Glossary
Chart pattern
A recognizable shape in price action, such as a head and shoulders or a triangle, that traders read for continuation or reversal.
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A chart pattern is a recurring shape formed by price movements on a chart, defined by support and resistance lines, trendlines or a series of peaks and troughs. Technical analysts sort patterns into reversal patterns, which suggest an existing trend may end, and continuation patterns, which suggest a pause before the trend resumes. Patterns are popular because they give traders a structured way to plan entries, stops and targets.
Common patterns
| Pattern | Usual reading |
|---|---|
| Head and shoulders (and inverse) | Reversal: three peaks with the middle highest, below a "neckline" |
| Double top / double bottom | Reversal: two failed tests of the same high or low |
| Triangles (ascending, descending, symmetrical) | Usually continuation: converging trendlines |
| Flags and pennants | Continuation: a brief, tight pause after a sharp move |
| Rectangle (trading range) | Either: price bounces between flat support and resistance |
Candlestick patterns, which use one to a few bars, are a separate family, while chart patterns typically develop over weeks or months.
Cautions
Patterns are partly in the eye of the beholder: two analysts can draw different lines on the same chart, and a shape is only "confirmed" once price breaks out, by which time part of the move is gone. Many patterns fail, and the reliability statistics often quoted in books come from samples selected after the fact. Most technicians treat patterns as a framework for managing risk, used together with volume, the broader trend and market context, rather than as predictions.