GlossaryWhen price moves decisively beyond a support, resistance, or chart pattern boundary — signals new trend or continuation.
Breakouts attract momentum traders — once a level breaks, stops above/below are triggered and new orders pile in. The danger: false breakouts where price pops just above resistance only to reverse.
Also called:
breakout entry
Example
EUR/USD has ranged 1.0800–1.0860 for two weeks. Daily close above 1.0860 on a wide-range bar → breakout long, with stop below 1.0800.
A price chart symbol showing open, high, low, and close for a single period — the dominant chart type in retail trading.
Each candle has a body (open to close) and wicks (high above body, low below). Green/white = close > open (bullish); red/black = close < open (bearish).
Also called:
candle
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A candle where open and close are nearly equal — signals indecision and possible reversal.
A doji shows that buyers and sellers fought to a draw over the period. Long upper and lower wicks emphasise the indecision. In context (at a key level, after a strong move) a doji can mark exhaustion.
Example
EUR/USD rallies 100 pips on the day, closes within a few pips of where it opened, with long wicks both sides — daily doji at resistance. Bulls lost control.
A bullish reversal pattern formed by two consecutive lows at roughly the same price level.
Mirror of the double top. Two lows at similar prices, separated by a relief rally. Confirmation: close above the swing high between the lows. Target: height of pattern projected up.
Also called:
W pattern
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A bearish reversal pattern formed by two consecutive highs at roughly the same price level.
Double tops form when an uptrend stalls at resistance, pulls back, retests the same level, and fails. Confirmation: close below the swing low between the two peaks. Target: height of the pattern projected down.
Also called:
M pattern
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A two-candle reversal where the second candle's body completely engulfs the first — strong shift in momentum.
Bullish engulfing: down candle followed by a larger up candle that engulfs it. Bearish engulfing: up candle followed by a larger down candle.
Also called:
bullish engulfing, bearish engulfing
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When price breaks a level only to immediately reverse back into the range — often a stop-hunt before the real move.
False breakouts (or 'fakeouts') are the breakout trader's nightmare and the reversal trader's setup. They typically happen at obvious levels where stops cluster — institutions push price just past the level to trigger stops, then reverse.
Also called:
fakeout, bull trap, bear trap
Example
EUR/USD pokes 5 pips above 1.0860 resistance, triggers buy stops, then collapses 40 pips back into the range. Classic bull trap.
Projection levels (127.2%, 161.8%, 200%, 261.8%) used to estimate take-profit targets beyond the original swing.
While retracements look at pullbacks within a move, extensions project where the next leg might end. Common targets: 127.2%, 161.8%, 200%, and 261.8% of the original impulse.
Also called:
fib extension
Example
EUR/USD swings up 100 pips, pulls back 50%, then resumes. The 161.8% extension projects a target 162 pips above the pullback low.
Horizontal levels (23.6%, 38.2%, 50%, 61.8%, 78.6%) drawn from a swing low to swing high to identify likely pullback zones.
After an impulse move, price typically retraces a portion of it before resuming. Fibonacci ratios — derived from the Fibonacci sequence — mark the levels traders watch for that retracement.
Also called:
fib retracement, fibs
Example
EUR/USD rallies from 1.0700 to 1.0900 (200-pip swing). The 61.8% retrace sits at 1.0776. Bulls watch that level for a bounce back into the uptrend.
A short, sloped consolidation against the trend after a strong impulse — a continuation pattern.
Flags form during pauses in strong trends: a sharp impulse ('flagpole') followed by a tight, counter-trend channel. Breakout from the flag in the direction of the original impulse targets the flagpole height from the breakout.
Also called:
bull flag, bear flag
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A candle with a small body at the top and a long lower wick — bullish reversal at the bottom of a downtrend.
A hammer signals sellers pushed price down, but buyers absorbed the move and closed near the high. The longer the lower wick relative to the body, the stronger the signal.
