Top 5 Forex Price Action Patterns Every Trader Must Know

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Top 5 Forex Price Action Patterns Every Trader Must Know

Introduction


Price action trading is one of the most powerful ways to trade the forex market without relying heavily on indicators. It focuses purely on interpreting the market’s price movements. For traders who want to stay ahead of the game, understanding the most reliable price action patterns can make all the difference between consistent profits and frustrating losses.
In this guide, we’ll cover the top 5 forex price action patterns, how to identify them, and how to trade them effectively.

1. Pin Bar (Reversal Pattern)

What It Is:
A pin bar is a single candlestick pattern with a small body and a long wick. It indicates a potential reversal in price direction.

How to Identify:

  • Long wick is at least two-thirds of the total candle length.

  • Small body near one end of the range.

  • Appears after a strong uptrend or downtrend.

How to Trade:

  • Bullish pin bar: Look for long lower wick, enter buy after confirmation candle.

  • Bearish pin bar: Long upper wick, enter sell after confirmation candle.

Pro Tip: Combine pin bars with strong support/resistance levels for higher accuracy.

2. Inside Bar (Consolidation Breakout)

What It Is:
An inside bar occurs when a candle is fully contained within the previous candle’s high and low. It signals consolidation before a breakout.

How to Identify:

  • The high is lower than the previous candle’s high.

  • The low is higher than the previous candle’s low.

How to Trade:

  • Wait for breakout above/below the mother bar.

  • Set stop-loss just outside the opposite end of the mother bar.

3. Engulfing Pattern (Trend Reversal)

What It Is:
The engulfing pattern consists of two candles where the second completely engulfs the first.

How to Identify:

  • Bullish engulfing: A large green candle fully covers a smaller red candle.

  • Bearish engulfing: A large red candle fully covers a smaller green candle.

How to Trade:

  • Trade in the direction of the engulfing candle after it closes.

  • Works best on higher time frames like H4 or daily.

4. Double Top & Double Bottom

What It Is:
A double top signals a bearish reversal, while a double bottom indicates a bullish reversal.

How to Identify:

  • Double top: Two peaks at the same resistance level.

  • Double bottom: Two troughs at the same support level.

How to Trade:

  • Enter trade after neckline break.

  • Measure target by height between peaks/troughs and neckline.

5. Fakey Pattern (False Breakout Trap)

What It Is:
A fakey occurs when price breaks out of an inside bar setup but quickly reverses and traps traders on the wrong side.

How to Identify:

  • Inside bar followed by false breakout candle.

  • Immediate reversal back into range.

How to Trade:

  • Trade in the opposite direction of the false breakout.

  • Works well in volatile markets.

Risk Management Tip

No matter how powerful a pattern looks, always manage your risk:

  • Use stop-losses.

  • Risk no more than 1-2% of your trading capital per trade.

  • Combine price action patterns with trend direction for higher probability setups.

Conclusion
Price action trading is simple yet extremely effective when mastered. By focusing on these top 5 forex price action patterns, you’ll develop a sharper eye for market structure and potential trading opportunities. Remember, consistency and discipline will always outperform reckless overtrading.

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