Chart Patterns

Price structure patterns indicating continuation or reversal.

Reversal Patterns

Head and Shoulders

Structure:

• Left shoulder (peak)
• Head (higher peak)
• Right shoulder (lower peak than head)
• Neckline connecting troughs

Bullish (Inverse):

• Forms at bottom
• Neckline resistance
• Breakout = uptrend

Bearish:

• Forms at top
• Neckline support
• Breakout = downtrend

Measurement:

Target = Breakout Point - (Head Height)

Double Top / Bottom

Double Top (Bearish):

• Two peaks at similar price
• Valley between (neckline)
• Break below neckline = sell signal

Double Bottom (Bullish):

• Two troughs at similar price
• Peak between (neckline)
• Break above neckline = buy signal

Measurement:

Target = Breakout Point ± (Pattern Height)

Triple Top / Bottom

Similar to double, but with three tests of level.

More reliable than double patterns.

Continuation Patterns

Triangles

Symmetrical Triangle:

• Converging trendlines
• Lower highs, higher lows
• Breakout in trend direction

Ascending Triangle:

• Flat resistance
• Rising support
• Bullish breakout likely

Descending Triangle:

• Flat support
• Falling resistance
• Bearish breakout likely

Measurement:

Target = Breakout Point ± (Widest Part of Triangle)

Flags and Pennants

Flag:

• Sharp move (flagpole)
• Rectangular consolidation
• Parallel trendlines
• Breakout continues trend

Pennant:

• Sharp move (flagpole)
• Triangular consolidation
• Converging trendlines
• Breakout continues trend

Measurement:

Target = Flagpole Length from Breakout

Wedges

Rising Wedge:

• Both trendlines rising
• Bearish reversal
• Breakout downward

Falling Wedge:

• Both trendlines falling
• Bullish reversal
• Breakout upward

Harmonic Patterns

Gartley Pattern

Fibonacci Ratios:

• XA: Any move
• AB: 61.8% retracement of XA
• BC: 38.2% or 88.6% of AB
• CD: 127.2% or 161.8% of BC
• AD: 78.6% of XA

Bullish Gartley:

• Forms at bottom
• D = buy zone

Bat Pattern

Fibonacci Ratios:

• XA: Any move
• AB: 38.2% or 50% of XA
• BC: 38.2% or 88.6% of AB
• CD: 88.6% or 261.8% of BC
• AD: 88.6% of XA

More accurate than Gartley.

Butterfly Pattern

Fibonacci Ratios:

• XA: Any move
• AB: 78.6% of XA
• BC: 38.2% or 88.6% of AB
• CD: 161.8% or 261.8% of BC
• AD: 127.2% or 161.8% of XA

Extension at D = deeper retracement

Volume Analysis

Pattern	Volume Behavior
Reversal	Declines during pattern, spikes at breakout
Continuation	Declines during pattern, confirms on breakout
Harmonic	Less important than ratios

Trading Rules

Entry

1. Wait for pattern completion
2. Confirm breakout (close beyond boundary)
3. Enter in breakout direction
4. Wait for retest (optional)

Stop Loss

Reversal: Beyond pattern extreme
Continuation: Beyond pattern boundary
Harmonic: Beyond XA or key level

Target

Measured Move = Pattern Height
Fibonacci Extension = 161.8%, 261.8%
Previous Swing = Recent high/low

Reliability Factors

✅ High Reliability:

• Clear pattern structure
• Volume confirms breakout
• Confluence with support/resistance
• Higher timeframe

❌ Low Reliability:

• Sloppy pattern
• No volume confirmation
• Lower timeframe
• Against major trend

Chart Patterns vs Candlesticks

Feature	Chart Patterns	Candlesticks
Time to form	Hours to weeks	Minutes to hours
Reliability	Higher	Lower
Target	Measured move	Smaller moves
Best For	Swing trading	Day trading

Best Practices

✅ Wait for confirmed breakout
✅ Measure pattern height for target
✅ Check volume on breakout
✅ Use multiple timeframe analysis
✅ Combine with indicators

❌ Enter before breakout
❌ Ignore volume
❌ Trade against major trend
❌ Chase breakouts

Example: Head & Shoulders Trade

1. Identify pattern forming
2. Draw neckline
3. Wait for close below neckline
4. Enter short
5. Stop above right shoulder high
6. Target: Neckline - pattern height

See Also

• Candlestick Patterns — Candle-based reversals
• Harmonic Patterns — Fibonacci-based setups
• Drawing Tools — Mark patterns