Forex
Top Trading Patterns Cheat Sheet (2024)
By Nathalie Okde
1 July 2024
A trading patterns cheat sheet helps you quickly identify and analyze important patterns in trading. Chart patterns are essentially shapes and formations created by the price movements of a security on a chart.
These patterns visually represent historical price action and can help you predict the market's direction. Therefore, you need to know how to spot them on a chart.
Below is the best trading patterns cheat sheet in 2024 with a breakdown of each pattern.
Key Takeaways
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Trading patterns help predict future price movements based on historical data.
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Reversal patterns indicate a change in the trend direction.
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Continuation patterns suggest the current trend will continue.
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Bilateral patterns show the potential for movement in either direction.
What Is a Trading Patterns Cheat Sheet?
A trading patterns cheat sheet, or price action patterns cheat sheet, is a quick reference guide for identifying and understanding different chart patterns.
Based on historical price action, these patterns provide insights into potential future price movements.
By familiarizing yourself with these patterns, you can better predict market behavior and make more informed trading decisions.
How Do You Use a Trading Pattern Cheat Sheet?
Using a trading patterns cheat sheet helps you quickly spot and interpret key trading patterns as they appear on your charts.
Whether you're pattern trading with bullish reversals, bearish continuations, or price action patterns, this cheat sheet keeps you on track.
Here's how to use it:
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Spot the Pattern: Compare what you see on your chart with the patterns on your cheat sheet.
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Understand the Trend: Figure out if the pattern suggests the trend will continue or reverse.
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Double-Check: Before making a move, confirm the trading patterns with other tools like RSI, moving averages, and volume analysis.
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Make Your Move: Once you're confident, use the chart pattern cheat sheet to guide your entry and exit points, helping you make smarter, more profitable trades.
Free Trading Patterns Cheat Sheet
A trading patterns cheat sheet can help you a lot in your trading journey to generate profit. Below is a cheat sheet for trading patterns that you can download for free:
Types of Chart Patterns
Chart patterns are categorized into three main types: reversal patterns, continuation patterns, and bilateral patterns. Each type provides different insights into potential market movements.
Below is a breakdown of the different types of trading chart patterns that can help you predict market trends.
Trading Patterns Cheat Sheet: Reversal Patterns
Reversal patterns signal a change or ‘reversal’ in the current trend direction. Trading reversal patterns consist of recognizing these patterns to know when to exit or enter trades at the optimal time.
Bullish Reversal Patterns
Bullish reversal patterns indicate a potential shift from a downtrend (bearish) to an uptrend (bullish).
Below are some essential patterns in a bullish reversal chart patterns cheat sheet.
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Double Bottom Pattern
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Inverse Head & Shoulders Pattern
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Falling Wedge Pattern
Double Bottom Pattern
A double bottom is a bullish reversal pattern that appears after a prolonged downtrend.
The characteristics of this pattern are two apparent lows at roughly the same level, with a moderate peak in between.
This pattern suggests that the selling pressure is decreasing, and buyers are gaining control, leading to a potential upward price movement.
Inverse Head & Shoulders Pattern
The inverse head-and-shoulders pattern is a bullish reversal pattern formed by three troughs or ‘downs.’
The middle trough (the head) is the lowest, and the two outside troughs (shoulders) are higher and roughly equal. The neckline connects the peaks between the troughs.
Falling Wedge Pattern
A falling wedge is a bullish reversal pattern that falls downwards, with the price moving between two converging trendlines.
This pattern indicates that the downward momentum is weakening, and an upward breakout is likely.
Bearish Reversal Patterns
Bearish reversal patterns signal a potential shift from an uptrend (bullish) to a downtrend (bearish).
Below are some essential patterns in a bearish reversal chart patterns cheat sheet.
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Double Top Pattern
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Head & Shoulders Pattern
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Rising Wedge Pattern
Double Top Pattern
A double top is a bearish reversal pattern after a significant uptrend. It features two peaks at roughly the same price level, with a trough in between.
This pattern indicates that the buying pressure is diminishing, and sellers are taking control, leading to a potential downward price movement.
Head & Shoulders Pattern
The head and shoulders pattern is a bearish reversal pattern characterized by three peaks: a higher peak (head) between two lower peaks (shoulders).
The neckline connects the lows between the peaks.
Rising Wedge Pattern
A rising wedge is a bearish reversal pattern that slopes upwards, with the price moving between two converging trendlines.
This pattern suggests that the upward momentum is weakening, and a downward breakout is likely.
These patterns are very helpful in helping you predict market trends, hence why you need a trading patterns cheat sheet to keep with you as a quick reference.
Trading Patterns Cheat Sheet: Continuation Patterns
Continuation patterns indicate that the current trend will likely continue after a brief consolidation period.
Bullish Continuation Patterns
Bullish continuation patterns suggest that the existing uptrend (bullish) will continue.
Below are some essential bullish continuation trading patterns.
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Bullish Flag Pattern
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Ascending Triangle Pattern
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Bullish Pennant Pattern
Bullish Flag Pattern
A bullish flag is a small, rectangular continuation pattern that slopes against the prevailing uptrend.
It forms after a sharp price increase, followed by a period of consolidation with parallel trendlines. This pattern indicates that the uptrend will resume after the consolidation.
Ascending Triangle Pattern
An ascending triangle is a bullish continuation pattern characterized by a horizontal resistance line and an ascending support line.
The pattern indicates that buyers gradually gain strength, leading to a bullish market breakout.
Bullish Pennant Pattern
A bullish pennant is a small symmetrical triangle that forms after a sharp upward move. The pattern consists of converging trendlines and indicates that the uptrend will continue after the consolidation.
Bearish Continuation Patterns
Bearish continuation patterns suggest that the existing downtrend (bearish) will continue.