Also called:
hammer candle
Example
After a 5-day decline, EUR/USD prints a daily hammer at major support. Entry next-day on a break of the hammer's high.
A three-peak reversal pattern: a high (left shoulder), a higher high (head), a lower high (right shoulder) — bearish signal.
The head-and-shoulders is one of the most reliable classical reversal patterns. The 'neckline' connects the lows between the three peaks; entry is on a break and close below the neckline; target is typically the height of the head projected down from the neckline.
Also called:
H&S, H and S
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A candle whose entire range (high to low) sits inside the previous candle's range — signals consolidation before a breakout.
An inside bar is a volatility contraction. After a strong move, the inside bar marks a pause. Traders enter on a break of the parent (mother) candle's high or low.
Also called:
IB, harami
Example
Daily EUR/USD prints a wide range up-candle, then a small inside bar the next day. Buy stop above the parent candle's high — breakout entry.
A candle with a small body and a long single wick — signals rejection of a price level.
Pin bars are price-action's bread and butter. A long wick shows price tried and failed at a level — sellers (or buyers) rejected the move. Body should be < 1/3 of total candle length; wick on the rejection side at least 2× the body.
Also called:
pinbar, rejection candle
Example
Price tags major resistance at 1.0900, prints a pin bar with 50-pip upper wick and tiny body, closes back inside the range. High-probability short setup.
A short-term counter-trend move within a larger trend — gives traders an opportunity to enter at better prices.
Pullbacks are the trend trader's friend: a temporary pause that flushes out weak hands before the trend resumes. Common pullback targets: prior swing high/low, 38.2/50/61.8% Fib retracements, key MAs.
Also called:
retracement
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A price level where sellers historically step in and stop further rallies.
Resistance is the mirror of support — clusters of sell orders that have repeatedly capped advances. Strong resistance is broken by either fundamental shifts or sustained momentum.
Example
EUR/USD rejected from 1.0900 three times. Break and close above 1.0900 → resistance becomes support on the first pullback.
A change in primary trend direction — distinct from a pullback (which is a temporary counter-move).
Distinguishing reversals from pullbacks is the hardest pattern-recognition problem in trading. Confirmation usually requires multiple signals: trendline break + lower high (in an uptrend) + close below a key MA.
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A candle with a small body at the bottom and a long upper wick — bearish reversal at the top of an uptrend.
The shooting star is the hammer's mirror — buyers pushed price up, sellers smashed it back down to close near the open. Strong sell signal at the top of a rally, especially at resistance.
Example
EUR/USD rallies into 1.0900 resistance and prints a daily shooting star with a 60-pip upper wick. Sellers are defending the level.
A price level where buyers historically step in and stop further declines.
Support is created by clusters of buy orders at psychologically or technically significant prices. The more times a level has held, the stronger it's considered — until it breaks.
Example
EUR/USD has bounced from 1.0700 four times in three months. That's strong support — break of 1.0700 is a major bearish signal.
A diagonal line connecting successive higher lows (uptrend) or lower highs (downtrend) — dynamic support/resistance.
Trendlines need at least two touches to draw and a third to validate. They're subjective (every trader draws them slightly differently) but powerful when respected by multiple market participants.
Also called:
trend line
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A consolidation pattern where price converges between two trendlines — symmetrical, ascending, or descending.
Symmetrical triangles (converging lower-highs and higher-lows) are neutral until broken. Ascending triangles (flat top, rising lows) bias bullish. Descending triangles (flat bottom, falling highs) bias bearish.
Also called:
triangle
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A converging pattern that slopes either with or against the trend — rising wedge is bearish, falling wedge is bullish.
Wedges differ from triangles in that both boundary lines slope in the same direction (just at different angles). Rising wedge in an uptrend = exhaustion (bearish). Falling wedge in a downtrend = exhaustion (bullish).
Also called:
rising wedge, falling wedge
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