21 Different Types of Chart Patterns for Forex Trading

Forex trading volumes typically vary during the formation of the Head and Shoulders pattern. Volumes usually decrease as the pattern progresses from the left shoulder to the head and then to the right shoulder. The reduction in volume during the formation of the head and shoulders pattern suggests a weakening trend bias.

The head and shoulders chart pattern and its counterpart, the inverse head and shoulders chart pattern does not have a single inventor. The head and shoulders chart pattern emerged as part of technical analysis in the early 20th century. The head and shoulders chart pattern was popularized by technical analysts who studied market trends and market price movements. The head and shoulders chart pattern became widely recognized through publications and teachings of early technical analysts. One notable figure who contributed to understanding the head and shoulders pattern is Richard W. Schabacker, who published influential works on technical analysis in the 1930s.

The Head and Shoulders pattern forms with the price ascending to a peak, then declining, forming the left shoulder. Subsequently, the market price ascends to a higher peak, forming the head, before declining again. Finally, the price ascends again but only reaches a lower peak than the head, forming the right shoulder, and then declines again. A trendline, known as the neckline, connects the troughs after the left shoulder and the head, serving as a support level.

Analysts suggest that the “left shoulder” section of the head and shoulders pattern indicates a strong buying phase, where buyers push the market price up. The “head” section shows an even stronger buying interest but is followed by a decline, suggesting that sellers are starting to exert influence. The “right shoulder” section suggests that the buyers try to push the prices upwards and fail to reach the previous high, which indicates a shift in control from buyers to sellers.

The pattern of the head and shoulders is confirmed when the market price breaks below the neckline after forming the right shoulder. The price breakout of the neckline of the head and shoulders pattern suggests that sellers have gained control, reinforcing the bearish trend. Volume decreases during the pattern formation and then increases significantly when the neckline is broken.

A false price breakout in the Head and Shoulders pattern occurs when the market price moves below the neckline, suggesting a bearish trend continuation, but then reverses back above the neckline, invalidating the initial bearish signal.

In a head and shoulders pattern, Forex traders place short orders, anticipating a further decline in market price upon a price breakout below the neckline. The target price is usually estimated by measuring the distance from the top of the head to the neckline and projecting the same distance from the price breakout point of the neckline. Stop orders are placed above the right shoulder.

The Forex trading volume in the inverse head and shoulders formation starts high and then decreases with each successive trough, which indicates weakening selling pressure. The trading volume increases again significantly upon the pattern breakout above the resistance level connecting the peaks between the troughs (the “neckline”).

The market price in the Inverse Head and Shoulders formation declines to form the first trough (left shoulder), followed by a temporary price rally. The price creates a second smaller trough (the head) before rising again. Finally, the market price drops again to form the third trough (right shoulder), which is higher than the head but similar in depth to the left shoulder. The neckline of the inverse head and shoulders pattern is created by connecting the peaks formed between these troughs.

Forex market analysts suggest that the “left shoulder” of the inverse head and shoulders pattern represents the first attempt by buyers to push prices in the opposite direction. The neckline acts as resistance. Sellers have the strength to push prices to a lower low before buyers manage to push market prices back to the neckline, forming the “head” of the pattern. The “right shoulder” of the chart pattern indicates that sellers try to push market prices down again, but buyers’ pressure is stronger and manages to break through the neckline price level, successfully starting to invert the trend.

False price breakouts in Inverse Head and Shoulders patterns occur when the price reverses back below the neckline right after breaking above it, invalidating the bullish trend bias.

The Inverse Head and Shoulders pattern is confirmed when the price breaks above the neckline with increased volume. Forex traders place long orders upon this breakout, targeting a market price equal to the distance from the head to the neckline projected upwards from the chart pattern breakout point. Stop orders are typically placed below the right shoulder.

The Double Top Pattern has evolved through collective contributions to technical analysis in the early 20th century. The technical analysis pioneer Charles Dow played a significant role in the foundational principles of the Double Top pattern.

The Double Top Pattern formation and structure begin with an initial peak where buyers drive the market price upward. The initial peak of the Double Top Pattern is followed by a pullback as sellers temporarily gain control. The double-top pattern initial peak typically occurs with high Forex trading volume, reflecting strong buying interest. The second peak forms after the first pullback, and the market prices rise again at a level similar to the first peak. The trading volume in the second peak is lower, which indicates weakening buyer momentum.

Analysts suggest that the double-top pattern indicates initial buyer pressure that fails to sustain the uptrend. The buyers cannot maintain their buying interest, while sellers exert higher pressure and manage to push the market price downward.

