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Common Forex Charting Patterns

By Edited Jan 19, 2014 0 0

To analyze a Forex charting pattern effectively you have to understand exactly what these market conditions are being caused by. You also have to understand what the most common patterns are and what they are usually followed by. The key is to combine technical and fundamental analysis. Doing this allows you to safely analyze a particular situation and a particular charting pattern while not being interrupted by any market conditions that would ruin the pattern and cause you to lose money by an unexpected rise or fall in price.

One of the most common Forex charting patterns is the double top. The double top is a technical pattern that looks exactly like it sounds. When you see a double top, it looks like two high points in the graph it is most often followed by immediate return in price. A double top is an indication that the market has a very heavy resistance. It is almost always immediately followed by a return in price to a lower level. This is because it failed to breach the resistance at that particular point twice in a row. This is perceived by many traders as confirmation that that resistance is not going to be broken and causes a lot of selling to occur.

The opposite of a double top is a double bottom means the exact opposite. A double bottom is a typical market indicator that shows a support not being broken twice in a row. Double bottoms are found at the bottom of a turnaround. There are signs the market failed to breach the price as well only in this case the price is acting as support for a then as resistance.

Another common for its charting pattern is the head and shoulders. This one looks exactly as it sounds. The price will rise up to a certain point rise above that point and then rise back down to the point it was previously. Afterwards it will continue to fall. The reason is because the market understands this as a testing point. When traders see this particular technical formation, be interpreted as a turnaround because the prices failed to break resistance once again only in this case it is in the head and shoulders pattern rather than in a double top pattern.



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