Horns and pipes, tops and bottoms

These are casual reversal patterns which perform best on weekly charts. However, in the fast-moving forex trading market, they also perform decently on daily and intraday charts, as well.

All the four varieties of these patterns are described by price spikes—very long candlesticks or price bars that rise well above or below the surrounding ones:
•    Horn tops have two price spikes at the top of an uptrend, with one short-bodied candle, representing a time period of consolidation, between them. The image is of an animal’s forehead between two up-thrusting horns.
•    Horn bottoms have two price spikes at the bottom of a downtrend, with a short-bodied, consolidating candle between them.
•    Pipe tops omit the inside consolidating candlestick. There are two price spikes, side by side, rising above the surrounding trading landscape.
•    Pipe bottoms have two side-by-side price spikes thrusting through the bottom of a downtrend.

Below is the daily chart of the pound sterling versus the Swiss franc, currency pair GBP/CHF, showing a series of three consecutive pipe tops at the upper reversals during a period of range trading:

Pipe tops often show lower volume levels on the second spike, and the best performing examples of the pattern tend to have the second spike lower than the first. But the trading ranges for the two candles should have significant overlap, e.g., the second spike covers the same trading ground covered by its predecessor.

The same daily chart provides an example of a pipe bottom:

Pipe bottoms occur at the end of a downtrend and indicate the beginning of a new uptrend. Sometimes one pipe or both have higher than normal volume, but not always. Although the two price spikes should cover much of the same trading ground and have similar trading ranges, the best performing examples tend to have the second spike higher than the preceding one (unlike the above example), beginning the new uptrend during the pattern itself.

Pipes are commonly seen but horns, tops or bottoms, are more rare. The formation is shaped roughly like the letter H, with the two spikes rising above the landscape but the consolidating candle between confined to the trading range’s interior. This is generally formed by gapping on stock charts, which isn’t common in the forex trading market, making a properly formed example of this pattern even less common.

Below on the daily chart of the U.S. dollar versus the Swiss franc, currency pair USD/CHF, is an example of a horn bottom that’s about as close as will be seen in the forex trading market:

At the top of the downtrend formed three candles, the outer two price spikes surrounding a smaller consolidating candle. Although the formation doesn’t display a well-formed inverted (for the downtrend) H shape, the consolidation between the two spikes is clear and the expected reversal follows.

Forex traders should concentrate on pipes, tops and bottoms, and accept horns if and as they form.