Chart Patterns — Complete Trading Guide
Master all major chart patterns: Head & Shoulders, Double Top/Bottom, Triangles, Wedges, Flags, and Cup & Handle. Learn entry rules, targets, and pattern trading strategies.
What Are Chart Patterns?
Chart patterns are recognizable formations on price charts that signal potential future price movements. They represent the psychology of market participants — fear, greed, accumulation, and distribution — visualized through price.
Patterns don't predict the future with certainty. They provide probabilistic edges — situations where price is more LIKELY to move in a certain direction. Always combine with risk management.
Pattern Categories
| Category | What They Signal | Examples |
|---|---|---|
| Reversal Patterns | Trend may change direction | Head & Shoulders, Double Top/Bottom |
| Continuation Patterns | Trend will likely resume | Flags, Pennants, Triangles |
| Bilateral Patterns | Could break either way | Symmetric Triangle, Rectangle |
Reversal Patterns
Head & Shoulders (H&S)
The most reliable reversal pattern. Signals bearish reversal at market tops.
Structure:
Head
/ \
/ \ Right
Left \ Shoulder
Shoulder \/
\ /
\ /
Neckline
|
BREAK = Entry
Entry: Break below neckline
Stop Loss: Above right shoulder
Target: Distance from head to neckline, projected down
Inverse Head & Shoulders = Bullish reversal at market bottoms (flipped version)
Double Top
Two peaks at approximately the same level, signaling bearish reversal.
| Component | Description |
|---|---|
| First Peak | Price hits resistance and pulls back |
| Valley | Pullback between peaks (support/neckline) |
| Second Peak | Price returns to same resistance, fails again |
| Neckline Break | Entry trigger |
| Target | Distance from peaks to neckline, projected down |
Double Bottom
Two valleys at approximately the same level, signaling bullish reversal.
- Mirror image of Double Top
- Entry on neckline break upward
- More reliable with volume increase on second bottom
Triple Top / Triple Bottom
- Same concept with three touches
- Even more reliable (more confirmation)
- Longer to form, stronger signal
Continuation Patterns
Bull Flag
Strong move up (flagpole)
|
| ╲ ╲ ╲ ← Flag (slight pullback, parallel channel)
| ╱ ╱ ╱
|
| Breakout above flag = ENTRY
|
Target: Length of flagpole projected from breakout
Bear Flag
- Mirror of bull flag (strong move down + slight pullback up)
- Breakout below flag = short entry
Pennant
- Like a flag but with converging trendlines (triangle shape)
- Forms after strong impulse move
- Break in trend direction = entry
- Usually resolves quickly (5-20 candles)
Ascending Triangle
- Flat resistance + rising support (higher lows)
- Bullish bias — usually breaks upward
- Entry: Break above flat resistance with volume
- Target: Height of triangle projected upward
Descending Triangle
- Flat support + falling resistance (lower highs)
- Bearish bias — usually breaks downward
- Entry: Break below flat support
- Target: Height of triangle projected downward
Symmetric Triangle
- Converging trendlines (lower highs + higher lows)
- Bilateral — can break either direction
- Trade the breakout direction
- Often resolves in the direction of prior trend
Wedge Patterns
Rising Wedge (Bearish)
- Both trendlines slope upward, but converge
- Price making higher highs and higher lows, but slowing
- Usually breaks DOWNWARD
- Can appear in uptrends (reversal) or downtrends (continuation)
Falling Wedge (Bullish)
- Both trendlines slope downward, but converge
- Price making lower highs and lower lows, but slowing
- Usually breaks UPWARD
- Can appear in downtrends (reversal) or uptrends (continuation)
Cup & Handle
A rounded bottom (cup) followed by a small consolidation (handle), signaling bullish continuation.
| |
| | Handle
\ / ──╲╱── Breakout = ENTRY
\ /
U ← Cup (rounded bottom)
Target: Depth of cup projected from breakout
Timeframe: Usually forms over weeks/months (D1 chart)
Pattern Trading Rules
Entry Rules:
- Wait for confirmation — Don't enter before the pattern completes
- Volume confirmation — Breakouts should have increased volume
- Retest entry — Often price retests the breakout level (better entry)
- Multiple timeframe — Pattern on H4+ more reliable than M15
Stop Loss Placement:
| Pattern | Stop Loss Location |
|---|---|
| Head & Shoulders | Above right shoulder |
| Double Top | Above the peaks |
| Double Bottom | Below the valleys |
| Flag/Pennant | Below the flag (bullish) or above (bearish) |
| Triangle | Beyond the opposite trendline |
| Wedge | Beyond the wedge boundary |
Target Calculation:
Most patterns use the measured move technique:
- Measure the height of the pattern
- Project that distance from the breakout point
- This gives your minimum target
Pattern Failure
Patterns FAIL frequently (30-40% of the time). This is why stop losses are non-negotiable. A failed pattern often leads to a strong move in the OPPOSITE direction (trapped traders exit).
When Patterns Fail:
- Trade against a strong higher-timeframe trend
- Low volume breakout (no conviction)
- News event overwhelms technical setup
- Pattern is visible to everyone (crowded trade)
Related Topics
- Support & Resistance — Patterns form at key levels
- Trendlines & Channels — Drawing trend boundaries
- Technical Indicators — Confirm patterns
- Fibonacci Trading — Measure retracements
- Risk Management — Manage pattern trades