Chart patterns are larger shapes that price forms over many candles. They map out a battle between buyers and sellers that often ends in a predictable direction. Patterns come in two families: reversal patterns that mark the end of a trend, and continuation patterns that mark a pause before the trend resumes.
Head and shoulders
The best-known reversal pattern. In an uptrend, price makes a high (the left shoulder), a higher high (the head), then a lower high (the right shoulder). The lows between them form the neckline. When price closes below the neckline, the uptrend's structure has broken: the right shoulder was a lower high, and the neckline break is a lower low.
The inverse head and shoulders is the same pattern upside down, at the bottom of a downtrend.
Double tops and bottoms
A double top is two highs at about the same level with a dip between them. Buyers failed twice to push higher. It is confirmed when price closes below the low between the two peaks. A double bottom is the mirror image at a low.
Triangles
- Ascending triangle: flat resistance above, rising lows below. Buyers keep stepping in higher; often breaks up.
- Descending triangle: flat support below, falling highs above. Often breaks down.
- Symmetrical triangle: falling highs and rising lows. Volatility contracts; the break can go either way, though it often follows the prior trend.
Flags and pennants
After a sharp move (the "flagpole"), price drifts in a small channel against the move (a flag) or in a small triangle (a pennant). These are continuation patterns: the trend is catching its breath before the next leg.
| Pattern | Type | Confirmed when | Rough target |
|---|---|---|---|
| Head and shoulders | Reversal | Close through the neckline | Head-to-neckline height from the break |
| Double top / bottom | Reversal | Close through the middle swing | Pattern height from the break |
| Ascending / descending triangle | Usually continuation | Close through the flat side | Widest part of the triangle |
| Symmetrical triangle | Either way | Close outside either line | Widest part of the triangle |
| Flag / pennant | Continuation | Break in the trend direction | Length of the flagpole |
Key takeaways
- Reversal patterns (head and shoulders, double tops and bottoms) mark the end of a trend.
- Continuation patterns (flags, pennants, many triangles) mark a pause before the trend resumes.
- A pattern is confirmed only when price closes through its key level, such as the neckline.
- Measured moves project the pattern's height from the break to give a rough target.