Forex Chart Patterns in Depth - Ahmed Akmal
Uploaded by
hùngForex Chart Patterns in Depth - Ahmed Akmal
Uploaded by
hùngTHE FOREX TRADING GUIDE
TECHNICAL ANALYSIS – CHART PATTERNS
Copyright © 2016, All Rights Reserved by TradingSpine 1
THE FOREX TRADING GUIDE
TECHNICAL ANALYSIS – CHART PATTERNS
Copyright © 2016 TradingSpine
Al rights reserved by TradingSpine. No parts of this work may be reproduced in any form or by any means
- graphic, electronic, or mechanical, including photocopying, recording, taping, or information storage
and retrieval systems - without the written permission of the author.
The information provided within this eBook is for general informational purposes only. While we try to
keep the information up-to-date and correct, there are no representations or warranties, express or
implied, about the completeness, accuracy, reliability, suitability or availability with respect to the
information, products, services, or related graphics contained in this eBook for any purpose. Any use of
this information is at your own risk.
Copyright © 2016, All Rights Reserved by TradingSpine 1
THE FOREX TRADING GUIDE
TECHNICAL ANALYSIS – CHART PATTERNS
TABLE OF CONTENTS
1. WHAT THIS BOOK PROVIDES TO
YOU........................................................................................5
2. SYMMETRICAL TRIANGLE.........................................................................................................6
2.1 bullish symmetrical triangle il ustration and structure.......................................................6
2.2 notes...................................................................................................................................7
2.3 trading the pattern.............................................................................................................7
2.4 pattern's reward:risk...........................................................................................................7
2.5 bullish symmetrical triangle real example..........................................................................8
2.6 bearish symmetrical triangle il ustration and structure.....................................................9
2.7 bearish symmetrical triangle real example......................................................................10
3. ASCENDING TRIANGLE............................................................................................................11
3.1 il ustration and structure (bullish)....................................................................................11
3.2 notes.................................................................................................................................12
3.3 trading the pattern...........................................................................................................12
3.4 pattern's reward:risk.........................................................................................................12
3.5 real example (bullish)........................................................................................................13
4. DESCENDING TRIANGLE..........................................................................................................14
4.1 il ustration and structure (bearish)...................................................................................14
4.2 notes.................................................................................................................................15
4.3 trading the pattern...........................................................................................................15
4.4 pattern's reward:risk.........................................................................................................15
4.5 real example (bearish)......................................................................................................16
5. HEAD AND SHOULDERS..........................................................................................................17
5.1 il ustration and structure..................................................................................................17
5.2 notes.................................................................................................................................18
5.3 trading the pattern...........................................................................................................18
5.4 pattern's reward:risk.........................................................................................................18
5.5 head and shoulders real example.....................................................................................19
5.6 inverse head and shoulders il ustration and structure.....................................................20
5.7 inverse head and shoulders real example........................................................................21
Copyright © 2016, All Rights Reserved by TradingSpine 2
THE FOREX TRADING GUIDE
TECHNICAL ANALYSIS – CHART PATTERNS
6. CUP AND HANDLE...................................................................................................................22
6.1 cup and handle il ustration and structure........................................................................22
6.2 notes.................................................................................................................................23
6.3 trading the pattern...........................................................................................................23
6.4 pattern's reward:risk.........................................................................................................23
6.5 cup and handle real example............................................................................................24
6.6 inverse cup and handle il ustration and structure............................................................25
6.7 inverse cup and handle real example...............................................................................26
7. WEDGE...................................................................................................................................27
7.1 fal ing wedge il ustration and structure............................................................................27
7.2 notes.................................................................................................................................28
7.3 trading the pattern...........................................................................................................28
7.4 pattern's reward:risk.........................................................................................................28
7.5 fal ing wedge real example...............................................................................................29
7.6 rising wedge il ustration and structure.............................................................................30
7.7 rising wedge real example................................................................................................31
8. RECTANGLE.............................................................................................................................32
8.1 bullish rectangle il ustration and structure.......................................................................32
8.2 notes.................................................................................................................................33
8.3 trading the pattern...........................................................................................................33
8.4 pattern's reward:risk.........................................................................................................33
8.5 bullish rectangle real example..........................................................................................34
8.6 bearish rectangle il ustration and structure.....................................................................35
8.7 bearish rectangle real example.........................................................................................36
9. FLAG.......................................................................................................................................37
9.1 bullish flag il ustration and structure................................................................................37
9.2 notes.................................................................................................................................38
9.3 trading the pattern...........................................................................................................38
9.4 pattern's reward:risk.........................................................................................................38
9.5 bullish flag real example...................................................................................................39
9.6 bearish flag il ustration and structure..............................................................................40
9.7 bearish flag real example..................................................................................................41
Copyright © 2016, All Rights Reserved by TradingSpine 3
THE FOREX TRADING GUIDE
TECHNICAL ANALYSIS – CHART PATTERNS
10. PENNANT.............................................................................................................................42
10.1 bullish pennant il ustration and structure......................................................................42
10.2 notes...............................................................................................................................43
10.3 trading the pattern.........................................................................................................43
10.4 pattern's reward:risk.......................................................................................................43
10.5 bullish pennant real example.........................................................................................44
10.6 bearish pennant il ustration and structure.....................................................................45
10.7 bearish pennant real example........................................................................................46
11. DOUBLE TOP / DOUBLE BOTTOM..........................................................................................47
11.1 double top il ustration and structure (bearish)..............................................................47
11.2 notes...............................................................................................................................48
11.3 trading the pattern.........................................................................................................48
11.4 pattern's reward:risk.......................................................................................................48
11.5 double top real example (bearish).................................................................................49
11.6 double bottom il ustration and structure (bearish)........................................................50
11.7 double bottom real example (bearish)...........................................................................51
12. TRIPLE TOP / TRIPLE
BOTTOM...............................................................................................52
12.1 triple top il ustration and structure (bullish)..................................................................52
12.2 notes...............................................................................................................................53
12.3 trading the pattern.........................................................................................................53
12.4 pattern's reward:risk.......................................................................................................53
12.5 triple top real example (bullish).....................................................................................54
12.6 triple bottom il ustration and structure (bullish)............................................................55
12.7 triple bottom real example (bullish)...............................................................................56
13. DIFFERENTIATING CHART
PATTERNS.....................................................................................57
13.1 table of patterns' (direction, type, occurrence, term)....................................................57
13.2 table of patterns' (target, failure) measurements..........................................................58
13.3 differentiating patterns...................................................................................................59
14. USING THIS BOOK TO YOUR
ADVANTAGE..............................................................................60
14.1 how to proceed from here..............................................................................................60
14.2 why and when do we use (7%, 14%, 21%) for stop loss safety......................................62
14.3 a few points to consider.................................................................................................67
Copyright © 2016, All Rights Reserved by TradingSpine 4
THE FOREX TRADING GUIDE
TECHNICAL ANALYSIS – CHART PATTERNS
1. WHAT THIS BOOK PROVIDES TO YOU
DOWNLOAD MORE TRADING BOOKS FROM WWW.T.ME/TRADERSINNLIBRARY
Unlike most sources of information available for Forex chart patterns, this book won't stop at the
technical analysis characteristics of the different patterns. The chart patterns are a part of a whole, and
our goal here is to show and explain the whole picture so you can trade profitably using the knowledge
gathered from this book.
To reach that goal we wil go through three main topics throughout the book:
The first topic is the technical aspect of the chart patterns covered in the book, this includes detailed il
ustration for the patterns' price action structure as wel as target (take profit) and failure (stop loss)
measurements, before finalizing each chart pattern with a ful real trading setup as a usage example for
the pattern in real trading.
•
The second topic wil be tabular data for al the chart patterns, which can be helpful when choosing
patterns that suits your trading style the most, fol owed by an explanation of how to differentiate similar
looking patterns using price action highs and lows.
The third and most important topic is how to use that technical knowledge gathered for the different chart
patterns in a real Forex money management plan for a trading cycle, to achieve that we wil use our own
strategy to show the the whole thought process before starting a trading cycle.
Before we dive right into the interesting content, remember that Forex trading -and trading in general- is
not only about the analysis of charts or financial news, it heavily relies on both money management and
trading management for consistency reasons, therefore trading a chart pattern must be a part of bigger
plan.
Copyright © 2016, All Rights Reserved by TradingSpine 5
THE FOREX TRADING GUIDE
TECHNICAL ANALYSIS – CHART PATTERNS
2. SYMMETRICAL TRIANGLE
DOWNLOAD MORE TRADING BOOKS FROM WWW.T.ME/TRADERSINNLIBRARY
2.1 BULLISH SYMMETRICAL TRIANGLE ILLUSTRATION AND STRUCTURE
Direction:
Continuation
Type:
Bullish
Occurrence:
High
Common term:
Medium - Long
PRICE ACTION:
In an uptrend, price action finds first resistance (1), which wil be the highest high in the pattern, where it
reverses direction and goes downwards til finding first support (2), which wil be the lowest low in the
pattern.
Price action reverse direction from support (2) going upwards, til finding the second resistance (3), which
must to be lower than the first resistance (1).
Price action reverse direction from resistance (3) going downwards, til finding the second support (4),
which must to be higher than the first support (2).
The pattern is completed when price action reverse direction from (4) and goes upwards til it breaks the
triangle's upper border at point (5).
Copyright © 2016, All Rights Reserved by TradingSpine 6
THE FOREX TRADING GUIDE
TECHNICAL ANALYSIS – CHART PATTERNS
2.2 NOTES
Before the breakout, 4 touches to the triangle's borders are the minimum for a valid pattern, more
touches are acceptable.
Although named symmetrical, the upper and lower borders don't have to be actual y symmetrical, as long
as lower highs (1 - 3 - …) and higher lows (2 - 4 - …) are being formed, the pattern is considered valid.
•
The breakout of the pattern is expected at around (half / two third) the triangle's formation, measured
from first touch (1) to the intersection point of upper and lower borders.
The more common direction for the pattern is continuation, but that doesn't rule out the existence of
reversal symmetrical triangles.
Volume usual y decreases as the pattern is being formed, and increases when breaking or retesting the
triangle's border (5).
This pattern is commonly found on medium and long-term time-frames.
2.3 TRADING THE PATTERN
Trade entry: after breaking the triangle's border at point (5), either with an entry after confirming the
breakout, or after a -possible- retest to the breakout rate.
Take profit: identified by measuring the vertical distance from the first touch (1) to the second touch (2),
that measurement is then applied from the breakout point (5).
Stop loss: can either be the breakout rate (5), or the last touch to the triangle's border (4) before the
breakout.
2.4 PATTERN'S REWARD:RISK
When using the last touch before the breakout as stop loss, the pattern's R:R improves when that touch is
near the end of the triangle.
When using the breakout rate as stop loss, R:R wil depend on the (entry rate - break rate) distance,
compared to the target measurement (1 - 2).
Always remember that both stop loss levels explained above are absolute, the actual stop loss rate for
your trade setup should be a bit beyond those levels to give the trade setup some room to breathe, and of-
course calculations for position size and R:R should be done with respect to those rates.
