Analysing Chart Patterns

As any experienced trader will tell you, tracing, decoding and understanding chart patterns can really make or break an aspiring trader. Charts often form patterns. Patterns vary, yet they contain much information. This information could potentially expose a fruitful trading opportunity, or warn you against making a wrong move.

Now, to be in position to trace a chart pattern is relatively easy. Being comfortable and quick when doing so and applying patterns to your trading are two different processes which come with experience. Nonetheless, you can’t expect to use chart patterns in your favour without first learning what they are, what they indicate, and how they can be detected.

The important thing to remember is that there are two main types of chart patterns: continuation patterns and reversal patterns. As you will have rightly guessed, continuation patterns indicate that the price of a given currency will continue moving in its current direction, while reversal patterns show that price movement is about to reverse. In other words, continuation patterns point towards the continuation of the trend; reversal patterns point towards trend reversal.

The most basic and widely-known chart patterns are:

Did you know?

The GBP/USD pair is widely referred to as “cable”. The term dates back to the 19th century, during which the exchange rate between the U.S. dollar and the British Pound was transmitted across the Atlantic via a huge cable that ran across the ocean floor and connected the two countries.

Word of the day
"Chart Pattern" - A specific formalised shape, created by an asset’s ever-changing price, indicating potential future price movement.
Pro Tip

Always have an exit strategy.