Why Chart Patterns Matter
Chart patterns are formations created by price movements that have historically preceded specific market moves. They work because they reflect the collective psychology of market participants — and human psychology is remarkably consistent.
1. Head and Shoulders
The most reliable reversal pattern. Three peaks — left shoulder, head (highest), right shoulder. When price breaks below the neckline, it signals a trend reversal from bullish to bearish. The inverse pattern (three troughs, middle lowest) signals bullish reversal. Target: measure the distance from head to neckline and project it downward from the breakout point.
2. Double Top / Double Bottom
Double Top: Price tests the same resistance level twice and fails. Signals bearish reversal. Enter short when price breaks below the valley between the two tops. Double Bottom: Price tests the same support twice and holds. Signals bullish reversal. Enter long on break above the peak between the two bottoms.
3. Ascending Triangle
Flat resistance line on top with rising support below. Price squeezes into a tighter range. Typically breaks upward (70% of the time in uptrends). The breakout target equals the height of the triangle projected from the breakout point. Combine with volume — a valid breakout should have increasing volume.
4. Descending Triangle
Flat support line on bottom with declining resistance above. Typically breaks downward. The mirror image of ascending triangle. Used heavily in intraday trading for short setups.
5. Symmetrical Triangle
Both support and resistance converge. Can break either direction. Wait for the breakout with volume confirmation before entering. This pattern represents a period of compression before a major move — often the longer the triangle forms, the more explosive the breakout.
These patterns form the core of our technical analysis methodology. Practice identifying them on historical charts through our courses.