3 Best Chart Patterns for Intraday

Trading in Forex
March 3, 2017

One of the most important ingredients for the successful Forex trading is
the chart patterns technical analysis. Recognizing figures on the graph is
an essential part of the Forex strategy of every trader. It is vital that you
learn chart patterns and their meaning. Therefore, I have decided to
spare some time to show you how to trade chart patterns like the pros.
In this article, I will reveal to you the three best chart patterns for
intraday trading and the rules you need to follow when approaching
them.

Chart patterns are a crucial part of the Forex technical analysis. Patterns
are born out of price fluctuations, and they each represent chart figures
with their own meanings. Each chart pattern indicator has a specific

https://www.forexboat.com/3-best-chart-patterns-for-intraday-ce=email-sendgrid&utm_term=24059364&utm_medium=308690 3/10/17, 11J28 AM

Page 1 of 16
 trading potential. This is why Forex traders spot chart patterns for day
trading to profit from the expected price moves.

In fact, chart patterns represent price hesitation. When you have a trend
on the chart, it is very likely to be paused for a while before the price
action undertakes a new move. In most of the cases this pause is
conducted by a chart pattern, where the price action is either moving
sideways, or not very persuasive with its move.

This is a brief sketch of how a chart pattern indicator could look like on
the chart. In the example above we have a trend that turns into a
consolidation, and then the trend gets resumed again.

Types of Chart Patterns in Forex

There are three types of chart pattern figures in Forex based on their

https://www.forexboat.com/3-best-chart-patterns-for-intraday-ce=email-sendgrid&utm_term=24059364&utm_medium=308690 3/10/17, 11J28 AM

Page 2 of 16
 potential: neutral, continuation, and reversal chart patterns. I will share
with you a Forex chart patterns cheat sheet for each of the three types.

Continuation Chart Patterns

Continuation chart patterns are the ones that are expected to continue
the current price trend, causing a fresh new impulse in the same
direction.

Example: If you have a bullish trend, and the price action creates a
continuation chart pattern, there is a big chance that the bullish trend
continues.

Some of the most popular continuation chart patterns are Flag, Pennant,
and Wedges.

https://www.forexboat.com/3-best-chart-patterns-for-intraday-ce=email-sendgrid&utm_term=24059364&utm_medium=308690 3/10/17, 11J28 AM

Page 3 of 16
 This chart patterns cheat sheet shows six of the most common
continuation chart patterns in Forex trading. Each of these six formations
has the potential to activate a new impulse in the direction of the
previous trend.

Reversal Chart Patterns

Reversal patterns are opposite to continuation patterns. They are

expected to reverse the current price trend, causing a fresh move in the
opposite direction.

Example: If you have a bullish trend and the price action creates a
trend reversal chart pattern, there is a big chance that the previous
bullish trend gets reversed. This is likely to cause a fresh bearish move

https://www.forexboat.com/3-best-chart-patterns-for-intraday-ce=email-sendgrid&utm_term=24059364&utm_medium=308690 3/10/17, 11J28 AM

Page 4 of 16
 on the chart.

Some of the most popular reversal chart patterns are Double Tops and
Bottoms, Head and Shoulders, Wedges, Expanding Triangles, Triple Tops
and Bottoms, etc.

Notice that the Rising and the Falling Wedge could act as reversal and
continuation patterns in different situations. This depends on the
previous trend. Just remember that the Rising Wedge has bearish
potential and the Falling Wedge has bullish potential, no matter what the
previous trend is.

Neutral Chart Patterns

The neutral chart patterns are the one that are expected to induce a
price move, but the direction is unknown. In the process of the pattern
confirmation, traders realize the patterns potential and tackle the
situation with the respective trade.

Example: The Forex pair is trending in the bullish direction. Suddenly,

https://www.forexboat.com/3-best-chart-patterns-for-intraday-ce=email-sendgrid&utm_term=24059364&utm_medium=308690 3/10/17, 11J28 AM

Page 5 of 16
 a neutral chart pattern appears on the chart. What would you do in this
case? You should wait to see in which direction the pattern will break.
This will hint you about the potential of the pattern.

The most popular neutral chart patterns are the Ascending Triangle,
Descending Triangle, Symmetrical Triangle, and Symmetrical Expanding
Triangle.

These are the most common neutral chart patterns that have the
potential to push the price in either bullish or bearish direction.

Now you have 20 different chart pattern examples. But which are the
best chart patterns to trade? This wWill discuss in the next point of the
article.

3 Best Chart Patterns to Trade in Forex

Now that I gave you a brief visual guide to chart patterns, I will tell you
which three of these are the best chart patterns for intraday trading.
Then I will give you a detailed explanation about the structure and the
adjoining rules of each one of the best chart patterns.

Flags and Pennants Chart Patterns

https://www.forexboat.com/3-best-chart-patterns-for-intraday-ce=email-sendgrid&utm_term=24059364&utm_medium=308690 3/10/17, 11J28 AM

Page 6 of 16
 The Flag and the Pennant are two separate chart patterns that have price
continuation functions. However, I like to treat these as one since they
have similar structure and are used exactly the same way.