Feel free to leave us a comment and discuss this pattern directly on our website at:
https://www.tradingspine.com/articles/chart-patterns/symmetrical-triangle.php
Copyright © 2016, All Rights Reserved by TradingSpine 7
THE FOREX TRADING GUIDE
TECHNICAL ANALYSIS – CHART PATTERNS
2.5 BULLISH SYMMETRICAL TRIANGLE REAL EXAMPLE
Currency: EUR/CAD - D1 - Breakout (5) @ 30-May-2013 - Chart from XM's MT4 platform Trade setup:
Trade entry: at the closing rate of the candle after breaking the upper border at point (5) Take profit:
695.7 pips - usual measurement applied from point (5) Stop loss 1: 218.8 pips (R:R 3.180) - set at 21% of
target measurement, beyond absolute SL1
Stop loss 2: 463.1 pips (R:R 1.502) - set at 7% of target measurement, beyond absolute SL2
Notes:
Price action retested the breakout rate.
Copyright © 2016, All Rights Reserved by TradingSpine 8
THE FOREX TRADING GUIDE
TECHNICAL ANALYSIS – CHART PATTERNS
2.6 BEARISH SYMMETRICAL TRIANGLE ILLUSTRATION AND STRUCTURE
Direction:
Continuation
Type:
Bearish
Occurrence:
High
Common term:
Medium - Long
PRICE ACTION:
In a downtrend, price action finds first resistance (1), which wil be the lowest low in the pattern, where it
reverses direction and goes upwards til finding first support (2), which wil be the highest high in the
pattern.
Price action reverse direction from support (2) going downwards, til finding the second resistance (3),
which must to be higher than the first resistance (1).
Price action reverse direction from resistance (3) going upwards, til finding the second support (4), which
must to be lower than the first support (2).
The pattern is completed when price action reverse direction from (4) and goes downwards til it breaks
the triangle's lower border at point (5).
Copyright © 2016, All Rights Reserved by TradingSpine 9
THE FOREX TRADING GUIDE
TECHNICAL ANALYSIS – CHART PATTERNS
2.7 BEARISH SYMMETRICAL TRIANGLE REAL EXAMPLE
Currency: XAU/USD(GOLD) - H4 - Breakout (5) @ 03-Oct-2016 - Chart from Oanda's MT4 platform Trade
setup:
Trade entry: at the closing rate of the candle after breaking the lower border at point (5) Take profit:
482.0 pips - usual measurement applied from point (5) Stop loss 1: 137.3 pips (R:R 3.511) - set at 21% of
target measurement, beyond absolute SL1
Stop loss 2: 391.2 pips (R:R 1.232) - set at 7% of target measurement, beyond absolute SL2
Notes:
In Oanda's MT4 platform, the pip for XAU/USD is the first decimal point, and the fractional pip is the
second decimal point, thus we truncated al calculated rates to the second decimal point to discard the
third decimal.
Copyright © 2016, All Rights Reserved by TradingSpine 10
THE FOREX TRADING GUIDE
TECHNICAL ANALYSIS – CHART PATTERNS
3. ASCENDING TRIANGLE
DOWNLOAD MORE TRADING BOOKS FROM WWW.T.ME/TRADERSINNLIBRARY
3.1 ILLUSTRATION AND STRUCTURE (BULLISH)
Direction:
Continuation
Type:
Bullish
Occurrence:
Medium
Common term:
Medium - Long
PRICE ACTION:
In an uptrend, price action finds first resistance (1), which wil the horizontal resistance for the rest of the
pattern formation, where it reverse direction goes downwards til finding first support (2), which wil be
the lowest low in the pattern.
Price action reverse direction from support (2) and goes upwards, til finding the second resistance (3),
which wil be -around- the same rate of the first resistance (1).
Price action reverse direction from resistance (3) and goes downwards, til finding the second support (4),
which must be higher than the first support (2).
The pattern is completed when price action reverse direction from (4) and goes upwards til it breaks the
triangle's upper horizontal border at point (5).
Copyright © 2016, All Rights Reserved by TradingSpine 11
THE FOREX TRADING GUIDE
TECHNICAL ANALYSIS – CHART PATTERNS
3.2 NOTES
Before the breakout, 4 touches to the triangle's borders are the minimum for a valid pattern, more
touches are acceptable.
The breakout of the pattern is expected at around (half / two third) the triangle formation, measured from
first touch (1) to the intersection point of upper and lower borders.
The more common direction for the pattern is continuation, but that doesn't rule out the existence of
reversal ascending triangles.
•
Volume usual y decreases as the pattern is being formed, and increases when breaking or retesting the
triangle's upper border (5).
This pattern is commonly found on medium and long-term time-frames.
3.3 TRADING THE PATTERN
Trade entry: after breaking the triangle's upper border at point (5), either with an entry after confirming
the breakout, or after a -possible- retest to the upper border's rate.
Take profit: identified by measuring the vertical distance from the first touch (1) to the second touch (2),
that measurement is then applied from the breakout point (5).
Stop loss: can either be the triangle's upper border that turned into support (5), or the last touch to the
pattern's lower border before the breakout (4).
3.4 PATTERN'S REWARD:RISK
When using the last touch before the breakout as stop loss, the pattern's R:R improves when that touch is
near the end of the triangle, as wel as when the lower border's up-slope is steeper.
When using the upper border's rate as stop loss, R:R wil depend on the (entry rate - break rate) distance,
compared to the target measurement (1 - 2) distance.
Always remember that both stop loss levels explained above are absolute, the actual stop loss rate for
your trade setup should be a bit beyond those levels to give the trade setup some room to breathe, and of-
course calculations for position size and R:R should be done with respect to those rates.
Feel free to leave us a comment and discuss this pattern directly on our website at:
https://www.tradingspine.com/articles/chart-patterns/ascending-triangle.php
Copyright © 2016, All Rights Reserved by TradingSpine 12
THE FOREX TRADING GUIDE
TECHNICAL ANALYSIS – CHART PATTERNS
3.5 REAL EXAMPLE (BULLISH)
Currency: AUD/USD - H4 - Breakout (5) @ 02-Mar-2016 - Chart from Oanda's MT4 platform Trade
setup:
Trade entry: at the closing rate of the candle after breaking the upper border at point (5) Take profit:
220.0 pips - usual measurement applied from point (5) Stop loss 1: 86.8 pips (R:R 2.535) - set at 14% of
target measurement, beyond absolute SL1
Stop loss 2: 201.8 pips (R:R 1.090) - set at 7% of target measurement, beyond absolute SL2
Copyright © 2016, All Rights Reserved by TradingSpine 13
THE FOREX TRADING GUIDE
TECHNICAL ANALYSIS – CHART PATTERNS
4. DESCENDING TRIANGLE
4.1 ILLUSTRATION AND STRUCTURE (BEARISH)
Direction:
Continuation
Type:
Bearish
Occurrence:
Medium
Common term:
Medium - Long
PRICE ACTION:
In a downtrend, price action finds first resistance (1), which wil the horizontal resistance for the rest of
the pattern formation, where it reverses direction goes upwards til finding first support (2), which wil be
the highest high in the pattern.
Price action reverse direction from support (2) and goes downwards, til finding the second resistance (3),
which wil be -around- the same rate of the first resistance (1).
Price action reverse direction from resistance (3) and goes upwards, til finding the second support (4),
which must be lower than the first support (2).
The pattern is completed when price action reverse direction from (4) and goes downwards til it breaks
the triangle's lower horizontal border at point (5).
Copyright © 2016, All Rights Reserved by TradingSpine 14
THE FOREX TRADING GUIDE
TECHNICAL ANALYSIS – CHART PATTERNS
4.2 NOTES
Before the breakout, 4 touches to the triangle's borders are the minimum for a valid pattern, more
touches are acceptable.
The breakout of the pattern is expected at around (half / two third) the triangle formation, measured from
first touch (1) to the intersection point of upper and lower borders.
•
The more common direction for the pattern is continuation, but that doesn't rule out the existence of
reversal descending triangles.
Volume usual y decreases as the pattern is being formed, and increases when breaking or retesting the
triangle's lower border (5).
This pattern is commonly found on medium and long-term time-frames.
4.3 TRADING THE PATTERN
Trade entry: after breaking the triangle's lower border at point (5), either with an entry after confirming
the breakout, or after a -possible- retest to the lower border's rate.
Take profit: identified by measuring the vertical distance from the first touch (1) to the second touch (2),
that measurement is then applied from the breakout point (5).
Stop loss: can either be the triangle's lower border that turned into support (5), or the last touch to the
triangle's upper border before the breakout (4).
4.4 PATTERN'S REWARD:RISK
When using the last touch before the breakout as stop loss, the pattern's R:R improves when that touch is
near the end of the triangle, as wel as when the upper border's down-slope is steeper.
When using the lower border's rate as stop loss, R:R wil depend on the (entry rate - break rate) distance,
compared to the target measurement (1 - 2) distance.
Always remember that both stop loss levels explained above are absolute, the actual stop loss rate for
your trade setup should be a bit beyond those levels to give the trade setup some room to breathe, and of-
course calculations for position size and R:R should be done with respect to those rates.
Feel free to leave us a comment and discuss this pattern directly on our website at:
https://www.tradingspine.com/articles/chart-patterns/descending-triangle.php
Copyright © 2016, All Rights Reserved by TradingSpine 15
THE FOREX TRADING GUIDE
TECHNICAL ANALYSIS – CHART PATTERNS
4.5 REAL EXAMPLE (BEARISH)
Currency: USD/CAD - H4 - Breakout (5) @ 25-Feb-2016 - Chart from Oanda's MT4 platform Trade setup:
Trade entry: at the closing rate of the candle after breaking the lower border at point (5) Take profit:
285.8 pips - usual measurement applied from point (5) Stop loss 1: 129.6 pips (R:R 2.205) - set at 14% of
target measurement, beyond absolute SL1
Stop loss 2: 308.9 pips (R:R 0.925) - set at 7% of target measurement, beyond absolute SL2
Notes:
If your trading style for descending triangles involves using SL2 method, you wil notice that R:R for that
specific setup is below 1 due to the relatively long candles when breaking the pattern at (5). In such case,
that trading setup should have been passed, unless your sampled data for this pattern have a strong W/L
to compensate for the low R:R
Copyright © 2016, All Rights Reserved by TradingSpine 16
THE FOREX TRADING GUIDE
TECHNICAL ANALYSIS – CHART PATTERNS
5. HEAD AND SHOULDERS
5.1 ILLUSTRATION AND STRUCTURE
Direction:
Reversal
Type:
Bearish
Occurrence:
Low
Common term:
Medium - Long
PRICE ACTION:
In an uptrend, price action finds first resistance (1) that forms left shoulder's high, where it reverse
direction and goes downwards til finding support (2), completing the left shoulder formation.
Price action reverses direction from that support (2) and goes upwards til finding second resistance (3)
that forms head's high, where it reverses direction and goes downwards til finding support (4),
completing the head formation.
Price action reverses direction from the last support (4) and goes upwards til finding third resistance (5)
that forms right shoulder's high, where it reverses direction going downwards.
•
The pattern is completed when price action breaks the neckline at point (6) downwards.
Copyright © 2016, All Rights Reserved by TradingSpine 17
THE FOREX TRADING GUIDE
TECHNICAL ANALYSIS – CHART PATTERNS
5.2 NOTES
Neckline is identified by drawing a trend-line connecting the two support levels that completed both the
left shoulder and head formations, which are (2 - 4).
Both shoulders don't have to be of the same height.