The Double Top Pattern is confirmed when the price breaks below the support level established by the low point between the two peaks. Confirmation factors include a noticeable increase in volume as the market price breaks the support level.

False chart breakout in the Double Top formation occurs when the price breaks below the support level between the two peaks and returns above the support level, negating the first bearish signal.

Forex traders place short orders once the Double Top pattern is confirmed, with market price breaking below the support level. The pattern confirmation allows traders to profit from the price decline. Forex traders often set a target price by measuring the vertical distance between the peaks and the support level and projecting the distance downward from the support break. Forex traders place stop orders just above the second peak.

The trading volume during the formation of the “cup” decreases as prices fall and then gradually increases again as the market prices rise. The Forex trading volume in the “handle” formation phase tends to decrease further, and denotes a period of consolidation before a potential chart breakout.

William J. O’Neil is the inventor of the Cup and Handle Pattern. William J. O’Neil is a renowned American stock market investor and founder of Investor’s Business Daily. He introduced the Cup and Handle Pattern in his 1988 book, “How to Make Money in Stocks.”

Analysts suggest buyers in the Cup and Handle pattern initially drive the market price up, creating the left side of the cup. Sellers exert pressure, which causes a gradual decline that forms the cup’s bottom after the initial price increase. The buyers gradually manage to raise market prices again to the previous high until there is a brief period of profit-taking and consolidation (the “handle”) before the new trend appears.

The cup and handle pattern confirmation factors involve a breakout above the handle’s resistance level. A confirmed price breakout occurs when the price closes above the resistance with increased volume.

Cup and Handle patterns false price breakouts happen during the handle phase when the market prices break above the resistance level and immediately retrace back to the resistance level, invalidating the bullish bias of the chart pattern.

Forex traders identifying the cup and handle pattern place long orders upon confirmation of the breakout price movement above the handle’s resistance. The target price in the cup and handle pattern is estimated by measuring the depth of the cup and projecting it upward from the price breakout point. Stop orders in the cup and handle pattern are usually placed below the handle’s low.

The formation of the Rounding Bottom Pattern begins with a decrease in forex trading volumes, reflecting waning selling pressure. As the pattern forms and the market price begins to curve upward, volumes start to increase and suggest growing buying interest. The completion of the Rounding Bottom pattern is often accompanied by a significant increase in volume which confirms the uptrend market bias.

The inventor of the Rounding Bottom Pattern is not attributed to a single individual.

Market Analysts suggest that the Rounding Bottom shows a market shift from a phase of accumulation, where sellers are gradually exiting, to a phase of increasing demand and buying pressure.

Forex traders using the Rounding Bottom pattern look for confirmation factors such as a breakout move above the resistance level. Traders place long orders at the breakout point of the Rounding Bottom pattern, anticipating further upward movement.

A Rounding Bottom false breakout occurs when the price breaks above the resistance level, suggesting a bullish trend, but then retraces below the resistance level.

Traders measure the target price in the Rounding Bottom chart patterns by adding the depth of the pattern to the price breakout point. Forex traders place stops just below the lowest point of the rounding bottom.

The diamond chart pattern has roots in the early 20th century. The recognition of the existence of the Diamond Chart pattern is commonly attributed to Thomas Bulkowski, though he is not globally regarded as the only inventor.

The formation and structure of the diamond chart pattern begin with an uptrend or downtrend. The market price movements in the first stages of the diamond chart start to widen, creating higher highs and lower lows. The price levels start to contract, forming lower highs and higher lows. The convergence of the price points of the diamond chart pattern creates the characteristic diamond shape on the chart.

Analysts suggest the broadening phase of the diamond chart pattern shows indecision and volatility, with buyers and sellers pushing the price to new extremes. The Diamond pattern narrows and the price action converges and a market price breakout occurs signaling a market trend reversal.

The confirmation of the diamond chart pattern occurs when the market price breaks out of the converging trend lines with increased trading volume. A price breakout to the upside indicates a bullish reversal pattern, while a breakout to the downside indicates a bearish reversal pattern.

A false price breakout in the Diamond pattern occurs when the market price retracts back into the diamond shape right after breaking out the pattern.

Forex traders using the diamond chart pattern place their orders after the breakout is confirmed. For a bullish diamond chart breakout, traders enter long forex positions. For a bearish chart breakout, traders enter short forex positions. The target price of a diamond chart pattern is determined by measuring the widest part of the diamond and projecting that distance from the breakout point. Stop orders are typically placed just outside the opposite side of the diamond.

