Forex Chart Patterns
A chart pattern is a shape that many candles make together, such as a head & shoulders or a triangle. Candlestick patterns show a few periods; chart patterns show a whole battle between buyers and sellers over dozens of candles.
Chart patterns fall into two groups:
- Reversal patterns — the trend is likely to change direction.
- Continuation patterns — the trend pauses, then is likely to carry on.
Head & Shoulders
The head & shoulders (H&S) is a bearish reversal pattern that forms at the end of an uptrend. It has three peaks:
- Left shoulder — a peak, then a pullback.
- Head — a higher peak, then a pullback to about the same level.
- Right shoulder — a lower peak, roughly level with the left shoulder.
The line joining the two pullback lows is the neckline. The pattern is complete only when price closes below the neckline.
Measured Move Target
Most chart patterns give you a measured move target: take the height of the pattern and project it from the breakout point.
Example
Head = 1.0950 Neckline = 1.0850 Height = 1.0950 − 1.0850 = 100 pips Target = 1.0850 − 100 pips = 1.0750 Short entry on retest = 1.0845 Stop above right shoulder = 1.0910 → risk 65 pips Reward = 1.0845 − 1.0750 = 95 pips → about 1.5R
Inverse Head & Shoulders
The inverse head & shoulders is the bullish version, found at the end of a downtrend: three troughs with the middle one (the head) lowest. A close above the neckline completes it, and the target is the neckline plus the pattern's height.
Note: Necklines are often sloped, not flat. Draw the line through the two pullback points and measure the height straight down (or up) from the head to the neckline.
Double Top and Double Bottom
A double top is an "M" shape: price hits the same resistance twice and fails. The low between the two peaks is the neckline. A double bottom is a "W" shape at support — the bullish version.
Example
Tops = 1.0900 Neckline = 1.0820 Height = 80 pips Target = 1.0820 − 80 pips = 1.0740
For a double bottom with lows at 1.2600 and a neckline at 1.2680, the target is 1.2680 + 80 pips = 1.2760.
Tip: Two tops do not have to be at the exact same price. Within 10–20 pips on a 4-hour chart is normal. What matters is that the second push fails to make a meaningful new high.
Triangles
A triangle forms when price swings get smaller and squeeze into a point. Volatility contracts, then usually expands with a breakout.
Ascending
Flat top, rising lows. Buyers keep stepping in higher. Usually breaks up.
Descending
Flat bottom, falling highs. Sellers keep pushing lower. Usually breaks down.
Symmetrical
Falling highs and rising lows. No side is winning. Often breaks in the direction of the prior trend.
Example: Triangle target
Widest part = 1.0900 − 1.0837 = 63 pips Breakout = 1.0900 Target = 1.0900 + 63 pips = 1.0963
Flags and Pennants
Flags and pennants are short continuation patterns that come after a sharp move called the flagpole.
- Flag — a small channel that slopes against the trend (down in a bull flag, up in a bear flag).
- Pennant — a small symmetrical triangle after the pole.
- Both are "pauses for breath". The target is the length of the pole, projected from the breakout.
Example
Flagpole = 1.0800 → 1.0900 = 100 pips Breakout ≈ 1.0890 Target = 1.0890 + 100 pips = 1.0990
Wedges and Rectangles
Wedges
A wedge looks like a triangle, but both lines slope in the same direction.
Rising wedge
Both lines slope up and converge. Each new high is a smaller push. Usually bearish — a reversal at the top of an uptrend or a continuation in a downtrend.
Falling wedge
Both lines slope down and converge. Selling pressure is fading. Usually bullish.
Rectangles
A rectangle is a range with flat support and flat resistance. Price bounces between them until it breaks. The target is the height of the rectangle added to the breakout level.
Example
USD/JPY trades in a rectangle between 149.50 and 150.50. That is 100 pips (JPY pip = 0.01).
A close above 150.50 gives a target of 151.50. A close below 149.50 gives 148.50.
Reversal vs Continuation Table
| Pattern | Type | Bias | Confirmation | Measured target |
|---|---|---|---|---|
| Head & shoulders | Reversal | Bearish | Close below neckline | Head-to-neckline height |
| Inverse H&S | Reversal | Bullish | Close above neckline | Head-to-neckline height |
| Double top | Reversal | Bearish | Close below neckline | Top-to-neckline height |
| Double bottom | Reversal | Bullish | Close above neckline | Bottom-to-neckline height |
| Rising wedge | Reversal (or continuation in downtrend) | Bearish | Close below lower line | Back to wedge start |
| Falling wedge | Reversal (or continuation in uptrend) | Bullish | Close above upper line | Back to wedge start |
| Ascending triangle | Continuation (usually) | Bullish | Close above flat top | Widest part |
| Descending triangle | Continuation (usually) | Bearish | Close below flat bottom | Widest part |
| Symmetrical triangle | Continuation | Prior trend | Close outside either line | Widest part |
| Bull / bear flag | Continuation | Prior trend | Break of flag channel | Flagpole length |
| Pennant | Continuation | Prior trend | Break of pennant | Flagpole length |
| Rectangle | Either | Breakout side | Close outside range | Range height |
Warning: Patterns are easy to see in hindsight and hard to see in real time. Many "head & shoulders" never break the neckline. Trade only completed patterns, use a stop loss, and treat measured targets as a guide — price often stops short or overshoots.
Test Yourself With Exercises
A head & shoulders has its head at 1.2800 and its neckline at 1.2720. What is the measured target after a neckline break?
- 1.2680
- 1.2600
- 1.2640
- 1.2560
When is a double top pattern complete?
- When price closes below the neckline
- When the second top forms
- When price touches resistance once
Which triangle has a flat top and rising lows?
- Descending triangle
- Ascending triangle
- Symmetrical triangle
A bull flag forms after a rally from 0.6550 to 0.6620. Price breaks out of the flag at 0.6610. What is the target?
- 0.6620
- 0.6650
- 0.6700
- 0.6680
A rising wedge is usually:
- Bullish
- Bearish
- Neutral