trading Using Chart Patterns

After knowing the types and how to use this chart pattern, this time we will discuss the benefits of chart patterns when used to do trading. These benefits can vary, starting from price formation, targets, and how far the increase or decrease in the market price. The benefits of the chart pattern itself are:
  1. You can determine when to open a position and its direction. How much you will open this position to take advantage and also objective compensation management.
  2. High level of probability and accuracy.
  3. You can also determine money management that is even easier.

Chart Pattern Failure

Once you understand what a perfect trade means, you can look for failures. What does it mean when a chart pattern fails? To answer that, I had to come up with a new concept, which I call the breakeven failure rate or 5% failure rate. Those two phrases are synonymous. All I do is count how many chart patterns fail to see a price move up or down by more than 5%.

In a bull market, for example, I found that 18.8% of the top pattern head-and-shoulders failed to see the price drop more than 5%. If your trading costs are 5%, then you will know that almost 20% of the head-and-shoulders you trade, if you trade them perfectly and often enough, will fail to cover your costs. After knowing what the types of chart patterns are and their benefits, as well as how to do it, you can apply the methods that have been explained to your own chart patterns. In addition, you can still find other information about this chart pattern on other platforms such as books or other media.

Thus the article from GICTrade regarding the explanation of "How to Apply Chart Patterns to Graphs and Their Types". You can also find out and explore other trivia discussions about chart patterns, trading terms, and other trading matters, such as "Diamond Pattern: Definition, Strategy, and How to Trade" which you can read in the GIC Journal. You also need to make sure to deepen all other forex knowledge and information on GICTrade, through scalping ebooks, and NFP live trading. Also, don't forget to download the GIC Mobile Apps on the Google Play Store or App Store.