Currency valuation moves in trends, and these trends do not last forever. When a particular commodity experiences a countertrend, it usually is not an instantaneous phenomenon. Instead, prices decelerate, pause and reverse. These phases occur as investors form new expectations and, in doing so, shift supply/demand lines. The psychology underlining the changing of expectations often causes price patterns to emerge that are remarkably similar to one another.

Head-and-Shoulders

The head-and-shoulders price pattern is the most reliable and well known chart pattern. It gets its name from its resemblance to a head in the middle of two shoulders. A first upward surge is followed by a secondary trend, after which a larger upward trend propels prices up past the first shoulder. After this new high, or the head, the decline begins. A second shoulder is created as bulls try to push prices higher, ultimately failing. Confirmation of a downtrend (upturn in a reverse head and shoulders) is confirmed when the neckline is penetrated.

Rounding Tops and Bottoms

Rounding tops/bottoms occur as expectations gradually shift between bullish and bearish.

Triangles

As the range between high and low narrows a triangle is created by drawing trendlines above the highs and below the lows. A symmetrical triangle occurs when prices are making lower highs and higher lows. An ascending triangle occurs when there are higher lows and consistent highs, usually due to a resistance level. A descending triangle occurs when there are lower highs and consistent lows, usually due to a support level. Ascending and descending triangles often lead to breakouts, in the direction of the trend.

Double Tops and Bottoms

The double tops is a pattern formed when prices rise to a resistance level, falls, and then returns to the line at a lower volume level. A double top usually marks the beginning of a downtrend. The phenomenon is the same for double tops, in reverse.