The ABCD pattern volume varies during the chart formation. The volume in the ABCD pattern increases during the initial move (AB leg), decreases during the correction (BC leg), and increases again during the final move (CD leg).

The AB leg in the ABCD pattern represents initial buying or selling pressure. The BC leg shows that buyers (or sellers) attempt to counteract the initial price move, causing a retracement without reaching the initial A level. The final CD leg indicates that buyers (or sellers) have regained control of the market, bringing market prices to a new higher high or a new lower low.

The confirmation of the ABCD pattern occurs when the price reaches point D, aligning with the Fibonacci retracement level of the AB leg of 61.8% to 78.6%, together with a spike in volume.

A false price confirmation in the ABCD pattern occurs when the price exceeds the point D (the expected reversal point), suggesting a trend continuation, reversing back below point D and negating the ABCD pattern bias.

Forex traders place long orders at point D when there is a bullish ABCD pattern or short orders at point D in a ABCD bearish pattern. The ABCD harmonic pattern’s target price is set at point C’s level, while stop orders are placed to important market price levels beyond point D.

The formation of the Falling Wedge pattern involves a series of lower highs and lower lows, with the market price movement confined within two downward-sloping trend lines that converge as the pattern progresses.

The structure of a Falling Wedge pattern starts with a downtrend with declining peaks and troughs. The rate of decline then starts to slow down, and the price action begins to consolidate. The price action consolidation in the Falling Wedge pattern is depicted by two downward-sloping trend lines, where the upper trend line connects the lower highs, and the lower trend line connects the lower lows. The convergence of the Falling Wedge pattern trend lines indicates a narrowing price range, suggesting that the selling pressure is diminishing.

Sellers push the market price lower during the wedge formation, and as the pattern progresses, the selling pressure weakens. Buyers start to gain confidence, anticipating a potential price breakout above the upper trend line of the Falling Wedge pattern.

The confirmation of the Falling Wedge pattern occurs when the price breaks out above the upper trend line with a noticeable increase in forex trading volume. The increase in volume during the breakout is a critical factor, as it validates the move’s strength and enhances the pattern’s reliability.

A false price breakout in the Falling Wedge pattern occurs when the price breaks below the lower trendline, which suggests a bearish continuation, but then reverses back above the lower trendline, which invalidates the bearish breakout bias.

The optimal moment to place orders in a Falling Wedge pattern formation is at the confirmation of the breakout. Forex traders determine the Falling Wedge target price, measuring the height of the wedge at its widest point, and project the distance upwards from the breakout price level. Forex traders place stop orders below the recent swing low within the wedge.

The forex trading volumes during the formation of the Rising Wedge pattern start high and tend to diminish progressively. The volume decrease signifies weakening momentum as the price approaches the wedge’s apex.

The Rising Wedge pattern forms through a series of higher highs and higher lows, creating a converging resistance and a support trend line. The market prices in the Rising Wedge pattern bounce between the upper trend line (the resistance) and the lower trend line (the support). Analysts say the constant bouncing is a fight between buyers and sellers, where sellers slowly gain bearish momentum until a chart breakout move happens.

A false price breakout in the Rising Wedge pattern occurs when the price breaks below the support level and immediately retrace back to the previous levels above the support trendline.

The confirmation of the Rising Wedge pattern occurs when the market price breaks below the lower trend line with a noticeable increase in volume. Forex traders interpret the breakout as a market bias signaling to place short orders. The target price in a Rising Wedge pattern is determined by measuring the height of the wedge at its widest point and projecting the distance downward from the breakdown point. Traders place stop orders above the upper trend line.

The Double Bottom Pattern emerged through collaborative studies in technical analysis during the early 20th century. Charles Dow contributed significantly to the fundamental principles underpinning the Double Bottom Pattern.

The Double Bottom initially sees a price decline to a new low, creating the first bottom. The first bottom then sees a price rebound, forming a peak or resistance level. The Double Bottom chart keeps forming with a market price decline that tests the price level of the previous low, creating the second bottom. The second bottom of the Double Bottom chart pattern is at the same price level as the first bottom or slightly higher. The similar price level indicates a support level. The pattern bias is confirmed when the market price breaks above the peak between the two bottoms, signaling a shift in market sentiment from bearish to bullish.

The Double Bottom pattern indicates that sellers have exhausted their selling pressure, and buyers are gaining control. The trend shift is often accompanied by an increase in volume that forex traders interpret as a strong buy signal.