•
Neckline can be skewed, usual y to the same direction of the trend-line connecting both shoulders highs
at points (1 - 5).
Volume usual y decreases as the pattern is being formed, and increases when breaking or retesting the
neckline.
This pattern is commonly found on medium and long-term time-frames.
5.3 TRADING THE PATTERN
Trade entry: the pattern is traded after price action breaks the neckline at point (6), either with an entry
after the breakout, or after a -possible- retest to the neckline which turned into resistance.
Take profit: identified by measuring the vertical distance from head (3) to neckline, that measurement is
then applied from the breakout point (6).
Stop loss: can either be the neckline breaking rate (6), or the right shoulder's high (5).
5.4 PATTERN'S REWARD:RISK
When using the right shoulder as stop loss, the pattern's R:R wil be better when the shoulder's
retracement distance (4 - 5) is short compared to the (head - neckline) distance.
When using the neckline breaking rate as stop loss, the pattern's R:R wil depend on the (entry rate -
breaking rate) distance, compared to (head - neckline) distance.
Always remember that both stop loss levels explained above are absolute, the actual stop loss rate for
your trade setup should be a bit beyond those levels to give the trade setup some room to breathe, and of-
course calculations for position size and R:R should be done with respect to those rates.
Feel free to leave us a comment and discuss this pattern directly on our website at:
https://www.tradingspine.com/articles/chart-patterns/head-and-shoulders.php
Copyright © 2016, All Rights Reserved by TradingSpine 18
THE FOREX TRADING GUIDE
TECHNICAL ANALYSIS – CHART PATTERNS
5.5 HEAD AND SHOULDERS REAL EXAMPLE
Currency: AUD/USD - D1 - Breakout (6) @ 21-Nov-2013 - Chart from Oanda's MT4 platform Trade
setup:
Trade entry: at the closing rate of the candle after breaking the neckline at point (6) Take profit: 398.0
pips - usual measurement applied from point (6) Stop loss 1: 159.1 pips (R:R 2.502) - set at 14% of target
measurement, beyond absolute SL1
Stop loss 2: 311.7 pips (R:R 1.277) - set at 7% of target measurement, beyond absolute SL2
Copyright © 2016, All Rights Reserved by TradingSpine 19
THE FOREX TRADING GUIDE
TECHNICAL ANALYSIS – CHART PATTERNS
5.6 INVERSE HEAD AND SHOULDERS ILLUSTRATION AND STRUCTURE
Direction:
Reversal
Type:
Bullish
Occurrence:
Low
Common term:
Medium - Long
PRICE ACTION:
In a downtrend, price action finds first resistance (1) that forms left shoulder's low, where it reverse
direction and goes upwards til finding support (2), completing the left shoulder formation.
Price action reverses direction from that support (2) and goes downwards til finding second resistance (3)
that forms head's low, where it reverses direction and goes upwards til finding support (4), completing the
head formation.
Price action reverses direction from the last support (4) and goes downwards til finding third resistance
(5) that forms right shoulder's low, where it reverses direction going upwards.
The pattern is completed when price action breaks the neckline at point (6) upwards.
Copyright © 2016, All Rights Reserved by TradingSpine 20
THE FOREX TRADING GUIDE
TECHNICAL ANALYSIS – CHART PATTERNS
5.7 INVERSE HEAD AND SHOULDERS REAL EXAMPLE
Currency: USD/CHF - H4 - Breakout (6) @ 24-Aug-2016 - Chart from XM's MT4 platform Trade setup:
Trade entry: at the closing rate of the candle after breaking the neckline at point (6) Take profit: 95.8 pips
- usual measurement applied from point (6) Stop loss 1: 37.5 pips (R:R 2.555) - set at 14% of target
measurement, beyond absolute SL1
Stop loss 2: 76.9 pips (R:R 1.246) - set at 7% of target measurement, beyond absolute SL2
Notes:
Pattern retested neckline twice, second retest almost hit SL1.
This pattern's duration and pip range is much less than what is common for an inverse head and
shoulders, making it more vulnerable to higher-than-usual market volatility, an example of that is how
close was the second retest from hitting SL1.
Copyright © 2016, All Rights Reserved by TradingSpine 21
THE FOREX TRADING GUIDE
TECHNICAL ANALYSIS – CHART PATTERNS
6. CUP AND HANDLE
6.1 CUP AND HANDLE ILLUSTRATION AND STRUCTURE
Direction:
Continuation
Type:
Bullish
Occurrence:
Low
Common term:
Long
PRICE ACTION:
In an uptrend, price action finds first resistance (1), where it reverses direction and goes downwards
steadily til finding first support (2), which wil be the lowest low in the pattern.
Price action reverse direction from support (2) and goes upwards steadily, til finding the second
resistance (3) and completes the cup formation.
Price action reverse direction from resistance (3) and goes downwards, til finding the second support (4),
which must be higher than the first support (2).
The pattern is completed when price action reverse direction from (4) and goes upwards til it breaks the
cup and handle surface at point (5).
Copyright © 2016, All Rights Reserved by TradingSpine 22
THE FOREX TRADING GUIDE
TECHNICAL ANALYSIS – CHART PATTERNS
6.2 NOTES
The cup and handle surface is identified by drawing a trend-line connecting both resistances of the cup
formation (1 - 3).
Handle formation might be shaped as a flag facing away from the surface.
Cup and handle surface can be skewed.
Volume usual y decreases as the pattern is being formed, and increases when breaking the surface or
retesting the breaking rate.
•
This pattern is commonly found on long-term time-frames.
6.3 TRADING THE PATTERN
Trade entry: the pattern is traded after price action breaks the surface at point (5), either with an entry
after the breakout, or after a -possible- retest to the breaking rate.
Take profit: identified by measuring the vertical distance from the the cup's peak (2) to the cup's second
resistance (3), that measurement is then applied from the breakout point (5).
Stop loss: can either be the the breaking point (5), or the handle's peak (4).
6.4 PATTERN'S REWARD:RISK
When using the handle's peak (4) as stop loss, the pattern's R:R wil be better when the handle's height (4
- 5) is relatively short compared to the cup's height (2 - 3).
When using the breaking point as stop loss, the pattern's R:R wil depend on the (entry rate
- breaking rate) distance, compared to the height of the cup formation (2 - 3).
Always remember that both stop loss levels explained above are absolute, the actual stop loss rate for
your trade setup should be a bit beyond those levels to give the trade setup some room to breathe, and of-
course calculations for position size and R:R should be done with respect to those rates.
Feel free to leave us a comment and discuss this pattern directly on our website at:
https://www.tradingspine.com/articles/chart-patterns/cup-and-handle.php
Copyright © 2016, All Rights Reserved by TradingSpine 23
THE FOREX TRADING GUIDE
TECHNICAL ANALYSIS – CHART PATTERNS
6.5 CUP AND HANDLE REAL EXAMPLE
Currency: EUR/USD - H4 - Breakout (5) @ 14-Dec-2012 - Chart from Oanda's MT4 platform Trade
setup:
Trade entry: at the closing rate of the candle after breaking the surface at point (5) Take profit: 434.4 pips
- usual measurement applied from point (5) Stop loss 1: 96.8 pips (R:R 4.488) - set at 14% of target
measurement, beyond absolute SL1
Stop loss 2: 312.6 pips (R:R 1.390) - set at 7% of target measurement, beyond absolute SL2
Notes:
In this example, the retracement after entering the trade reached SL1, which would result in a loosing
trade if that stop loss level was used.
Copyright © 2016, All Rights Reserved by TradingSpine 24
THE FOREX TRADING GUIDE
TECHNICAL ANALYSIS – CHART PATTERNS
6.6 INVERSE CUP AND HANDLE ILLUSTRATION AND STRUCTURE
Direction:
Continuation
Type:
Bearish
Occurrence:
Low
Common term:
Long
PRICE ACTION:
In a downtrend, price action finds first resistance (1), where it reverses direction and goes upwards
steadily til finding first support (2), which wil be the highest high in the pattern.
Price action reverse direction from support (2) and goes downwards steadily, til finding the second
resistance (3) and completes the cup formation.
Price action reverse direction from resistance (3) and goes upwards, til finding the second support (4),
which must be lower than the first support (2).
The pattern is completed when price action reverse direction from (4) and goes downwards til it breaks
the cup and handle surface at point (5).
Copyright © 2016, All Rights Reserved by TradingSpine 25
THE FOREX TRADING GUIDE
TECHNICAL ANALYSIS – CHART PATTERNS
6.7 INVERSE CUP AND HANDLE REAL EXAMPLE
Currency: CAD/JPY - H4 - Breakout (5) @ 09-Jan-2015 - Chart from Oanda's MT4 platform Trade setup:
Trade entry: at the closing rate of the candle after breaking the surface at point (5) Take profit: 389.3 pips
- usual measurement applied from point (5) Stop loss 1: 104.6 pips (R:R 3.722) - set at 21% of target
measurement, beyond absolute SL1
Stop loss 2: 199.5 pips (R:R 1.951) - set at 7% of target measurement, beyond absolute SL2
Copyright © 2016, All Rights Reserved by TradingSpine 26
THE FOREX TRADING GUIDE
TECHNICAL ANALYSIS – CHART PATTERNS
7. WEDGE
7.1 FALLING WEDGE ILLUSTRATION AND STRUCTURE
Direction:
Neutral
Type:
Bullish
Occurrence:
Medium
Common term:
Medium-Long
Wedges are neutral patterns, they can be a reversal or continuation, thus the trend prior to the pattern
formation doesn't real y matter.
Since the fal ing wedge a bullish pattern, al touches to the wedge's upper border wil be referred to as
resistance, and touches to the lower border wil be referred to as support.
PRICE ACTION:
Price action finds first resistance (1), where it reverses direction and goes downwards til finding first
support (2).
Price action reverse direction from support (2) and goes upwards, til finding the second resistance (3)
which must be lower than the first resistance (1).
Price action reverse direction from resistance (3) and goes downwards, til finding the second support (4),
which must be lower than the first support (2).
The pattern is completed when price action reverse direction from (4) and goes upwards til it breaks the
wedge's upper border at point (5).
Copyright © 2016, All Rights Reserved by TradingSpine 27
THE FOREX TRADING GUIDE
TECHNICAL ANALYSIS – CHART PATTERNS
7.2 NOTES
For the pattern shape to converge, the down-slope of the wedge's upper border (1 - 3 - ...) must be steeper
than that of the lower border (2 - 4 - ...)
The price action inside the wedge formation is a downtrend, and since its target is a bul ish one, the
breakout volume should be considerably high to confirm that bulls are entering the market.
This pattern is commonly found on medium and long-term time-frames.
7.3 TRADING THE PATTERN
•
Trade entry: after breaking the wedge's upper border at point (5), with an entry after confirming the
breakout.
Take profit: identified by measuring the vertical distance from the wedge's highest high (1) to the wedge's
lower border, that measurement is then applied from the breakout point (5).
Stop loss: the wedge's lowest low (4).
7.4 PATTERN'S REWARD:RISK
The steeper the upper border's down-slope than that of the lower border, the better the R:R.
R:R improves when the breakout is more near to the wedge borders' intersection point.
Always remember that the stop loss level explained above is absolute, the actual stop loss rate for your
trade setup should be a bit beyond that level to give the trade setup some room to breathe, and of-course
calculations for position size and R:R should be done with respect to that rate.