The Flag chart pattern has a continuation potential on the Forex chart.
The bull Flag pattern starts with a bullish trend called a Flag Pole, which
suddenly turns into a correction inside a bearish or a horizontal channel.

Then if the price breaks the upper level of the channel, we confirm the
authenticity of the Flag pattern, and we have sufficient reason to believe
that the price will start a new bullish impulse.

For this reason, you can buy the Forex pair on the assumption that the
price is about to increase. Your Stop Loss order should be located below
the lowest point of the Flag.

The Flag pattern has two targets on the chart. The first one is located
above the breakout on a distance equal to the size of the Flag. If the first
target is completed, then you can pursue the second target that is
located above the breakout on a distance equal to the Flag Pole.

Check out this Flag chart pattern example to see how it works in real
trading situations:

https://www.forexboat.com/3-best-chart-patterns-for-intraday-ce=email-sendgrid&utm_term=24059364&utm_medium=308690 3/10/17, 11J28 AM

Page 7 of 16
 This is an example of a bullish Flag chart pattern on the 15-minute chart
of the USD/CHF for February 17, 2017.

The two pink arrows show the size of the Flag and the Flag Pole, applied
starting from the moment of the Flag breakout. The Stop Loss order of
this trade should be located below the lowest point of the Flag as shown
on the image.

The Pennant chart pattern has almost the same structure as the Flag. A
bullish Pennant will start with a bullish price move (the Pennant Pole),
which will gradually turn into a consolidation with a triangular structure
(the Pennant). Notice that the consolidation is likely to have ascending
bottoms and descending tops.

If the price breaks the upper level of the Pennant, you can pursue two
targets the same way as with the Flag. The first target equals the size of
the Pennant and the second target equals the size of the Pole.

At the same time, your Stop Loss order should go below the lowest point

https://www.forexboat.com/3-best-chart-patterns-for-intraday-ce=email-sendgrid&utm_term=24059364&utm_medium=308690 3/10/17, 11J28 AM

Page 8 of 16
 of the Pennant.

The bearish Flag chart pattern works exactly the same way but in the
opposite direction.

This time we approach the 5-minute chart of the USD/JPY for January 6,
2017. The image gives an example of a bull Pennant chart pattern.

As you see, Flags and Pennants technical analysis is performed exactly

the same way. The only difference is that the bottoms of the Pennant
pattern are ascending, while the Flag creates descending bottoms that
develop in a symmetrical way compared to the tops. This is the reason
why I put the Flag and Pennant chart patterns indicator under the same
heading.

Double Top and Double Bottom Chart Pattern

The Double Top is a reversal chart pattern that comes as a consolidation

after a bullish trend, creates couple tops approximately in the same

https://www.forexboat.com/3-best-chart-patterns-for-intraday-ce=email-sendgrid&utm_term=24059364&utm_medium=308690 3/10/17, 11J28 AM

Page 9 of 16
 resistance area and starts a fresh bearish move.

Conversely, the Double Bottom is a reversal chart pattern that comes

after a bearish trend, creates couple bottoms in the same support area,
and starts a fresh bullish move.

We will discuss the bullish version of the pattern, the Double Top chart
pattern, to approach the figure closely.

To enter a Double Top trade, you would need to see the price breaking
through the level of the bottom that is located between the two tops of
the pattern. When the price breaks the bottom between the two tops,
you can short the Forex pair, pursuing a minimum price move equal to
the vertical size of the pattern measured starting from the level of the
two tops to the bottom between the two tops.

Your Stop Loss order should be located approximately in the middle of

the pattern.

https://www.forexboat.com/3-best-chart-patterns-for-intraday-ce=email-sendgrid&utm_term=24059364&utm_medium=308690 3/10/17, 11J28 AM

Page 10 of 16
 The 5-minute chart of the GBP/USD for January 13, 2017, shows an
example of a Double Top pattern technical analysis. The pink lines and
the two arrows on the chart measure and apply the size of the pattern
starting from the moment of the breakout.

After the breakout entry signal on the chart, you need to short the
GBP/USD Forex pair placing a stop loss order inside the pattern. In our
case I use a small top after the creation of the second big top to position
the Stop Loss order.

Notice that the Double Bottom chart pattern works exactly the same way
but in the opposite direction.

Head and Shoulders Chart Pattern

The Head and Shoulders is another famous reversal pattern known in

Forex trading. It comes as a consolidation after a bullish trend creating
three tops. The first and the third tops are approximately at the same
level. However, the second top is higher and stays as a Head between
two Shoulders. This is where the name of the pattern comes from.

The Head of the pattern has a couple bottoms from both of its sides. The
line connecting these two bottoms is called a Neck Line. When the price
creates the second shoulder and breaks the Neck Line in a bearish
direction, this confirms the authenticity of the pattern.

