Chart Pattern

Chart patterns are the visual language of technical analysis - recurring formations that emerge as price oscillates between areas of supply (resistance) and demand (support). They are broadly classified as reversal patterns (which signal the end of a trend) and continuation patterns (which signal a pause before the trend resumes).

Among reversal patterns, the head and shoulders is the most famous: three peaks with the middle one highest, separated by two troughs (the neckline). A close below the neckline projects a decline roughly equal to the height of the head above it. The double top and double bottom are simpler formations where price tests the same level twice and fails, signalling a reversal. The inverse head and shoulders is the bullish equivalent.

Continuation patterns include flags and pennants (brief, tight consolidations after a strong directional move, usually resolving in the same direction), rectangles (parallel horizontal support and resistance bounding a sideways phase), and wedges (converging trendlines that can resolve either way but often break against the wedge direction). Ascending and descending triangles are continuation patterns with a defined horizontal boundary and a converging trendline - the horizontal side identifies the likely breakout direction.

All chart patterns should be treated as probabilistic guides, not certainties. Volume confirmation on the breakout candle - higher than average volume in the direction of the break - meaningfully increases the reliability of the pattern. Stop placement is typically just beyond the formation boundary, with the profit target set by the measured move projection.