Below are some essential bearish continuation trading patterns.
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Bearish Flag Pattern
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Descending Triangle Pattern
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Bearish Pennant Pattern
Bearish Flag Pattern
A bearish flag is a small, rectangular continuation pattern that slopes against the prevailing downtrend.
It forms after a sharp price decrease, followed by a period of consolidation with parallel trendlines. This pattern indicates that the downtrend will resume after the consolidation.
Descending Triangle Pattern
A descending triangle is a bearish continuation pattern characterized by a horizontal support line and a descending resistance line.
The pattern indicates that sellers gradually gain strength, leading to a downward breakout.
Bearish Pennant
A bearish pennant is a small symmetrical triangle that forms after a sharp downward move. The pattern consists of converging trendlines and indicates that the downtrend will continue after the consolidation.
Trading Patterns Cheat Sheet: Bilateral Patterns
Bilateral patterns indicate that the price could move in either direction, providing potential trading opportunities for bullish and bearish scenarios.
Below are some essential bilateral trading patterns:
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Ascending Triangle Pattern
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Descending Triangle Pattern
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Symmetrical Triangle Pattern
Ascending triangle Pattern
As mentioned earlier, an ascending triangle can act as a bilateral pattern. A break above the resistance line suggests a bullish continuation, while a break below the support line indicates a bearish reversal.
Descending Triangle Pattern
Similarly, a descending triangle can act as a bilateral pattern. A break below the support line suggests a bearish continuation, while a break above the resistance line indicates a bullish reversal.
Symmetrical Triangle Pattern
A symmetrical triangle is a bilateral pattern formed by converging trendlines with similar slopes. It indicates that neither buyers nor sellers have control, and the breakout direction will signal the next trend.
5 Common Mistakes to Avoid When Using Trading Patterns
While trading patterns are important, to the point of needing a trading pattern cheat sheet, they can also be tricky.
Some traders over-rely on trading cheat sheets and make the mistakes below:
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Ignoring Confirmation Signals: Relying solely on the appearance of a pattern without waiting for confirmation can lead to premature trades.
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Overlooking Market Context: Focusing too much on individual patterns without considering the broader market trend can result in misinterpretations.
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Misidentifying Patterns: Confusing similar patterns or incorrectly identifying them can lead to the wrong trading decisions.
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Forgetting to Manage Risk: Entering trades based solely on a pattern without considering risk management can result in significant losses.
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Overtrading Based on Patterns: Seeing patterns everywhere and making too many trades can lead to overtrading, which often reduces profitability.
Therefore, to avoid these mistakes, understand all patterns on your cheat sheet and confirm them with other indicators.
How to Integrate Your Trading Patterns Cheat Sheet with Other Tools
A trading patterns cheat sheet is invaluable, but it becomes even more important when combined with other trading tools.
Here's how you can integrate your cheat sheet with various tools to improve your trading decisions:
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Combine with Moving Averages: Use moving averages to identify the overall trend, and then use your cheat sheet to spot patterns within that trend.
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Use with RSI (Relative Strength Index): Check the RSI indicator to confirm overbought or oversold conditions before acting on a pattern.
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Pair with Fibonacci Retracement Levels: Use Fibonacci retracement levels to identify potential support and resistance levels that match the patterns on your cheat sheet.
Conclusion
In conclusion, you’ll be better equipped to navigate the market's ups and downs by recognizing patterns like bullish reversals or bearish continuations at a glance.
So, keep this trading patterns cheat sheet as a quick reference to the top trading patterns 2024.
And if you need extra support in your trading journey, join XS now!
FAQs
What Chart Pattern Signals a Continuation When Two Parallel Trend Lines Go Against the Prevailing Trend?
A bullish flag or bearish flag is a continuation chart pattern where the price consolidates within two parallel trendlines before continuing in the direction of the prevailing trend.
What is the most effective pattern in trading?
The most effective pattern varies based on market conditions and individual trading styles. However, the head and shoulders pattern is regarded as one of the most reliable trading patterns due to its clear structure and strong predictive power.
It consists of three peaks: the middle peak (the head) is higher than the two side peaks (the shoulders), forming a shape that resembles a head and shoulders. This pattern signals a reversal from an uptrend to a downtrend, informing traders that the price will likely fall.
Are chart patterns reliable?
Chart patterns are generally reliable but not foolproof. These patterns emerge from consistent human trading behaviors, adding a layer of predictability.
However, they work best when combined with other technical analysis tools and indicators to confirm the signals they provide. Market conditions, volume, and other factors also play a crucial role in their reliability.
What is the 123 Pattern in Trading?
The 123 pattern is a simple but effective reversal pattern that helps identify potential trend changes.
It consists of three points:
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the initial high or low (1)
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a retracement (2)
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a breakout level (3)
This pattern applies in bullish and bearish markets and can be a valuable tool for those looking to capitalize on trend reversals.
For example, imagine you're watching a stock that's been in a downtrend for a while. Suddenly, it hits a new low, and that's your Point 1. Then, the stock starts to climb a bit but doesn't go too high, creating Point 2. Finally, it dips again, but this time, it doesn't drop as low as before, forming Point 3.
Now, if the stock breaks above the level of Point 2, you've got a confirmed 123 pattern, signaling a possible reversal from a downtrend to an uptrend.
What Is the Trading 3 to 1 Rule?
The trading 3 to 1 rule is a risk management strategy where traders aim for a reward-to-risk ratio of at least 3:1. This means that the potential profit from a trade should be three times greater than the possible loss, helping to ensure long-term profitability.
For example, imagine you’re placing a trade, and you’re willing to risk $100. According to the 3 to 1 rule, your potential profit from this trade should be at least $300. This approach helps ensure you can still be profitable overall, even if you have more losing trades than winning ones.
