| The following three chart patterns are amongst the | | | | Trendlines run parallel in a rectangle. Supply and |
| most powerful indicators of potential forex | | | | demand with this pattern indicates a balanced market. |
| movements. However, these chart patterns and the | | | | Buyers and sellers also seem equally matched. The |
| relationship to volume cannot be overlooked. | | | | same 'highs' are constantly tested as are the same |
| Wedges. | | | | 'lows'. The market vacillates between two clearly set |
| The wedge formation is similar to the symmetrical | | | | parameters. As with other continuation patterns |
| triangle pattern where it also has converging | | | | volume of trading increases substantially on breakout. |
| trendlines that come together at an apex. The main | | | | Volumes. |
| difference with wedges is that they are identified by | | | | While this isn't a trading pattern as such - its |
| a noticeable slant, either to the upside or to the | | | | importance cannot be understated. Chart patterns |
| downside. As with triangles the volume should be | | | | should also be interpreted in relation to the volume |
| diminishing during the patterns formation and then | | | | traded to validate a potential movement. |
| increase on its breakout. | | | | Volume is simply the number of contracts that are |
| Falling Wedge | | | | traded over a period of time. Volume is used as a |
| A falling wedge is considered bullish and is usually | | | | trading indicator when patterns don't seem to 'neatly |
| found in uptrends and it's worth noting that they can | | | | fit' into the aforementioned categories. It is simply |
| also be found in downtrends. This pattern is | | | | another tool in the traders' arsenal to try to |
| distinguished by a series of lower tops and lower | | | | determine the reliability of a potential pattern. For |
| bottoms as the movement progresses. | | | | example a breakout from a bullish flag may be |
| Rising Wedge | | | | apparent at first glance but volume may have |
| A rising wedge is considered bearish and is usually | | | | decreased which would indicate that the pattern is |
| found in downtrends and can be found in uptrends. | | | | not yet complete with further swings to come |
| Rising wedges will have a series of higher tops and | | | | before the real breakout occurs. |
| higher bottoms but in a proportionately diminishing | | | | Volume tends to follow the trend - up days = |
| amount - hence the wedge shape. | | | | stronger price increases v's weaker falls, with the |
| Flags | | | | converse holding true. This is why reading the volume |
| Flags and pennants are known as continuation | | | | as an indicator adds extra strength to pattern |
| patterns and represent brief pauses in a dynamic | | | | interpretation. |
| market. They are often seen after a large, rapid | | | | Therefore if volume starts to diminish in an uptrend a |
| move. After a pause the market usually takes off | | | | trader can interpret this as market topping for a |
| again in the same direction. Research has shown that | | | | reversal pattern. Thus a trader would then look for |
| these patterns are some of the most reliable | | | | classical reversal pattern structures such as a top |
| continuation patterns in technical analysis. | | | | head and shoulders! |
| Bullish flags are distinguished by lower tops and lower | | | | Traders also are familiar with volumes being sticky in |
| bottoms and the pattern is usually slanting against the | | | | the low end when their is indecision. A lot of this has |
| trend. Unlike wedges, their trendlines run parallel. | | | | to do with traders waiting for the move to occur |
| Bearish flags are comprised of higher tops and higher | | | | before taking a position - thus the market trades the |
| bottoms. "Bear" flags will slope against the trend and | | | | ranges. Under these conditions the market is often |
| their trendlines also run parallel. | | | | stimulated by external factors such as news reports. |
| Pennants. | | | | Chart patterns, volume and technical analysis all have |
| Pennants look like symmetrical triangles but are | | | | some forecasting qualities but none are foolproof. |
| typically smaller in size in volatility and in duration. | | | | When they are used together with experience they |
| Rectangles. | | | | can be very helpful in your trading and investing. |
| Rectangles should be traded as continuation patterns. | | | | They should only be looked on as tools to try and |
| They represent areas of market indecision that are | | | | establish a markets bias or trend. |
| usually resolved in the direction of the trend. | | | | |