Forex traders consider a double bottom false price breakout when the price breaks above the resistance level between the two bottoms, but then the market price fails to look for new highs and retraces below the resistance level.

Forex traders profit from the Double Bottom pattern by placing long orders upon confirmation of the chart formation. The target price in a Double Bottom pattern is estimated by measuring the distance between the lowest point of the pattern (the bottoms) and the peak, then projecting the distance upward from the price breakout point. Stop orders in a Double Bottom pattern are typically placed just below the second bottom.

The formation and structure of the Gartley pattern follow specific Fibonacci ratios. The Gartley pattern begins with an initial market price move from the point “X” to the point “A” (XA leg), followed by a retracement from the point “A” to the point “B” (AB leg). The AB pullback in the Gartley Pattern retraces at the 61.8% Fibonacci level of the XA leg. The Gartley pattern corrects the prices going from the point “B” to the point “C” (BC leg), retracing between 38.2% and 88.6% of the AB leg. The last move of the Gartley Pattern goes from point “C” to point “D” (CD leg), completing nearly a 78.6% retracement of the XA leg.

The Forex trading volume in the Gartley Pattern increases during the XA and CD legs, and gradually decreases during the AB and BC legs, reflecting the fibonacci level biases.

The XA leg in a Gartley Pattern represents the initial strong pressure from buyers or sellers, depending on the overall market trend. The AB leg reflects a corrective move, where buyers or sellers counteract the initial movement and cause a price retracement. The BC leg suggests that buyers or sellers regain control and manage to push prices higher, or lower, but without reaching the previous A level. The CD leg completes the Gartley pattern as market participants push market prices to point D, representing a new higher high in a bullish Gartley pattern or a new lower low in a bearish Gartley pattern.

The confirmation of the Gartley pattern occurs when the price reaches point D, which is paired with a spike in volume. Traders open Forex trading orders at point D of the Gartley pattern. Trading orders are long if the Gartley Pattern is bullish and short if the Gartley pattern is bearish.

A false price confirmation in the Gartley pattern happens when the price action exceeds the expected reversal point D, and retraces back into the pattern.

The target price for Gartley Patterns can be conservative, being at the level of point B or point C or more aggressive beyond point A at 161,8% Fibonacci level of XA leg.

The stop in Gartley Patterns orders are placed at level point X, representing the starting price of the chart pattern.

The inventor of the Ascending Triangle pattern is widely considered to be Richard W. Schabacker, an early pioneer of technical analysis.

The Ascending Triangle pattern forms through a series of higher lows and constant highs. Buyers gradually push the market price higher, creating ascending support. Sellers repeatedly prevent the market price from surpassing the resistance level, creating a horizontal resistance line. The confirmation of the pattern occurs when the price breaks above the horizontal resistance line on increased volume.

A false price breakout in the Ascending Triangle pattern occurs when the price breaks above the horizontal resistance line and fails to rise, retracing back to the previous levels and nullifying the bullish signal.

Forex traders place long orders at the chart breakout point, anticipating a significant market price rise. The price target of the Ascending Triangle formation is equal to the triangle’s height added to the price breakout level. Stop orders in Ascending Triangles are placed on the rising support line at the point of the most recent rebound.

The inventor of the Ascending Triangle is considered to be the technical analysis pioneer Richard W. Schabacker.

The Descending Triangle works through a formation of lower highs and a flat support level. The formation of Descending Triangles starts with the market price making a high and pulling back to a support level. The price makes a lower high and tests the same support level multiple times, creating the descending trendline.

The sellers’ pressure pushes the price lower each time until the prices are driven below the support level and the Descending Triangle pattern is confirmed.

A false price breakout in a Descending Triangle pattern occurs when the price breaks below the horizontal support line but immediately reverses back above the support line.

Traders place short orders upon Descending Triangle pattern breakout confirmation to profit from the bearish trend continuation. The target price in Descending Triangle patterns is usually the triangle’s height subtracted from the breakout point. Stop orders in Descending Triangles are placed just above the last lower high before the price breakout.

The inventor of the Symmetrical Triangle is not attributed to a single individual.

Technical analysts interpret the Symmetrical Triangle with a balance between buying and selling pressures which leads to a tightening range before the next significant move. The Symmetrical Triangle chart pattern is confirmed when the market price breaks out of the triangle in either direction with a sharp increase in trading volumes, which further demonstrates the chart pattern formation bias.

