Anticipating future price moves based on past performances is, of course, never entirely certain, yet, by understanding how to apply predictive techniques to forex charts, every trader increases the probability of executing a successful trade.
Learning how to read and understand forex charts effectively is, therefore, a skill that every forex trader must possess. Below is a list of different graphs and charts typical to technical forex trading, from your favourite wedges to triangles:
Ascending Broadening Wedges
Ascending broadening wedges are recognisable as being “megaphone-shaped”. Resistance and support lines broaden gently, with a slight upturn, more common in a bull market – though considered a weak bearish signifier – this trend most often resolves in a downward breakout.
However, an upwards breakout may signal continued bullish conditions, and the divergent resistance and support of the market provide increasing volatility over time.
Descending Broadening Wedges
Inverting the previous trend, a descending broadening wedge still resembles a megaphone in shape, but with a downward tilt. Again, divergent support and resistance provide growing volatility.
Descending broadening wedges commonly signify a weak-to-moderate bull phase in the market and most often resolve in an upwards breakout. When downward breakout does occur, bearish conditions usually remain for some time.
Rising wedge trends appear when the support and resistance lines converge in an upwards direction, producing a price funnel.
Rising wedges are commonly interpreted as a minor temporary upward correction within a bear market: they are often traded as a continuation pattern of an overall downward trend. Breakouts are more frequently downwards than upwards.
Falling wedges show a narrowing of price volatility within a downward pattern. A falling wedge is a classic signifier of a bull market: most frequently spotted as a continuation signal within an upward trend. Although an upwards breakout is statistically the more likely outcome, a period of increased volatility is probable following the breakout of a falling wedge pattern, in either direction.
A broadening wedge denotes a period of instability. Price volatility increases as support and resistance diverges – with no discernible movement in either an upward or a downward direction. Broadening wedges are classically unstable: breakouts, price movement and underlying trends may be difficult to predict.
Fluctuating price movements within a horizontal channel of stable volatility are said to form a rectangle. Resilient support and resistance limits provide ample opportunity for range-bound trading throughout the duration of the trend.
Rectangles may be a reversal or a continuation pattern, and a breakout may be in either direction. Although prevailing momentum is marginally more probable, predicting outcomes is always uncertain. Instead, once support lines have been established, buying at the lower trend line and selling at resistance can present a more attractive strategy than attempting to chance an unpredictable breakout.
Channels are price fluctuations between two roughly parallel lines of resistance and support. A channel may be ascending or descending, depending on the overall trend.
Channels can represent one of the more resilient trading patterns and may persist for long durations before a price movement breaks out from the pattern. Price fluctuations within a channel may be traded as range patterns.
An ascending triangle is most frequently viewed as a bullish indicator. The pattern is recognisable for its flat, horizontal upper line, and a lower support line which is rising towards convergence, indicating a reduced price range throughout the pattern.
Ascending triangles more commonly resolve in an upwards break – though positive performance follows a breakout in either direction.
An inversion of the previous trend, descending triangles display a flat, horizontal support line, with falling resistance and (typically) a reduction of volatility.
Descending triangles most commonly form within bearish markets, and are statistically slightly more likely to break out as a continuation, rather than a reversal, of the underlying trend.
A symmetrical triangle forms when the lines of upper and lower price ranges converge on a flat-horizontal centre point, at roughly the same rate.
Symmetrical triangles are characterised by falling price volatility throughout their duration, and breaks have a slightly better than even chance of resolving as a continuation pattern.
There is no golden bullet for predicting price movements
Guaranteed outcomes may remain out of reach for even the most experienced trader but, by equipping ourselves with a working knowledge of price movement trends, we should start to see beneficial returns with a higher frequency.
Then, we can begin to adjust position size and currency pairings to maximise our positive outcomes. Moreover, that is the foundation of every successful career in currency trading. Checkout the cheat sheet below for further tips.