Module 15: Chart Patterns
Key Takeaways
- Patterns are either reversal or continuation in nature.
- Confirmation (a breakout close) matters more than the shape alone.
- Measured moves estimate a price target after the breakout.
Double top
A bearish reversal: price hits a resistance level twice (two peaks) and fails. A break below the middle “neckline” confirms downside, often equal to the pattern’s height.
Double bottom
The bullish mirror: two troughs at support, then a break above the neckline signals a move up.
Head and shoulders
A classic bearish reversal: a left shoulder, a higher head, then a lower right shoulder. A break below the neckline confirms. Target = head-to-neckline distance projected down.
Inverse head and shoulders
The bullish version, signalling a bottom and a move higher on a neckline break.
Triangle patterns
Ascending (flat top, rising lows) is usually bullish; descending (flat bottom, falling highs) usually bearish; symmetrical (converging) breaks in either direction. Trade the breakout, not the inside chop.
Wedge patterns
A rising wedge (both lines up, converging) is typically bearish; a falling wedge is typically bullish. Wedges show a weakening trend before reversal.
Flag patterns
A short consolidation against the prior strong move (the “pole”). Flags are continuation patterns — price usually resumes the original direction after the brief pause.
Rectangle patterns
Price ranges between clear horizontal support and resistance. Trade the range edges or wait for a decisive breakout with volume.
Never trade a pattern before it completes. Wait for the confirming breakout candle to close — anticipation leads to false signals.
Frequently Asked Questions
No — they shift probabilities. Combine them with structure, S/R and risk management.