A false price breakout in the Symmetrical Triangle pattern occurs when the prices retrace back into the triangle formation after breaking out of the triangle’s converging trendlines.

Traders enter a trade when the Symmetrical Triangle is confirmed. Traders open long orders if the Symmetrical Triangle is bullish and a short position if the following trend is bearish.

The target price for symmetrical triangle chart pattern shapes is measured by the triangle height added to the breakout point. Stop orders in Symmetrical Triangles are placed just outside the opposite side of the triangle formation.

The Triple Top Pattern structure starts with a market price rise, resulting in the first peak. The price then declines, forming the first trough, and rises again at similar levels two times, forming the second peak, followed by the second trough and the third peak.

The Triple Top Pattern formation indicates that the buyers cannot push the prices above the resistance level, while the sellers strengthen their selling pressure as the Triple Top Pattern is forming.

Traders recognizing the Triple Top Pattern place short orders upon confirmation of the pattern. The confirmation of the Triple Top Pattern occurs when the market price falls below the support level formed by the two troughs, validating the bias suggesting the trend reversal.

Triple Top pattern false price breakouts occur when the price breaks below the support level after the third peak and reverses back above the support level.

The target price in Triple Top Patterns is the vertical distance between the peak and the support level, projected downwards from the support level. Traders using the Triple Top Pattern place stop orders just above the resistance level.

The Triple Bottom Pattern begins with a significant price decrease that forms the first bottom. After forming the first bottom, the price rebounds to create an intermediate high. Following this rebound, the price declines again, forming the second bottom at approximately the same level as the first bottom. This second bottom confirms the support level established by the first bottom. The price then rises a second time, reaching another intermediate high before experiencing a final decline. This third decline establishes the third bottom, reinforcing the support level observed in the previous two bottoms.

Triple Bottom Pattern formation suggests that sellers cannot lower the price with each successive bottom while buyers gradually gain confidence. The Triple Bottom Pattern pattern is confirmed when the market price breaks above the resistance level formed by the intermediate highs with increased volume.

A false price breakout in the Triple Bottom pattern happens when market prices fail to reach new highs after breaking out above the resistance level on the third trough, instead retracing back below the resistance level invalidating the market bias.

The Triple Bottom Pattern suggests traders open a long position to capitalize on the emerging bullish momentum.

Traders using the Triple Bottom Pattern identify the target price by measuring the distance from the support level to the resistance level and projecting it upwards from the breakout point. Stop orders in Triple Bottom Patterns are usually placed just below the third bottom.

Forex trading volumes during Flag Patterns start high during the initial market price movement the “flagpole” phase, and diminish during the consolidation period the “flag” phase, which denotes a temporary pause in market activity.

The flag pattern in a chart represents the battle between buyers and sellers, neither of whom dominates. During the formation of a Flag Pattern the market is taking a brief pause before resuming the previous trend. The Flag Pattern formation is confirmed when the price breaks out of the flag formation in the direction of the prior trend, accompanied by higher trading volumes.

The Bullish Flag pattern and the Bearish Flag pattern are the two main types of flag patterns. Bullish Flag patterns form in market uptrends and are confirmed when they break upward from the resistance level. The Bullish Flag pattern forms in market downtrends and confirms negative market sentiment when it breaks downward through the support level of the chart formation.

A false price breakout in bullish and bearish Flag patterns occurs when the price action breaks out of the flag’s resistance or support levels but then retracts back into the flag pattern, invalidating the continuation signal bias.

Forex traders place Forex trading orders at the breakout point of a Flag Pattern. Forex traders place long trading orders during a Bullish Flag Pattern in case of an uptrend continuation, and place short trading orders during Bearish Flag Patterns in case of downtrend continuation.

The target price for Flag Patterns is measured by the flagpole length added to the breakout point. Stop orders in Flag Patterns are placed just outside the opposite side of the flag formation.

The volumes during the formation of the Pennant Pattern are high at the start of the flagpole and diminish as the pattern forms. The Forex trading volumes in Pennant Patterns rise again when the chart formation is about to breakout.

The inventor of the Pennant Pattern is not attributed to a single individual.

The Pennant Pattern forms a small symmetrical triangle representing a consolidation phase following a sharp price movement, known as the flagpole.

The Pennant Pattern suggests that the market is experiencing a temporary balance between buying and selling pressures before resuming the prior trend. The Pennant Pattern confirms the market bias when the price breaks out of the pennant in the direction of the prior trend, accompanied by a surge in trading volumes.