When the Neck Line breaks, you can pursue the bearish potential of the
pattern that is likely to send the price action downward on a distance
equal to the size of the pattern the vertical distance between the Head
and the Neck Line applied starting from the moment of the breakout.

https://www.forexboat.com/3-best-chart-patterns-for-intraday-ce=email-sendgrid&utm_term=24059364&utm_medium=308690 3/10/17, 11J28 AM

Page 11 of 16
 Your Stop Loss order in a Head and Shoulders trade should go above the
second shoulder of the pattern.

Above you can see a real Head and Shoulders chart pattern on the H1
chart of the GBP/USD for August 19-30, 2016. The inclined pink line is
the Neck Line of the figure. The two arrows measure and apply the size
of the Head and Shoulders starting from the moment of the breakout
through the Neck Line. The head and shoulders chart pattern breakout is
shown in the red circle.

You need to hold a bearish trade until the size of the pattern is
completed in a bearish direction. At the same time, your Stop Loss order
should go above the second shoulder as shown on the chart.

As the other patterns we discussed, the Head and Shoulders chart

pattern has its opposite version the Inverse Head and Shoulders
pattern. It acts absolutely the same way, but everything is upside down.

Chart Patterns Indicator MT4

https://www.forexboat.com/3-best-chart-patterns-for-intraday-ce=email-sendgrid&utm_term=24059364&utm_medium=308690 3/10/17, 11J28 AM

Page 12 of 16
 After all my years dealing with financial markets, I found a very useful
tool: a chart pattern recognition indicator. Even better, it is built in
within the default version of the MT4 trading platform.

The indicator is called ZigZag. What it does is to represent the general

price action with straight lines by neglecting smaller price fluctuations
and putting emphasize on the real-deal price moves. This way you can
vary easy visualize a real pattern on the chart.

Let me show you my chart pattern recognition algorithm in action:

Above you can see the 5-minute chart of the EUR/USD for February 7,
2017. The chart includes the ZigZag indicator that is expressed by the
straight red lines on the chart.

In the middle of the chart, we see that the ZigZag lines are creating
descending tops and descending bottoms, which is a symptom of a
Falling Wedge chart pattern. See that the highs and the lows of the
pattern are expressed in a very pleasant way thanks to the ZigZag

https://www.forexboat.com/3-best-chart-patterns-for-intraday-ce=email-sendgrid&utm_term=24059364&utm_medium=308690 3/10/17, 11J28 AM

Page 13 of 16
 indicator, and you can hardly miss the pattern on the chart.

In the red circle we see the breakout through the upper level of the
pattern the confirmation. Then we can trade for the two targets of the
pattern. The first one equals the size of the wedge marked with the
smaller pink arrow. The bigger pink arrow measures the size of the Pole.
Both should be applied starting from the moment of the breakout.

Notice that you should protect your trade with a Stop Loss order that
needs to go below the lowest bottom of the Falling Wedge pattern, as
shown in the image.

As you see, the price action completes both targets.

Conclusion
1. The chart patterns technical analysis is a crucial part of the Forex
price action trading.
2. Chart patterns represent price hesitation (consolidation) that comes
after a trend.
3. After the consolidation is completed, the price action usually creates
a big move.
4. There are many chart patterns in Forex trading and each of them
has different meaning and its own
5. There are three types of chart patterns in technical analysis based
on their potential.
1. Continuation Chart Patterns: Flag, Pennant, Wedges, etc.
2. Reversal Chart Patterns: Double Tops and Bottoms, Head and
Shoulders, Wedges, Expanding Triangles, Triple Tops and
Bottoms, etc.

https://www.forexboat.com/3-best-chart-patterns-for-intraday-ce=email-sendgrid&utm_term=24059364&utm_medium=308690 3/10/17, 11J28 AM

Page 14 of 16
 3. Neutral Chart Patterns: Ascending Triangle, Descending
Triangle, Symmetrical Triangle, Symmetrical Expanding
Triangle, etc.
6. The three best chart patterns for intraday trading are:
1. Flags and Pennants
1. Open a trade when the price breaks out of the
Flag/Pennant in the direction of the previous trend.
2. Put a Stop Loss order at the other side of the pattern.

Stay in the trade for a price move equal to the size of the
Flag/Pennant. If this target is reached and the price keeps trending
in your favor, stay in the trade for additional price move equal to
the size of the Pole applied starting from the moment of the
breakout.

1. Double Top and Double Bottom

1. Open your trade when the price breaks the Trigger Line of the
pattern.
2. Put a Stop Loss order inside the pattern, somewhere near the
mid. point.

Stay in the trade for a minimum price move equal to the size of the
pattern.

1. Head and Shoulders

1. Open a trade when the price breaks the Neck Line of the
pattern.
2. Put a Stop Loss order beyond the second shoulder.

Stay in the trade for a minimum price move equal to the size of the
pattern.

https://www.forexboat.com/3-best-chart-patterns-for-intraday-ce=email-sendgrid&utm_term=24059364&utm_medium=308690 3/10/17, 11J28 AM

Page 15 of 16