Common Chart Patterns

Why Patterns Work (When They Work)

Chart patterns aren't magic. They work because they reflect repeating human behavior:

• A double top = "twice the market tried to break higher and failed"
• A flag = "buyers are taking a breath after a sharp run-up"
• A head-and-shoulders = "the third rally couldn't make a new high"

The pattern itself is just a visual shorthand for what other traders are doing.

Continuation Patterns (the trend pauses, then resumes)

Bull Flag

A sharp rally (the "pole") followed by a tight, downward-sloping consolidation (the "flag"). Often breaks out in the same direction as the pole.

Target: add the pole's height to the breakout point.

Pennant

Like a flag but the consolidation forms a small symmetrical triangle. Same logic, same target.

Ascending Triangle

A flat resistance line with a rising support line — buyers getting more aggressive while sellers stay fixed at the same level. Often resolves up.

Descending Triangle

The opposite — flat support, falling resistance. Sellers getting bolder. Often resolves down.

Reversal Patterns (the trend may be ending)

Double Top

Price hits the same high twice and fails to break through. A break below the dip between the two peaks confirms the reversal.

Target: subtract the pattern's height from the neckline.

Double Bottom

Mirror image — two equal lows, then a break above the middle high. Often a strong bullish reversal.

Head and Shoulders

Three peaks, with the middle (the "head") highest. A break below the "neckline" connecting the lows is one of the most-watched bearish reversal patterns.

Inverse Head and Shoulders

Same shape upside-down — a powerful bullish reversal pattern at the bottom of a downtrend.

Symmetrical Triangle — The Coin Flip

Lower highs and higher lows converging into a point. Direction is uncertain until the breakout. Don't anticipate — wait for the move.

Measured Moves

Most patterns come with a built-in price target:

• Flag/pennant: flagpole height projected from breakout
• Triangle: triangle's widest height projected from breakout
• H&S / double top: pattern height subtracted from the neckline

These aren't guarantees — just expected ranges based on the pattern's history.

How to Use Patterns Without Fooling Yourself

1. Wait for confirmation. A pattern that hasn't broken out yet is just a guess.
2. Demand volume. Real breakouts come with above-average volume.
3. Set a stop. If the pattern fails (price quickly moves back inside), get out fast.
4. Use the higher timeframe. Patterns on the daily/weekly are more reliable than 5-minute patterns.
5. Pattern + trend + level. A bull flag in an uptrend at known support is much higher quality than a random shape on a random chart.

The Honest Truth

Chart patterns work more often than chance — but they fail constantly. The edge comes not from being right every time, but from:

• Cutting losses fast when patterns fail
• Letting winners run when they work
• Sizing positions properly so a few losses don't matter

Pattern recognition is pattern probability. Treat every signal as "the odds favor X" — never as "X is guaranteed." That mindset is what separates the survivors from the broke.