Feel free to leave us a comment and discuss this pattern directly on our website at:
https://www.tradingspine.com/articles/chart-patterns/wedge.php
Copyright © 2016, All Rights Reserved by TradingSpine 28
THE FOREX TRADING GUIDE
TECHNICAL ANALYSIS – CHART PATTERNS
7.5 FALLING WEDGE REAL EXAMPLE
Currency: NZD/CAD - H4 - Breakout (5) @ 12-Jan-2017 - Chart from XM's MT4 platform Trade setup:
Trade entry: at the closing rate of the candle after breaking the upper border at point (5) Take profit:
254.8 pips - usual measurement applied from point (5) Stop loss 1: 72.5 pips (R:R .514) - set at 21% of
target measurement, beyond absolute SL1
Stop loss 2: 158.6 pips (R:R 1.607) - set at 7% of target measurement, beyond absolute SL2
Notes:
The first breaking candle was fol owed by a long bearish candle that closed inside the wedge, thus it was
treated as a false break. Right after that long bearish candle, a long bullish one was formed and broke the
upper border again, fol owed by a candle that closed outside the wedge, where the trade entry was
decided at that candle's closure rate.
Copyright © 2016, All Rights Reserved by TradingSpine 29
THE FOREX TRADING GUIDE
TECHNICAL ANALYSIS – CHART PATTERNS
7.6 RISING WEDGE ILLUSTRATION AND STRUCTURE
Direction:
Neutral
Type:
Bearish
Occurrence:
Medium
Common term:
Medium-Long
Wedges are neutral patterns, they can be a reversal or continuation, thus the trend prior to the pattern
formation doesn't real y matter.
Since the rising wedge a bearish pattern, al touches to the wedge's upper border wil be referred to as
support, and touches to the lower border wil be referred to as resistance.
PRICE ACTION:
Price action finds first resistance (1), where it reverses direction and goes upwards til finding first
support (2).
Price action reverse direction from support (2) and goes downwards, til finding the second resistance (3)
which must be higher than the first resistance (1).
•
Price action reverse direction from resistance (3) and goes upwards, til finding the second support (4),
which must be higher than the first support (2).
The pattern is completed when price action reverse direction from (4) and goes downwards til it breaks
the wedge's lower border at point (5).
Copyright © 2016, All Rights Reserved by TradingSpine 30
THE FOREX TRADING GUIDE
TECHNICAL ANALYSIS – CHART PATTERNS
7.7 RISING WEDGE REAL EXAMPLE
Currency: NZD/USD - D1 - Breakout (5) @ 27-Jul-2014 - Chart from Oanda's MT4 platform Trade setup:
Trade entry: at the closing rate of the candle after breaking the lower border at point (5) Take profit:
607.3 pips - usual measurement applied from point (5) Stop loss 1: 178.4 pips (R:R 3.404) - set at 21% of
target measurement, beyond absolute SL1
Stop loss 2: 369.7 pips (R:R 1.643) - set at 7% of target measurement, beyond absolute SL2
Notes:
The candle right after the breaking candle closed extremely near to the wedge's lower border and had a
wick inside the pattern, thus the candle after that one was used to confirm the breakout.
Copyright © 2016, All Rights Reserved by TradingSpine 31
THE FOREX TRADING GUIDE
TECHNICAL ANALYSIS – CHART PATTERNS
8. RECTANGLE
8.1 BULLISH RECTANGLE ILLUSTRATION AND STRUCTURE
Direction:
Continuation
Type:
Bullish
Occurrence:
Medium
Common term:
Medium - Long
PRICE ACTION:
In an uptrend, price action finds first resistance (1), where it reverses direction and goes downwards til
finding first support (2).
Price action reverse direction from support (2) and goes upwards, til finding the second resistance (3)
which wil be around the same rate of first resistance (1).
Price action reverse direction from resistance (3) and goes downwards, til finding the second support (4)
which wil be around the same rate of first support (2).
The pattern is completed when price action reverse direction from the last touch to the lower horizontal
support and goes upwards til it breaks the upper resistance at point (5).
Copyright © 2016, All Rights Reserved by TradingSpine 32
THE FOREX TRADING GUIDE
TECHNICAL ANALYSIS – CHART PATTERNS
8.2 NOTES
Before the breakout, 4 touches to the rectangle's upper and lower borders are the minimum for a valid
pattern, more touches are acceptable.
After the breakout, retesting the rectangle's upper resistance that turned to support is highly possible.
The more common direction for the pattern is continuation, but that doesn't rule out the existence of
reversal rectangles.
Volume usual y increases when breaking or retesting the rectangle's upper border (5).
•
This pattern is commonly found on medium and long-term time-frames.
8.3 TRADING THE PATTERN
Trade entry: the pattern is traded after price action breaks the rectangle's upper border at point (5),
either with an entry after the breakout, or after a -highly possible- retest to the breaking rate.
Take profit: identified by measuring the vertical distance between the rectangle's upper and lower
borders, that measurement is then applied from the breakout point (5).
Stop loss: the rectangle's upper resistance which turned into support after the breakout.
8.4 PATTERN'S REWARD:RISK
R:R wil depend on the (entry rate - rectangle's upper border) distance, compared to (upper border - lower
border) distance.
Always remember that the stop loss level explained above is absolute, the actual stop loss rate for your
trade setup should be a bit beyond that level to give the trade setup some room to breathe, and of-course
calculations for position size and R:R should be done with respect to that rate.
Feel free to leave us a comment and discuss this pattern directly on our website at:
https://www.tradingspine.com/articles/chart-patterns/rectangle.php
Copyright © 2016, All Rights Reserved by TradingSpine 33
THE FOREX TRADING GUIDE
TECHNICAL ANALYSIS – CHART PATTERNS
8.5 BULLISH RECTANGLE REAL EXAMPLE
Currency: GBP/USD - D1 - Breakout (5) @ 27-Nov-2013 - Chart from Oanda's MT4 platform Trade setup:
Trade entry: at the closing rate of the candle after breaking the upper border at point (5) Take profit:
255.4 pips - usual measurement applied from point (5) Stop loss: 158.3 pips (R:R 1.613) - set at 14% of
target measurement, beyond absolute SL
Notes:
Price action retested the breakout rate and almost triggered stop loss.
We used rates of points (2) and (3) to identify the lower and upper borders.
Copyright © 2016, All Rights Reserved by TradingSpine 34
THE FOREX TRADING GUIDE
TECHNICAL ANALYSIS – CHART PATTERNS
8.6 BEARISH RECTANGLE ILLUSTRATION AND STRUCTURE
Direction:
Continuation
Type:
Bearish
Occurrence:
Medium
Common term:
Medium - Long
PRICE ACTION:
In a downtrend, price action finds first resistance (1), where it reverses direction and goes upwards til
finding first support (2).
Price action reverse direction from support (2) and goes downwards, til finding the second resistance (3)
which wil be around the same rate of first resistance (1).
Price action reverse direction from resistance (3) and goes upwards, til finding the second support (4)
which wil be around the same rate of first support (2).
The pattern is completed when price action reverse direction from the last touch to the upper horizontal
support and goes downwards til it breaks the lower resistance at point (5).
Copyright © 2016, All Rights Reserved by TradingSpine 35
THE FOREX TRADING GUIDE
TECHNICAL ANALYSIS – CHART PATTERNS
8.7 BEARISH RECTANGLE REAL EXAMPLE
Currency: GBP/JPY - D1 - Breakout (5) @ 18-Dec-2015 - Chart from XM's MT4 platform Trade setup:
Trade entry: at the closing rate of the candle after breaking the lower border at point (5) Take profit:
647.8 pips - usual measurement applied from point (5) Stop loss: 223.2 pips (R:R 2.902) - set at 14% of
target measurement, beyond absolute SL
Notes:
The candle right after the breakout candle closed extremely near to the rectangle's lower border and had
a wick inside the pattern, thus the candle after that one was used to confirm the breakout.
We used rates of points (2) and (3) to identify the lower and upper borders.
Copyright © 2016, All Rights Reserved by TradingSpine 36
THE FOREX TRADING GUIDE
TECHNICAL ANALYSIS – CHART PATTERNS
9. FLAG
9.1 BULLISH FLAG ILLUSTRATION AND STRUCTURE
Direction:
Continuation
Type:
Bullish
Occurrence:
High
Common term:
Short - Medium
PRICE ACTION:
A steep upwards price action initiates from (1) til finding first resistance (2), creating the flag's pole.
Price action reverses direction from (2) and forms lower highs and lower lows in a narrow flag formation
til it finds the lowest support in the formation at point (3).
The pattern is completed when price action reverse direction from the last touch to the lower flag border
and goes upwards til it breaks the upper border at point (4).
Copyright © 2016, All Rights Reserved by TradingSpine 37
THE FOREX TRADING GUIDE
TECHNICAL ANALYSIS – CHART PATTERNS
9.2 NOTES
Before the breakout, at least two highs (including the flag's pole high) and two lows are needed for a valid
pattern.
The flag's pole is usual y a strong and sharp upwards price action.
Volume is usual y high at the flag's pole, as wel as when breaking the flag's upper border.
This pattern is commonly found on short and medium-term time-frames.
9.3 TRADING THE PATTERN
Trade entry: the pattern is traded after price action breaks the flag's upper border at point (4).
Take profit: identified by measuring the flag's pole, which is the vertical distance between points (1 - 2),
that measurement is then applied from the breakout point (4).
Stop loss: the flag's lowest low (3).
9.4 PATTERN'S REWARD:RISK
This pattern is known for its high R:R.
R:R depends on how narrow the flag formation is, compared to the flag's pole height (1 - 2).
Always remember that the stop loss level explained above is absolute, the actual stop loss rate for your
trade setup should be a bit beyond that level to give the trade setup some room to breathe, and of-course
calculations for position size and R:R should be done with respect to that rate.
Feel free to leave us a comment and discuss this pattern directly on our website at:
https://www.tradingspine.com/articles/chart-patterns/flag.php
Copyright © 2016, All Rights Reserved by TradingSpine 38
THE FOREX TRADING GUIDE
TECHNICAL ANALYSIS – CHART PATTERNS
9.5 BULLISH FLAG REAL EXAMPLE
Currency: USD/CAD - H4 - Breakout (4) @ 14-Jul-2015 - Chart from XM's MT4 platform Trade setup:
Trade entry: at the closing rate of the candle after breaking the upper border at point (4) Take profit:
517.2 pips - usual measurement applied from point (3) Stop loss: 180.5 pips (R:R 2.865) - set at 7% of
target measurement, beyond absolute SL
Notes:
Price action instantly and briefly tested the flag's upper border before heading to target.
The candle right after the breaking candle closed extremely near to the flag's lower border and had a wick
inside the pattern, thus the candle after that one was used to confirm the breakout.
Copyright © 2016, All Rights Reserved by TradingSpine 39
THE FOREX TRADING GUIDE
TECHNICAL ANALYSIS – CHART PATTERNS
9.6 BEARISH FLAG ILLUSTRATION AND STRUCTURE
Direction:
Continuation
Type:
Bearish
Occurrence:
High
Common term:
Short - Medium
PRICE ACTION:
A steep downwards price action initiates from (1) til finding first resistance (2), creating the flag's pole.