False price breakouts in Pennant Patterns occur when the price action retracts back into the pennant formation immediately after breaking out from the pennant’s converging trendlines.

Forex traders spotting Pennant Patterns open long positions during Bullish Pennant Patterns when the trend continuation is bullish, or short positions during Bearish Pennant Pattern if the trend continuation is bearish.

The target price for the trade is typically measured by the length of the flagpole added to the breakout point. Stop orders are generally placed just outside the opposite side of the pennant formation to manage risk.

The Forex trading volumes start high when the Rectangle Pattern forms, and the market price moves between the support and resistance levels. The trading volumes in a Rectangle pattern decrease as the pattern develops, which suggests a period of indecision and consolidation. The trading volumes rise again when the pattern is near completion and confirm the direction of the breakout.

The inventor of the Rectangle Pattern is not attributed to a single individual.

The Rectangle Pattern forms by creating two parallel horizontal lines representing support and resistance levels, between which the price oscillates. The price repeatedly bounces off the support and resistance levels, which indicates a temporary balance between buying and selling pressures.

Technical analysts interpret the rectangle pattern as a period of consolidation, where neither buyers nor sellers dominate. The Rectangle Pattern bias is confirmed when the price breaks out of the rectangle in either direction with higher Forex trading volumes.

False price breakouts in rectangle patterns occur when the price breaks above or below the rectangle’s boundaries but fails to maintain that movement and returns to the original range. The rectangle pattern breakout suggests the possibility of both bullish and bearish outcomes, depending on the direction of the breakout.

The bullish outcome of a rectangle pattern suggests Forex traders to open long positions, while the bearish outcome suggests Forex traders to open short positions to profit from the price decrease. The target price in a rectangle pattern formation is typically measured by the height of the rectangle added to the breakout point. Traders reaching the initial target price of a rectangle pattern look for other target prices to capitalize on the trend continuation. Forex traders using rectangle patterns initially place stop orders just outside the opposite side of the rectangle formation or on other important price levels.

The critical aspect of the butterfly chart patterns is the price points’ alignment with Fibonacci levels rather than trading volume changes.

The Butterfly Chart Pattern forms a specific five-point structure labeled X, A, B, C, and D based on precise Fibonacci measurements.

The pattern starts with a market price move from point X to point A, followed by a retracement to point B, which is typically 78.6% of the XA move. The price then moves from B to C, retracing 38.2% to 88.6% of the AB move. The final leg is from C to D, where D is an extension of 127.2% to 161.8% of the XA move.

Analysts suggest sellers dominate initially in a Butterfly Chart Pattern, driving prices down through the A-B and C-D legs. Buyers wait for point D, a key Fibonacci level, to anticipate a reversal. Upon completion at D, buying pressure increases, signaling a potential market reversal.

A false pattern confirmation in the Butterfly pattern occurs when the price exceeds the expected reversal point D, which suggests a trend continuation, but then reverses back into the pattern, which invalidates the expected market bias.

Forex traders using the Butterfly Chart Pattern enter long trades when the market price reaches point D and begin to reverse in a bullish trend and place short trades when the reversal is bearish.

The target price in Butterfly Chart Patterns is usually set at the Fibonacci retracement levels of the CD leg, such as the 38.2% or 61.8% retracement levels. The stop orders in Butterfly Chart Patterns must be set just beyond the D point.

Trading volumes in the Bump and Run Reversal Pattern increase sharply during the bump phase, reflecting a surge in buying or selling activity. Volumes remain high throughout the bump phase but start to decrease as the market price reaches its peak, and the run phase starts. The run phase of the Bump and Run Reversal Pattern sees another increase in volumes as the reversal takes place.

Analysts suggest that buyers push prices up in the lead-in phase in a Bump and Run Reversal Pattern. The “bump” phase sees a steep decline as sellers take over, following an accelerated buying phase. The “run” phase implies a strong bearish reversal as sellers lower prices.

Forex traders place short orders at the breakout point for a bearish Bump and Run Reversal Pattern, expecting a downward reversal. Traders place long orders at the breakout point for a bullish Bump and Run Reversal Pattern, anticipating an upward reversal.

A false price breakout in the Bump and Run Reversal pattern occurs when the price breaks the trendline formed after the bump, which suggests a reversal, but then reverses back above or below the trendline, which negates the bump and run reversal pattern bias.

The target price in the Bump and Run Reversal Pattern is typically set at significant support or resistance levels identified prior to the bump phase. Stop orders in Bump and Run Reversal Patterns are placed just beyond the trend line.