TradingKey - Basic technical analysis forms the cornerstone of a trading system, providing the foundation for informed trading decisions. Once investors become proficient in applying candlestick patterns, moving averages, and common indicators, they often encounter the market's complexity and variability—revealing the limitations of traditional analytical frameworks. This article explores advanced chart patterns and technical indicators designed to help investors gain deeper insights into the technical analysis of the forex market.

Hikkake Pattern

The Hikkake pattern is a "trap reversal" signal formed by two candlesticks. It identifies market behavior that lures traders into long or short positions by exploiting false breakouts and volume divergence. This pattern reflects short-term volatility and abrupt shifts in investor sentiment. Typically, it is preceded by a period of low volatility, followed by a deceptive price breakout that prompts traders to follow the apparent trend. When the price suddenly reverses, the stop-loss orders of these traders are triggered, accelerating the price movement in the opposite direction.

Triple Top Pattern

It is a reversal pattern observed during an uptrend. As the price climbs to a certain level, it forms three similar highs, separated by two pullbacks that create the lows. A line connecting these two lows is known as the neckline. A breakdown below this neckline may signal the start of a downtrend.

Trading Strategy

A reliable sell signal occurs when the price effectively breaks below the neckline, accompanied by an increase in trading volume. Investors can initiate a short position with a small sizing upon breaking the neckline. If the price subsequently retraces back to the neckline but fails to break above it, investors can then increase their short position.

（Source: Wikipedia）

Triple Bottom Pattern

In contrast, the triple bottom is a reversal pattern in a downtrend. When the price falls to a certain level, it forms three similar lows, with two rebounds creating the highs. A line connecting these two highs serves as the neckline. A breakout of the neckline, especially when accompanied by increased volume, typically signals a buying opportunity.

（Source: Wikipedia）

Morning Star Pattern

The Morning Star consists of three candles: the first is a long bearish candlestick, indicating a strong selling force; the second is a small real body (can be bullish or bearish), with both the open and close within the range of the first candle; the third is a long bullish candlestick, closing significantly above the midpoint of the first candle, representing a strong buying resurgence.

The Morning Star pattern appears at the end of a downtrend and serves as a reliable reversal signal. It indicates that selling pressure is weakening after a period of decline, and buyers are beginning to regain control—potentially signaling an impending price increase.

（Source: Wikipedia）

Three White Soldiers Pattern

The Three White Soldiers pattern is composed of three consecutive bullish candlesticks, each with a long body and progressively higher closing prices, typically featuring short upper and lower shadows. This formation often emerges at the start of a new uptrend or following a period of consolidation. It is considered a strong bullish signal, indicating that buyers are firmly in control and driving.

（Source: Wikipedia）

Three Black Crows Pattern

The Three Black Crows pattern consists of three consecutive bearish candlesticks, each with a long body and progressively lower closing prices, accompanied by relatively short upper and lower shadows. This pattern frequently appears at the end of an uptrend or during a consolidation phase, signaling intensified bearish sentiment. It delivers a strong bearish signal, suggesting the market may be poised to reverse from an uptrend to a downward one.

（Source: Wikipedia）

Fibonacci Retracement

Steps to draw: Identify a clear trend on your forex chart—whether upward or downward. For an uptrend, for example, select the range from a significant low to a notable high. Then, by drawing the Fibonacci retracement tool by drawing from the low to the high. The tool will automatically generate key Fibonacci retracement levels, typically including 23.6%, 38.2%, 50%, 61.8%, and 100%.

Key Level Analysis: In Fibonacci retracement, the 38.2% and 61.8% levels are considered critical. In an uptrend, a retracement to the 61.8% level is typically viewed as a strong support zone. If the price holds at this level, it may signal the beginning of a new upward leg. Similarly, the 38.2% level often acts as an important support reference, as price rebounds frequently occur here. Conversely, in a downtrend, these same levels serve as resistance. When the price rebounds to 38.2% or 61.8% levels, it may encounter resistance and resume the downward trend.

In this case, price retraced approximately 38.2% of a move down before continuing.

（Source: Wikipedia）

Bollinger Bands

Middle Band (MB): Typically a Simple Moving Average (SMA), usually the 20-day moving average, representing the medium-term price trend.

Upper Band (UB): Calculated as the middle band plus two standard deviations, the upper band exerts pressure on prices. When prices touch or exceed the upper band, it may indicate an overbought market and the potential for a price pullback.

Lower Band (LB): Determined by subtracting two standard deviations. It often acts as a support level, and when prices touch the lower band, it may indicate an oversold market with potential for a rebound.

Red is the upper rail, blue is the middle rail, and green is the lower rail

（Source: Wikipedia）

Using Bollinger Bands to Determine Market Trends: When the Bollinger Bands expand upward and prices remain above the middle band, the market is in an uptrend; Conversely, when the bands widen downwards and prices fall below the middle band, it signals a downtrend. A gradual contraction of the Bollinger Bands suggests decreasing market volatility, often indicating a potential trend reversal or a consolidation phase.

Determining Support and Resistance: The lower and upper bands represent short-term support and resistance levels. During upward movements, prices often encounter resistance near the upper band, leading to a pullback. In downward trends, prices typically find support near the lower band, resulting in a rebound.

Moving Average Convergence Divergence (MACD)

MACD is a trend-following indicator composed of two Exponential Moving Averages (EMAs) and the difference (DIF and DEA), which is visualized as a histogram.

When the DIF line crosses above the DEA line from below, it forms a golden cross, signaling a buying opportunity.

Conversely, when the DIF line breaches the DEA line from above, it creates a death cross, indicating a sell signal.

When both DIF and DEA lines are above the zero axis, the market is bullish; if both lines are below, it indicates a bearish market.

The height of the MACD histogram reflects the strength of market momentum, with taller bars indicating stronger momentum and shorter bars signaling a weakening trend.

（Source: Wikipedia）

Exponential Moving Average (EXPMA)

EXPMA enhances traditional moving averages to address lagging issues. It typically consists of two lines: a short-term EXPMA line and a long-term EXPMA line, represented by thin and thick lines, respectively.

If the short-term EXPMA line is above the long-term EXPMA line, it indicates a short-term uptrend; if below, it suggests a short-term downtrend. When the short-term EXPMA crosses above the long-term line, forming a golden cross, it often signals an impending price increase and serves as a buy signal. Conversely, when the short-term line crosses below the long-term line, it forms a death cross, commonly interpreted as a sell signal.

Commodity Channel Index (CCI)

CCI is an overbought/oversold indicator that measures price deviation from a moving average.

How to Identify Overbought and Oversold Conditions:

If the CCI exceeds +100, it signals an overbought market condition, suggesting a potential price pullback and a possible sell opportunity. Conversely, if the CCI falls below -100, it indicates an oversold market, implying a potential price increase,and serving as a possible and serving as a possible buy signal.

Identifying Trend Reversals:

CCI trend reversal signals trigger when the indicator:

• Declines from above +100 (overbought exit)

• Rises from below -100 (oversold exit)

For example, a drop in the CCI from the overbought zone below +100 may indicate the end of an upward trend and the beginning of a downward move. Conversely, a rise from the oversold zone above -100 could suggest the conclusion of a downward trend and the start of a new upward trend.

（Source: Wikipedia）