Price action reverses direction from (2) and forms higher lows and higher highs in a narrow flag
formation til it finds the highest support in the formation at point (3).
The pattern is completed when price action reverse direction from the last touch to the upper flag border
and goes downwards til it breaks the lower border at point (4).
Copyright © 2016, All Rights Reserved by TradingSpine 40
THE FOREX TRADING GUIDE
TECHNICAL ANALYSIS – CHART PATTERNS
9.7 BEARISH FLAG REAL EXAMPLE
Currency: EUR/USD - D1 - Point (4) @ 11-Oct-2014 - Chart from XM's MT4
Trade setup:
Trade entry: at the closing rate of the candle after breaking the lower border at point (4) Take profit:
959.1 pips - usual measurement applied from point (3) Stop loss: 324.8 pips (R:R 2.953) - set at 7% of
target measurement, beyond absolute SL
Copyright © 2016, All Rights Reserved by TradingSpine 41
THE FOREX TRADING GUIDE
TECHNICAL ANALYSIS – CHART PATTERNS
10. PENNANT
10.1 BULLISH PENNANT ILLUSTRATION AND STRUCTURE
Direction:
Continuation
Type:
Bullish
Occurrence:
High
Common term:
Short - Medium
PRICE ACTION:
A steep upwards price action initiates from (1) til finding first resistance (2), creating the pennant's pole.
Price action reverses direction from (2) and goes downwards til finding first support (3).
Price action bounces between (2 and 3) range, creating lower high(s) and higher low(s).
The pattern is completed when price action reverse direction from the last touch to the lower pennant
border and goes upwards til it breaks the upper border at point (4).
Copyright © 2016, All Rights Reserved by TradingSpine 42
THE FOREX TRADING GUIDE
TECHNICAL ANALYSIS – CHART PATTERNS
10.2 NOTES
Before the breakout, at least two highs (including the pennant's pole high) and two lows are needed for a
valid pattern.
Volume is usual y high at the pennant's pole, as wel as when breaking the pennant's upper border.
This pattern is commonly found on short and medium-term time-frames.
10.3 TRADING THE PATTERN
•
Trade entry: the pattern is traded after price action breaks the pennant's upper border at point (4).
Take profit: identified by measuring the pennant's pole, which is the vertical distance between points (1 -
2), that measurement is then applied from the breakout point (4).
Stop loss: the pennant's lowest low (3).
10.4 PATTERN'S REWARD:RISK
This pattern is known for its high R:R.
R:R depends on the pole's high to pennant's lowest low distance (2 - 3), compared to the pennant's pole
height (1 - 2).
Always remember that the stop loss level explained above is absolute, the actual stop loss rate for your
trade setup should be a bit beyond that level to give the trade setup some room to breathe, and of-course
calculations for position size and R:R should be done with respect to that rate.
Feel free to leave us a comment and discuss this pattern directly on our website at:
https://www.tradingspine.com/articles/chart-patterns/pennant.php
Copyright © 2016, All Rights Reserved by TradingSpine 43
THE FOREX TRADING GUIDE
TECHNICAL ANALYSIS – CHART PATTERNS
10.5 BULLISH PENNANT REAL EXAMPLE
Currency: EUR/CAD - D1 - Breakout (5) @ 11-Aug-2015 - Chart from XM's MT4 platform Trade setup:
Trade entry: at the closing rate of the candle after breaking the upper border at point (4) Take profit:
893.6 pips - usual measurement applied from point (4) Stop loss: 372.2 pips (R:R 2.401) - set at 7% of
target measurement, beyond absolute SL
Notes:
Price action retested the breakout rate.
Copyright © 2016, All Rights Reserved by TradingSpine 44
THE FOREX TRADING GUIDE
TECHNICAL ANALYSIS – CHART PATTERNS
10.6 BEARISH PENNANT ILLUSTRATION AND STRUCTURE
Direction:
Continuation
Type:
Bearish
Occurrence:
High
Common term:
Short - Medium
PRICE ACTION:
A steep downwards price action initiates from (1) til finding first resistance (2), creating the pennant's
pole.
Price action reverses direction from (2) and goes upwards til finding first support (3).
Price action bounces between (2 and 3) range, creating lower high(s) and higher low(s).
The pattern is completed when price action reverse direction from the last touch to the upper pennant
border and goes downwards til it breaks the lower border at point (4).
Copyright © 2016, All Rights Reserved by TradingSpine 45
THE FOREX TRADING GUIDE
TECHNICAL ANALYSIS – CHART PATTERNS
10.7 BEARISH PENNANT REAL EXAMPLE
Currency: GBP/USD - H4 - Point (5) @ 7-Aug-2014 - Chart from Oanda's MT4
Trade setup:
Trade entry: at the closing rate of the candle after breaking the lower border at point (4) Take profit:
366.6 pips - usual measurement applied from point (4) Stop loss: 114.2 pips (R:R 3.210) - set at 7% of
target measurement, beyond absolute SL
Notes:
Price action retested the breakout rate.
Copyright © 2016, All Rights Reserved by TradingSpine 46
THE FOREX TRADING GUIDE
TECHNICAL ANALYSIS – CHART PATTERNS
11. DOUBLE TOP / DOUBLE BOTTOM
11.1 DOUBLE TOP ILLUSTRATION AND STRUCTURE (BEARISH)
Direction:
Reversal
Type:
Bearish
Occurrence:
High
Common term:
Medium - Long
PRICE ACTION:
In an uptrend, price action finds first resistance (1), where it reverses direction and goes downwards til
finding support (2).
Price action reverses direction from (2) and goes upwards til finding second resistance (3), which wil be -
around- the same rate of the first resistance (1).
The pattern is completed when price action reverse direction from the second resistance (3) and goes
downwards til it breaks the lower support at point (4).
Copyright © 2016, All Rights Reserved by TradingSpine 47
THE FOREX TRADING GUIDE
TECHNICAL ANALYSIS – CHART PATTERNS
11.2 NOTES
Pip distance of the prior trend should be noticeably longer than the pattern formation.
After the breakout, retesting the pattern's lower support that turned to resistance is highly possible.
Volume is usual y high when reversing from the second resistance (3), as wel as when breaking the
pattern's lower support.
This pattern is commonly found on medium and long-term time-frames.
11.3 TRADING THE PATTERN
Trade entry: the pattern is traded after price action breaks the pattern's lower support at point (4).
Take profit: identified by measuring the (upper border - lower border) distance, which is the vertical
distance between point (2) and either (1 or 3 - according to which one was used to define the upper
border), that measurement is then applied from the breakout point (4).
Stop loss: the pattern's support (2) which turned into resistance after the breakout.
11.4 PATTERN'S REWARD:RISK
R:R wil depend on the (entry rate - lower border) distance, compared to (upper border -
lower border) distance.
Always remember that the stop loss level explained above is absolute, the actual stop loss rate for your
trade setup should be a bit beyond that level to give the trade setup some room to breathe, and of-course
calculations for position size and R:R should be done with respect to that rate.
Feel free to leave us a comment and discuss this pattern directly on our website at:
https://www.tradingspine.com/articles/chart-patterns/double-top-and-double-bottom.php
Copyright © 2016, All Rights Reserved by TradingSpine 48
THE FOREX TRADING GUIDE
TECHNICAL ANALYSIS – CHART PATTERNS
11.5 DOUBLE TOP REAL EXAMPLE (BEARISH)
Currency: EUR/USD - D1 - Breakout (4) @ 22-May-2014 - Chart from Oanda's MT4 platform Trade
setup:
Trade entry: at the closing rate of the candle after breaking the lower border at point (4) Take profit:
245.8 pips - usual measurement applied from point (4) Stop loss: 110.1 pips (R:R 2.233) - set at 21% of
target measurement, beyond absolute SL
Notes:
Price action retested the breakout level twice before heading to target.
Copyright © 2016, All Rights Reserved by TradingSpine 49
THE FOREX TRADING GUIDE
TECHNICAL ANALYSIS – CHART PATTERNS
11.6 DOUBLE BOTTOM ILLUSTRATION AND STRUCTURE (BEARISH)
Direction:
Reversal
Type:
Bullish
Occurrence:
High
Common term:
Medium - Long
PRICE ACTION:
In a downtrend, price action finds first resistance (1), where it reverses direction and goes upwards til
finding support (2).
Price action reverses direction from (2) and goes downwards til finding second resistance (3), which wil
be -around- the same rate of the first resistance (1).
The pattern is completed when price action reverse direction from the second resistance (3) and goes
upwards til it breaks the upper support at point (4).
Copyright © 2016, All Rights Reserved by TradingSpine 50
THE FOREX TRADING GUIDE
TECHNICAL ANALYSIS – CHART PATTERNS
11.7 DOUBLE BOTTOM REAL EXAMPLE (BEARISH)
Currency: AUD/USD - D1 - Breakout (4) @ 10-Sep-2013 - Chart from XM's MT4 platform Trade setup:
Trade entry: at the closing rate of the candle after breaking the upper border at point (4) Take profit:
245.9 pips - usual measurement applied from point (4) Stop loss: 166.6 pips (R:R 1.476) - set at 21% of
target measurement, beyond absolute SL
Notes:
Price action retested the breakout level right after entry, before heading to target.
Copyright © 2016, All Rights Reserved by TradingSpine 51
THE FOREX TRADING GUIDE
TECHNICAL ANALYSIS – CHART PATTERNS
12. TRIPLE TOP / TRIPLE BOTTOM
12.1 TRIPLE TOP ILLUSTRATION AND STRUCTURE (BULLISH)
Direction:
Reversal
Type:
Bearish
Occurrence:
Low
Common term:
Medium - Long
PRICE ACTION:
In an uptrend, price action finds first resistance (1), where it reverses direction and goes downwards til
finding support (2).
Price action reverses direction from (2) and goes upwards til finding second resistance (3), which wil be -
around- the same rate of the first resistance (1).
Price action reverses direction from (3) and goes downwards til finding second support (4), which can be
higher or lower than the first support (2).
Price action reverses direction from (4) and goes upwards til finding third resistance (5), which wil also
be -around- the same rate of both the first (1) and second (3) resistances.
The pattern is completed when price action reverse direction from the third resistance (5) and goes
downwards til it breaks the lower support at point (6).
Copyright © 2016, All Rights Reserved by TradingSpine 52
THE FOREX TRADING GUIDE
TECHNICAL ANALYSIS – CHART PATTERNS
12.2 NOTES
Pip distance of the prior trend should be noticeably longer than the pattern formation.
After the breakout, retesting the pattern's lower support that turned to resistance is highly possible.
Volume is usual y high when reversing from the second (3) and third (5) resistances, as wel as when
breaking the pattern's lower support.
This pattern is commonly found on medium and long-term time-frames.
12.3 TRADING THE PATTERN
Trade entry: the pattern is traded after price action breaks the pattern's lower support at point (6).
Take profit: identified by measuring the (upper border - lower border) distance, which is the vertical
distance between point (1, 3 or 5 - according to which one was used to define the upper border) and point
(2 or 4 - according to which one was used to define the lower border), that measurement is then applied
from the breakout point (6).
Stop loss: the pattern's support (2 or 4 - according to which one was used to define the lower border)
which turned into resistance after the breakout.
12.4 PATTERN'S REWARD:RISK
R:R wil depend on the (entry rate - lower border) distance, compared to (upper border -
lower border) distance.
