The term "pattern" represents an important part of technical analysis. Traders use the knowledge of well-known patterns for placing their orders. When more traders recognize a certain pattern, the possibility that the price is going to follow a specific pattern increases. Technical analysis distinguishes two major groups of patterns: chart patterns and candlestick patterns. While both of them show how the price moves on the chart, their characteristics differ. A chart pattern helps to determine the direction of a trend with help of support and resistance levels, and a candlestick pattern is used to identify the next movement of a price judging by form and combination of Japanese candlesticks.
Within these groups, the patterns may be divided into continuation and reversal patterns. Continuation patterns indicate that the price will resume moving within the existing trend. Reversal patterns, in turn, increase the chance of a reversal. Among chart patterns, the most recognized ones are Head and shoulders, Double top/bottom, Triangle, Flag, and Wedge. You can read more about trading them in Forex Guidebook. Candlestick patterns are more difficult to find, as they have a lot of different combinations. To beginners analysts recommend learning the reversal ones at first, as they are easier to recognize.
2020-07-27 • Updated