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How to Read Different Types of Chart Pattern Setups for Beginners

Continuation Patterns

Continuation Patterns

Pennant chart pattern is a continuation setup that looks like a symmetrical triangle in shape & is drawn using support & resistance lines.

Pennant patterns happen when there's a trend, either up or down. These patterns show a pause in the price movement.

The bullish pennant forms in an uptrend. It signals price could keep rising in the main upward direction.

The bearish pennant pattern appears during a downward trend, indicating the likelihood of continuing price declines within an overall negative trend.

Continuation Patterns

Gold wedge chart patterns are continuation patterns.

The bullish wedge chart patterns, such as the Rising Wedge, Ascending Wedge, and Ascending Triangle, indicate a likely upward price movement once prices surpass the upper boundary of the wedge formation.

A bearish wedge pattern, like the falling wedge or descending triangle, points to more drops. It signals prices keep falling after breaking below the pattern.

Continuation Patterns

The rectangle chart pattern is a pattern where the price trend continues, and this pattern has areas of horizontal support and resistance.

Bullish rectangle pattern - When a rectangle pattern forms during a upward trend it signals an upward trend move is likely to follow next once price breakout of this triangle setup.

A bearish rectangle pattern forming during a downtrend usually signals a continuation of the downward movement. This is confirmed when the price breaks out of the rectangle setup.

Reversal Setups

Double Top Pattern

The Double Tops pattern signifies a reversal formation that materializes following an uptrend: this structure creates two peaks at virtually the same horizontal level.

Bearish Trend Reversal Signal - The Double Tops configuration functions as a signal for a bearish trend reversal.

Double Bottom Setup

A double bottom pattern signals reversal after a downtrend. It creates two lows at near the same price.

Double Bottoms Give Bullish Reversal Trade Cues.

Head Shoulder Chart Setup

Head and Shoulders setup is a reversal trading pattern formation that forms at the top of an upwards trend. The Head and Shoulders setup constitutes a bearish reversal chart formation that appears following an upward trend.

Initially, there's a high point constituting the first shoulder, followed by a minor price decline, then a subsequent, higher peak designated as the head, succeeded by another price drop, culminating in the final peak, which is the second shoulder.

The lowest points between the two price lows create the neckline. The head and shoulders pattern confirms a reversal when price drops below this line.

Reverse Head Shoulder Chart Setup

The reverse head and shoulders is a turnaround pattern at the end of a downtrend. The inverse head and shoulders forms as a bullish shift after prices fall.

The pattern includes an initial dip that forms the first inverse shoulder, followed by a moderate price peak, a second lower trough which forms the head, and concludes with another peak and final dip representing the second inverse shoulder.

The highest points between the two price peaks create a neckline, and the reversal signal from this reverse head and shoulders chart pattern is confirmed when the price exceeds this neckline.

Consolidation Patterns

Consolidation patterns are also called symmetric triangles - the way things are set up looks like a symmetrical triangle.

The symmetrical triangle chart pattern indicates a phase of price consolidation, suggesting that a breakout is likely to occur on either side once the price exits this triangle structure.

Gold traders typically wait for a price breakout in one direction before entering trades aligned with that breakout.

Summary:

Continuation Chart Formations: Pennants (both bullish and bearish versions), various types of Wedges (ascending and descending), and Rectangles.

Common Reversal Patterns/Setups Include: Double Tops, Double Bottoms, the Head and Shoulders, and Inverse Head & Shoulders formations.

Consolidation Trade Patterns: Symmetrical Triangles

How to Read Different Types of Chart Pattern Setups for Beginners

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