Always remember that the stop loss level explained above is absolute, the actual stop loss rate for your
trade setup should be a bit beyond that level to give the trade setup some room to breathe, and of-course
calculations for position size and R:R should be done with respect to that rate.
Feel free to leave us a comment and discuss this pattern directly on our website at:
https://www.tradingspine.com/articles/chart-patterns/triple-top-and-triple-bottom.php
Copyright © 2016, All Rights Reserved by TradingSpine 53
THE FOREX TRADING GUIDE
TECHNICAL ANALYSIS – CHART PATTERNS
12.5 TRIPLE TOP REAL EXAMPLE (BULLISH)
Currency: GBP/USD - D1 - Breakout (6) @ 24-Jan-2013 - Chart from XM's MT4 platform Trade setup:
Trade entry: at the closing rate of the candle after breaking the lower border at point (6) Take profit:
448.1 pips - usual measurement applied from point (6) Stop loss: 131.7 pips (R:R 3.402) - set at 21% of
target measurement, beyond absolute SL
Notes:
Price action retested the breakout level twice before heading to target.
Copyright © 2016, All Rights Reserved by TradingSpine 54
THE FOREX TRADING GUIDE
TECHNICAL ANALYSIS – CHART PATTERNS
12.6 TRIPLE BOTTOM ILLUSTRATION AND STRUCTURE (BULLISH)
Direction:
Reversal
Type:
Bullish
Occurrence:
Low
Common term:
Medium - Long
PRICE ACTION:
In a downtrend, price action finds first resistance (1), where it reverses direction and goes upwards til
finding support (2).
Price action reverses direction from (2) and goes downwards til finding second resistance (3), which wil
be -around- the same rate of the first resistance (1).
Price action reverses direction from (3) and goes upwards til finding second support (4), which can be
higher or lower than the first support (2).
Price action reverses direction from (4) and goes downwards til finding third resistance (5), which wil also
be -around- the same rate of both the first (1) and second (3) resistances.
•
The pattern is completed when price action reverse direction from the third resistance (5) and goes
upwards til it breaks the upper support at point (6).
Copyright © 2016, All Rights Reserved by TradingSpine 55
THE FOREX TRADING GUIDE
TECHNICAL ANALYSIS – CHART PATTERNS
12.7 TRIPLE BOTTOM REAL EXAMPLE (BULLISH)
Currency: USD/JPY - D1 - Breakout (6) @ 14-Nov-2016 - Chart from Oanda's MT4 platform Trade setup:
Trade entry: at the closing rate of the candle after breaking the upper border at point (6) Take profit:
580.3 pips - usual measurement applied from point (6) Stop loss: 315.1 pips (R:R 1.842) - set at 21% of
target measurement, beyond absolute SL
Copyright © 2016, All Rights Reserved by TradingSpine 56
THE FOREX TRADING GUIDE
TECHNICAL ANALYSIS – CHART PATTERNS
13. FOREX CHART PATTERNS CHEAT SHEET
13.1 TABLE OF CHART PATTERNS DIRECTION, TYPE, OCCURRENCE, TERM
PATTERN
DIRECTION
TYPE
OCCURRENCE
TERM
SYMMERTRICAL TRIANGLE
continuation bul ish - bearish
high
medium - long
ASCENDING TRIANGLE
continuation
bullish
medium
medium - long
DESCENDING TRIANGLE
continuation
bearish
medium
medium - long
HEAD AND SHOULDERS
reversal
bearish
low
medium - long
INVERSE HEAD AND SHOULDERS
reversal
bullish
low
medium - long
CUP AND HANDLE
continuation
bullish
low
long
INVERSE CUP AND HANDLE
continuation
bearish
low
long
FALLING WEDGE
neutral
bullish
medium
medium - long
RISING WEDGE
neutral
bearish
medium
medium - long
RECTANGLE
continuation bul ish - bearish
medium
medium - long
FLAG
continuation bul ish - bearish
high
short - medium
PENNANT
continuation bul ish - bearish
high
short - medium
DOUBLE TOP
reversal
bearish
high
medium - long
DOUBLE BOTTOM
reversal
bullish
high
medium - long
TRIPLE TOP
reversal
bearish
low
medium - long
TRIPLE BOTTOM
reversal
bullish
low
medium - long
Feel free to leave us a comment and discuss this chapter directly on our website at:
https://www.tradingspine.com/articles/chart-patterns/forex-chart-patterns-cheat-
sheet.php
Copyright © 2016, All Rights Reserved by TradingSpine 57
THE FOREX TRADING GUIDE
TECHNICAL ANALYSIS – CHART PATTERNS
13.2 TABLE OF CHART PATTERNS TARGET AND FAILURE MEASUREMENTS
PATTERN
TARGET
FAILURE (SL1)
FAILURE (SL2)
SYMMERTRICAL TRIANGLE
distance of the first
border's
last touch to the
ASCENDING TRIANGLE
swing, applied from
border opposite to
DESCENDING TRIANGLE
breakout rate
breakout rate
the breakout border
distance from head's
HEAD AND SHOULDERS
peak to neckline,
neckline's
right shoulder's
INVERSE HEAD AND SHOULDERS applied from breakout
breakout rate
peak
rate
distance from cup's
CUP AND HANDLE
peak to the rate
cup's surface
INVERSE CUP AND HANDLE
connecting the cup to
its handle, applied from
breakout rate
handle's peak
breakout rate
distance from first
FALLING WEDGE
touch to intersection
border's
last touch to the
RISING WEDGE
with the opposite
border opposite to
border, applied from
breakout rate
the breakout border
breakout rate
RECTANGLE
DOUBLE TOP
distance from upper to
border's
DOUBLE BOTTOM
lower border, applied
TRIPLE TOP
from breakout rate
breakout rate
n/a
TRIPLE BOTTOM
distance of the pole,
flag's lowest low
n/a
FLAG
applied from flag's
(highest high for
lowest low (highest
bearish)
high for bearish)
distance of the pole, pennant's lowest
n/a
PENNANT
applied from pennant's low (highest high
breakout rate
for bearish)
Copyright © 2016, All Rights Reserved by TradingSpine 58
THE FOREX TRADING GUIDE
TECHNICAL ANALYSIS – CHART PATTERNS
13.3 DIFFERENTIATING CHART PATTERNS
Triangles and Wedges:
Symmetrical triangles: lower highs, higher lows
Ascending triangles: equal highs, higher lows
Descending triangles: lower highs, equal lows
Fal ing wedges: lower highs, lower lows
Rising wedges: higher highs, higher lows
Flags and Pennants:
Bullish flags: pole fol owed by lower highs, lower lows
Bearish flags: pole fol owed by higher highs, higher lows
Pennants: pole fol owed by lower highs, higher lows
Rectangles and Triple tops/bottoms:
Rectangles: equal highs and lows
Triple tops: equal highs, unequal lows
Triple bottoms: equal lows, unequal highs
Copyright © 2016, All Rights Reserved by TradingSpine 59
THE FOREX TRADING GUIDE
TECHNICAL ANALYSIS – CHART PATTERNS
14. USING THIS BOOK TO YOUR ADVANTAGE
14.1 HOW TO PROCEED FROM HERE
Now that you have a solid understanding of the different patterns, a very common mistake that can lead
to loosing money is trading those patterns individual y using the conditions explained for each of them.
Understanding the patterns is an important step, but it is not the only one.
Below we wil go through the thought process of creating a money management plan for a trading cycle
based on the patterns covered in this book, to il ustrate that process we wil breakdown -most- of our own
strategy for trading using some of the patterns in the Forex market.
Please understand that we are not providing you with a “ready-to-use” trading strategy, what works for
us might not work for you, the purpose of providing this information is to show you how to build your own
profitable strategy for trading the standard chart patterns.
STEP 1: Determine which patterns suits your trading style
The patterns in this book have different characteristics, it would be very hard and confusing to build a
trading strategy around al of them, therefore the first step is to eliminate the patterns that aren't
compatible with your trading style. Below is how we filtered our own list of patterns to trade:
We prefer trading continuation patterns, thus (head and shoulders, inverse head and shoulders, double
tops, double bottoms, triple tops, triple bottoms) are removed from the list of patterns we trade.
The second trading preference is trading patterns that occurs more frequently in the market, that
removes the cup and handle from our list.
Since wedges can be continuation or reversal patterns, we only trade rising wedges when the prior trend
is downwards, and fal ing wedges when the prior trend is upwards.
That leaves us with the fol owing patterns list:
◦ Symmetrical triangles
◦ Ascending triangles
◦ Descending triangles
◦ Wedges (continuation variants only)
◦ Rectangles
◦ Flags
◦ Pennants
Copyright © 2016, All Rights Reserved by TradingSpine 60
THE FOREX TRADING GUIDE
TECHNICAL ANALYSIS – CHART PATTERNS
STEP 2: Setup a strategy for trading the selected patterns Once you have the list of patterns you are
wil ing to trade, it is time to build a strategy for trading them. This strategy must include how to enter a
trade, how to calculate take profit target, and how to calculate stop loss. Below is a -simplified- list of the
conditions we use for the patterns we filtered earlier:
Trade entry: at the closure rate of the candle after the breakout candle.
Take profit target: default measurement for each pattern.
Stop loss: each pattern have its method(s), discussed thoroughly below in topic 14.2 .
STEP 3: Backtest, thoroughly!
Now that we have the list of patterns to trade and the strategy for each of them set, it is time to manual y
backtest our plan by going through the different charts searching for al the patterns from our list that can
be found, and precisely do the calculations for each finding using the strategy we have set. Of-course, the
larger the backtesting sample, the more reliable the results wil be. We recommend finding at least 10 of
each pattern, it can be a boring and exhausting process that might take days or weeks to complete, but it
lays the foundation for months or even years of successful trading to come.
STEP 4: Calculate your edge and build a money management plan around it Using the data col
ected from backtesting, calculate R:R and W/L for al the backtested trades to calculate your average R:R
and W/L (your edge over the market) and see if trading using those conditions wil be profitable or not.
STEP 5: Be consistent
If completing the previous steps resulted in a profitable calculation and gave you the confidence to use
that strategy in a real trading cycle, always remember this: “You backtested the pattern and know its
performance, you have a money management plan for a trading cycle, you created your set of rules to be
used in trading, now please stick to them!”.
Feel free to leave us a comment and discuss this chapter directly on our website at:
https://www.tradingspine.com/articles/chart-patterns/using-this-book-to-your-
advantage.php
Copyright © 2016, All Rights Reserved by TradingSpine 61
THE FOREX TRADING GUIDE
TECHNICAL ANALYSIS – CHART PATTERNS
14.2 WHY AND WHEN DO WE USE (7%, 14%, 21%) FOR STOP LOSS SAFETY
Throughout this book you might have noticed that we always use one of the three percentages (7%, 14%,
21%) of the target measurement to calculate a safer stop loss rate beyond the absolute stop loss
measurement. As discussed earlier, it is important define in a trading strategy the rules to use for setting
a method for stop loss and calculating its rate, and that is our way of approaching a constant method for
calculating stop loss trigger rate. As for why we assigned certain percentage(s) for each of the patterns,
this involved studying the basic structure and price action for each of the patterns, which is explained -
briefly- below.
General y speaking, stop loss measurements based on the breakout of a pattern -which is always the
closer stop loss- wil be assigned either 14% or 21% stop loss safety to give the trade room to breathe,
while the further stop loss wil be assigned 7% stop loss safety since it is always a structural support.
Below we wil explain why each stop loss measurement is chosen for the patterns, and why they are
assigned their stop loss safety percentage chosen to them.
SYMMETRICAL TRIANGLE:
•
Continuation pattern, the prior trend is in the favor of the trade direction.
Price action inside the pattern is creating lower highs and higher lows, thus not favoring or opposing the
trade direction.
The pattern is assigned two stop loss methods to choose from, due to the availability of a clear structural
support and the steady price action inside the pattern:
◦ Stop loss 1: 21% of target measurement beyond absolute stop loss, since it isn't a structural support,
and may be reduced to 14% if the breakout was strong and trade entry is a bit further away from the
breakout level.
◦ Stop loss 2: 7% of target measurement beyond absolute stop loss, since it is already further away from
entry and it is a structural support.
ASCENDING TRIANGLE:
Continuation pattern, the prior trend is in the favor of the trade direction.
Price action inside the pattern is semi-bul ish which favors the trade direction , as the equal highs means
that bears are holding their ground but not able to push back, while the higher lows means that bulls are
gaining ground by pushing forward slowly.
The pattern is assigned two stop loss methods to choose from, due to the availability of two clear
structural supports:
◦ Stop loss 1: 14% of target measurement beyond absolute stop loss, since it is a structural support.
◦ Stop loss 2: 7% of target measurement beyond absolute stop loss, since it is already further away from
entry and it is a structural support.
Copyright © 2016, All Rights Reserved by TradingSpine 62
THE FOREX TRADING GUIDE
TECHNICAL ANALYSIS – CHART PATTERNS
DESCENDING TRIANGLE:
Continuation pattern, the prior trend is in the favor of the trade direction.
Price action inside the pattern is semi-bearish which favors the trade direction , as the equal lows means
that bulls are holding their ground but not able to push back, while the lower highs means that bears are
gaining ground by pushing forward slowly.
The pattern is assigned two stop loss methods to choose from, due to the availability of two clear
structural supports:
◦ Stop loss 1: 14% of target measurement beyond absolute stop loss, since it is a structural support.
◦ Stop loss 2: 7% of target measurement beyond absolute stop loss, since it is already further away from
entry and it is a structural support.
HEAD AND SHOULDERS:
Reversal pattern, the prior trend is opposing the trade direction.
Price action inside the pattern is semi-bearish which favors the trade direction and weakens the prior
trend by three different resistances (head + 2 shoulders), with the last resistance (right shoulder) being
lower than the previous one (head), which means that bears are gaining ground and pushing forward.
The pattern is assigned two stop loss methods to choose from, due to the availability of two clear
structural supports when the pattern isn't skewed:
◦ Stop loss 1: 14% of target measurement beyond absolute stop loss when the pattern isn't skewed as the
neckline is a structural support in that case, or 21% in skewed patterns as support in that case isn't
structural.
◦ Stop loss 2: 7% of target measurement beyond absolute stop loss, since it is already further away from
entry and it is a structural support.
INVERSE HEAD AND SHOULDERS:
Reversal pattern, the prior trend is opposing the trade direction.
Price action inside the pattern is semi-bul ish which favors the trade direction and weakens the prior
trend by three different resistances (head + 2 shoulders), with the last resistance (right shoulder) being
higher than the previous one (head), which means the bulls are gaining ground and pushing forward.
The pattern is assigned two stop loss methods to choose from, due to the availability of two clear
structural supports when the pattern isn't skewed:
◦ Stop loss 1: 14% of target measurement beyond absolute stop loss when the pattern isn't skewed as the
neckline is a structural support in that case, or 21% in skewed patterns as support in that case isn't
structural.
◦ Stop loss 2: 7% of target measurement beyond absolute stop loss, since it is already further away from
entry and it is a structural support.
Copyright © 2016, All Rights Reserved by TradingSpine 63
THE FOREX TRADING GUIDE
TECHNICAL ANALYSIS – CHART PATTERNS
CUP AND HANDLE:
Continuation pattern, the prior trend is in favor of the trade direction.
Price action inside the pattern is semi-bul ish which favors the trade direction, with the handle's low being
higher than the cup's low, which means bul s are gaining ground and pushing forward.
The pattern is assigned two stop loss methods to choose from, due to the availability of two clear
structural supports when the pattern isn't skewed:
◦ Stop loss 1: 14% of target measurement beyond absolute stop loss when the pattern isn't skewed as the
surface is a structural support in that case, or 21% in skewed patterns as support in that case isn't
structural.
◦ Stop loss 2: 7% of target measurement beyond absolute stop loss, since it is already further away from
entry and it is a structural support.
INVERSE CUP AND HANDLE:
Continuation pattern, the prior trend is in favor of the trade direction.
Price action inside the pattern is semi-bearish which favors the trade direction, with the handle's high
being lower than the cup's high, which means bulls are gaining ground and pushing forward.
The pattern is assigned two stop loss methods to choose from, due to the availability of two clear
structural supports when the pattern isn't skewed:
◦ Stop loss 1: 14% of target measurement beyond absolute stop loss when the pattern isn't skewed as the
surface is a structural support in that case, or 21% in skewed patterns as support in that case isn't
structural.
◦ Stop loss 2: 7% of target measurement beyond absolute stop loss, since it is already further away from
entry and it is a structural support.
FALLING WEDGE:
Neutral pattern, the prior trend can be in favor or opposing the trade direction.
Price action inside the pattern is ful y bearish which opposes the trade direction, with lower highs and
lower lows being formed, which means the bears are gaining ground and pushing forward.
The pattern is assigned two stop loss methods to choose from, due to the availability of a clear structural
support and the steady price action inside the pattern:
◦ Stop loss 1: 21% of target measurement beyond absolute stop loss, since it is not a structural support.
◦ Stop loss 2: 7% of target measurement beyond absolute stop loss, since it is already further away from
entry and it is a structural support.
Copyright © 2016, All Rights Reserved by TradingSpine 64
THE FOREX TRADING GUIDE
TECHNICAL ANALYSIS – CHART PATTERNS
RISING WEDGE:
Neutral pattern, the prior trend can be in favor or opposing the trade direction.
Price action inside the pattern is ful y bullish which opposes the trade direction, with higher lows and
higher highs being formed, which means the bul s are gaining ground and pushing forward.
The pattern is assigned two stop loss methods to choose from, due to the availability of a clear structural
support and the steady price action inside the pattern:
◦ Stop loss 1: 21% of target measurement beyond absolute stop loss, since it is not a structural support.
◦ Stop loss 2: 7% of target measurement beyond absolute stop loss, since it is already further away from
entry and it is a structural support.
RECTANGLE:
Continuation pattern, the prior trend is in the favor of the trade direction.
Price action inside the pattern is creating equal highs and equal lows, thus not favoring or opposing the
trade direction.
The pattern is assigned a single stop loss method since the breakout is the only constant support for that
pattern:
◦ Stop loss: 14% of target measurement beyond absolute stop loss, since it is a structural support.
FLAG:
Continuation pattern, the included trend (pole) is strongly favors the trade direction.
Price action inside the flag formation is creating lower highs and lower lows for the bullish variant, higher
highs and higher lows for the bearish variant, which is opposing the trade direction.
The pattern is assigned a single stop loss method since the pole is usual y a strong and steep price action,
thus the usual breakout stop loss level isn't used in this pattern as it is too risky:
◦ Stop loss: 7% of target measurement beyond absolute stop loss, since it is a structural support.
Copyright © 2016, All Rights Reserved by TradingSpine 65
THE FOREX TRADING GUIDE
TECHNICAL ANALYSIS – CHART PATTERNS
PENNANT:
Continuation pattern, the included trend (pole) is strongly favors the trade direction.
Price action inside the pattern is creating lower highs and higher lows, thus not favoring or opposing the
trade direction.
The pattern is assigned a single stop loss method since the pole is usual y a strong and steep price action,
thus the usual breakout stop loss level isn't used in this pattern as it is too risky:
◦ Stop loss: 7% of target measurement beyond absolute stop loss, since it is a structural support.
DOUBLE TOP / DOUBLE BOTTOM:
•
Reversal pattern, the prior trend is opposing the trade direction.
Price action inside the pattern slightly favors the trade direction, as the trend prior to the pattern
formation faced two resistances (two tops or bottoms) and had only one support (middle retracement) that
got broken on the first test.
The pattern is assigned a single stop loss method since the breakout is the only constant support for that
pattern:
◦ Stop loss: Although it is a structural support, it is assigned the 21% of target measurement beyond
absolute stop loss, and may be reduced to 14% if the breakout was strong and trade entry is a bit further
away from the breakout level.
TRIPLE TOP / TRIPLE BOTTOM:
Reversal pattern, the prior trend is opposing the trade direction.
Price action inside the pattern may slightly favor the trade direction when the second middle retracement
is longer than the first, or slightly oppose the trade direction when the second middle retracement is
shorter than the first.
The pattern is assigned a single stop loss method since the breakout is the only constant support for that
pattern:
◦ Stop loss: Although it is a structural support, it is assigned the 21% of target measurement beyond
absolute stop loss, and may be reduced to 14% if the breakout was strong and trade entry is a bit further
away from the breakout level.
Copyright © 2016, All Rights Reserved by TradingSpine 66
THE FOREX TRADING GUIDE
TECHNICAL ANALYSIS – CHART PATTERNS
14.3 A FEW POINTS TO CONSIDER
The below points are general facts or observations related to Forex trading -and trading in general-, they
just scratch the surface of their respective topic, we thought it would be better to include them in this
book so you can take them into consideration while trading.
Be strict with stop loss, don't move it around.
◦ Before you enter a trade, know where exactly is your loss threshold for a trade and don't extend it
unless it -real y- is a calculated risk that doesn't involve any emotion reaction. A trade is a plan, when that
plan fails there is no logical reason to continue hoping for the plan to change its output.
If the trade setup's R:R can afford it, give a few pips to the market by shortening the target measurement
a bit.
◦ There is no thing as 100% precision when trading in the market, a successful trade may change
direction just before or after hitting its target. When a trade's R:R is higher than your threshold R:R for a
trading cycle, it won't hurt to sacrifice a few pips to the market to earn the probability of your order
getting fil ed in the not-so-rare case of the market reversing direction just before hitting the original
calculated target.
Mind the spread when calculating rates for a trade setup to increase the probability of the order getting
fil ed.
◦ Although it looks negligible on the chart, but the spread does have its impact on any trade. A 2 pip
spread in a trade with 50 pip range, is 4% of that trade's range, you can't neglect that. Obviously, trades
with wider range wil be less impacted by spread, but stil it should be accounted for when creating and
calculating a trading setup.
Volume isn't as reliable in Forex market.
◦ Forex isn't a centralized market like for example the stock market. Brokers do have they way of
representing volume to their traders, but it wil always be a best effort method, never representing the
actual trading volume.
The common duration for the different patterns' formation isn't written in stone.
◦ The Forex market tends to be a lot faster than other trading markets, don't limit yourself to the common
duration for a specific pattern. As long as you backtest the pattern(s) on the time-frames you are wil ing to
trade them on, you are good to go!
Copyright © 2016, All Rights Reserved by TradingSpine 67
THE FOREX TRADING GUIDE
TECHNICAL ANALYSIS – CHART PATTERNS
Did we mention the importance of backtesting, money management and trading management ?
◦ Yes! yes we did, and here we are again emphasizing on the importance of trading management and
money management. Acquiring the skil of identifying patterns is a huge addition to your trading arsenal,
but as said earlier, it is a part of a whole.
A pattern's R:R alone or W/L alone isn't a reliable indicator of its performance.
◦ It is the multiplication of the two factors that calculates the “edge” of that pattern over the market,
where an edge over 1 means the pattern is profitable, and an edge over 2 is considered strong and very
profitable, for example:
▪ R:R=1.25 and W/L=0.75: Edge = 0.94 (not profitable)
▪ R:R=1.50 and W/L=1.00: Edge = 1.50 (profitable)
▪ R:R=1.50 and W/L=1.50: Edge = 2.25 (very profitable)
Being consistent doesn't mean being robotical in your trading.
◦ If your trading strategy can be 100% systematic, then it can be coded into an expert advisor, right ?
There is always room for your own best judgment when it comes to trading, being consistent means
respecting your own money management rules and respecting your plan for entering and exiting trades.
Choosing which trades to enter and which trades to pass is where your own trading skil s are real y put
into test, and it definitely makes al the difference.
Losses are a part of the game.
◦ Backtesting and having a strategy empowers your psychological readiness to accept losses. A trader
who tries to find a way around closing a losing trade when its loss is at the maximum risk planned, is
eventual y going to lose much more than the loss he/she tried to prevent.
Copyright © 2016, All Rights Reserved by TradingSpine 68
THE FOREX TRADING GUIDE
TECHNICAL ANALYSIS – CHART PATTERNS
We hope reading this book added to your Forex trading knowledge and
performance, please don't hesitate to contact us if you have any
questions, corrections, or suggestions.
Document Outline
1. WHAT THIS BOOK PROVIDES TO YOU
2. SYMMETRICAL TRIANGLE
2.1 BULLISH SYMMETRICAL TRIANGLE ILLUSTRATION AND STRUCTURE
2.2 NOTES
2.3 TRADING THE PATTERN
2.4 PATTERN'S REWARD:RISK
2.5 BULLISH SYMMETRICAL TRIANGLE REAL EXAMPLE
2.6 BEARISH SYMMETRICAL TRIANGLE ILLUSTRATION AND STRUCTURE
2.7 BEARISH SYMMETRICAL TRIANGLE REAL EXAMPLE
3. ASCENDING TRIANGLE
3.1 ILLUSTRATION AND STRUCTURE (BULLISH)
3.2 NOTES
3.3 TRADING THE PATTERN
3.4 PATTERN'S REWARD:RISK
3.5 REAL EXAMPLE (BULLISH)
4. DESCENDING TRIANGLE
4.1 ILLUSTRATION AND STRUCTURE (BEARISH)
4.2 NOTES
4.3 TRADING THE PATTERN
4.4 PATTERN'S REWARD:RISK
4.5 REAL EXAMPLE (BEARISH)
5. HEAD AND SHOULDERS
5.1 ILLUSTRATION AND STRUCTURE
5.2 NOTES
5.3 TRADING THE PATTERN
5.4 PATTERN'S REWARD:RISK
5.5 HEAD AND SHOULDERS REAL EXAMPLE
5.6 INVERSE HEAD AND SHOULDERS ILLUSTRATION AND STRUCTURE
5.7 INVERSE HEAD AND SHOULDERS REAL EXAMPLE
6. CUP AND HANDLE
6.1 CUP AND HANDLE ILLUSTRATION AND STRUCTURE
6.2 NOTES
6.3 TRADING THE PATTERN
6.4 PATTERN'S REWARD:RISK
6.5 CUP AND HANDLE REAL EXAMPLE
6.6 INVERSE CUP AND HANDLE ILLUSTRATION AND STRUCTURE
6.7 INVERSE CUP AND HANDLE REAL EXAMPLE
7. WEDGE
7.1 FALLING WEDGE ILLUSTRATION AND STRUCTURE
7.2 NOTES
7.3 TRADING THE PATTERN
7.4 PATTERN'S REWARD:RISK
7.5 FALLING WEDGE REAL EXAMPLE
7.6 RISING WEDGE ILLUSTRATION AND STRUCTURE
7.7 RISING WEDGE REAL EXAMPLE
8. RECTANGLE
8.1 BULLISH RECTANGLE ILLUSTRATION AND STRUCTURE
8.2 NOTES
8.3 TRADING THE PATTERN
8.4 PATTERN'S REWARD:RISK
8.5 BULLISH RECTANGLE REAL EXAMPLE
8.6 BEARISH RECTANGLE ILLUSTRATION AND STRUCTURE
8.7 BEARISH RECTANGLE REAL EXAMPLE
9. FLAG
9.1 BULLISH FLAG ILLUSTRATION AND STRUCTURE
9.2 NOTES
9.3 TRADING THE PATTERN
9.4 PATTERN'S REWARD:RISK
9.5 BULLISH FLAG REAL EXAMPLE
9.6 BEARISH FLAG ILLUSTRATION AND STRUCTURE
9.7 BEARISH FLAG REAL EXAMPLE
10. PENNANT
10.1 BULLISH PENNANT ILLUSTRATION AND STRUCTURE
10.2 NOTES
10.3 TRADING THE PATTERN
10.4 PATTERN'S REWARD:RISK
10.5 BULLISH PENNANT REAL EXAMPLE
10.6 BEARISH PENNANT ILLUSTRATION AND STRUCTURE
10.7 BEARISH PENNANT REAL EXAMPLE
11. DOUBLE TOP / DOUBLE BOTTOM
11.1 DOUBLE TOP ILLUSTRATION AND STRUCTURE (BEARISH)
11.2 NOTES
11.3 TRADING THE PATTERN
11.4 PATTERN'S REWARD:RISK
11.5 DOUBLE TOP REAL EXAMPLE (BEARISH)
11.6 DOUBLE BOTTOM ILLUSTRATION AND STRUCTURE (BEARISH)
11.7 DOUBLE BOTTOM REAL EXAMPLE (BEARISH)
12. TRIPLE TOP / TRIPLE BOTTOM
12.1 TRIPLE TOP ILLUSTRATION AND STRUCTURE (BULLISH)
12.2 NOTES
12.3 TRADING THE PATTERN
12.4 PATTERN'S REWARD:RISK
12.5 TRIPLE TOP REAL EXAMPLE (BULLISH)
12.6 TRIPLE BOTTOM ILLUSTRATION AND STRUCTURE (BULLISH)
12.7 TRIPLE BOTTOM REAL EXAMPLE (BULLISH)
13. FOREX CHART PATTERNS CHEAT SHEET
13.1 TABLE OF CHART PATTERNS DIRECTION, TYPE, OCCURRENCE, TERM
13.2 TABLE OF CHART PATTERNS TARGET AND FAILURE MEASUREMENTS
13.3 DIFFERENTIATING CHART PATTERNS
14. USING THIS BOOK TO YOUR ADVANTAGE
14.1 HOW TO PROCEED FROM HERE
14.2 WHY AND WHEN DO WE USE (7%, 14%, 21%) FOR STOP LOSS SAFETY
14.3 A FEW POINTS TO CONSIDER
You might also like
- Forex Strategy: ST Patterns Trading Manual, EUR/USD Chart Analysis Step by Step, 300% For One Month100% (1)Forex Strategy: ST Patterns Trading Manual, EUR/USD Chart Analysis Step by Step, 300% For One Month3 pages
- 17.forecasting of Forex Market Using Technical Analysis100% (1)17.forecasting of Forex Market Using Technical Analysis65 pages
- Pelatihan Trading Binary Option Olymp Trade - Id.enNo ratings yetPelatihan Trading Binary Option Olymp Trade - Id.en87 pages
- Factors Influencing Investment Decisions of Individual Investors at Nepal Stock ExchangeNo ratings yetFactors Influencing Investment Decisions of Individual Investors at Nepal Stock Exchange16 pages
- Bennett Mcdowell Tells You So Why Do You Need Money Management?100% (1)Bennett Mcdowell Tells You So Why Do You Need Money Management?5 pages
- Certificate 5 Technical Analysis and Global Inter-Market AnalysisNo ratings yetCertificate 5 Technical Analysis and Global Inter-Market Analysis23 pages
- Using DXY For Confluence - September 17 2021No ratings yetUsing DXY For Confluence - September 17 20219 pages
- TradewithRaph Support and Resistnce Strategy100% (1)TradewithRaph Support and Resistnce Strategy25 pages
- Forex - Market Structure - OctaFX - LTSNo ratings yetForex - Market Structure - OctaFX - LTS27 pages
- Ollow He Oney (Strategy) : @rankingspa @rankingengNo ratings yetOllow He Oney (Strategy) : @rankingspa @rankingeng64 pages
- What Are The Best Chart Time Frames To Trade PDFNo ratings yetWhat Are The Best Chart Time Frames To Trade PDF8 pages
- Wyckoff Method and Cheet Sheet@FOREX SyllabusNo ratings yetWyckoff Method and Cheet Sheet@FOREX Syllabus26 pages
- Significant Demand Engulfment (SDE) - SOP # 15No ratings yetSignificant Demand Engulfment (SDE) - SOP # 1512 pages
- Forex Trading 101 A Comprehensive Guide For Beginners (Tochukwu Umeano) (Z-Library)100% (1)Forex Trading 101 A Comprehensive Guide For Beginners (Tochukwu Umeano) (Z-Library)91 pages
- 5 Essential Odd Enhancers in Supply and Demand Trading FX HubNo ratings yet5 Essential Odd Enhancers in Supply and Demand Trading FX Hub13 pages
- Maskey Bikesh - SMART MONEY CONCEPTS IN THE FOREX MARKET - 011915No ratings yetMaskey Bikesh - SMART MONEY CONCEPTS IN THE FOREX MARKET - 01191568 pages
- Ultimate Guide Mastering Technical AnalysisNo ratings yetUltimate Guide Mastering Technical Analysis79 pages
- MODULE 5 6 Volume and Technical Indicators ReviewerNo ratings yetMODULE 5 6 Volume and Technical Indicators Reviewer6 pages
- The Secrets of Trading Chart Patterns Like The Pros 29 Jan 24No ratings yetThe Secrets of Trading Chart Patterns Like The Pros 29 Jan 2451 pages
- 11 Risk Management in Price Action TradingNo ratings yet11 Risk Management in Price Action Trading4 pages
- Multiple Timeframe Analysis For Intraday TradingNo ratings yetMultiple Timeframe Analysis For Intraday Trading9 pages
- Trading Masters Basics To Advanced (Million Moves)No ratings yetTrading Masters Basics To Advanced (Million Moves)12 pages
- Active Equity Management Xinfeng Zhou Sameer Jain PDF DownloadNo ratings yetActive Equity Management Xinfeng Zhou Sameer Jain PDF Download85 pages
- FxRevealed - Concepts & Strategies FREE PDF100% (1)FxRevealed - Concepts & Strategies FREE PDF27 pages
- The Empowered Forex Trader: Strategies to Transform Pains into GainsFrom EverandThe Empowered Forex Trader: Strategies to Transform Pains into GainsNo ratings yet
