Classic chart patterns

Candlestick patterns are single moments: one to three candles telling you who won a short battle. Chart patterns are the war. They form over dozens or hundreds of candles and describe how an entire crowd of buyers and sellers has been behaving across days or weeks. That larger sample is why they carry more weight — and why they are slower to complete.

A head and shoulders is a reversal pattern that appears at the end of an uptrend. Price makes a high (left shoulder), a higher high (the head), then a lower high (right shoulder). The line connecting the two lows between them is the neckline. That lower high is the market telling you buyers can no longer reach the previous peak.

• What it signals: the uptrend has lost momentum and control is shifting to sellers.
• Entry consideration: most traders wait for a candle to close below the neckline, then either enter on that close or wait for a retest of the neckline from below.
• Stop: above the right shoulder. Target: commonly the distance from the head to the neckline, projected down from the break.
• It fails often when the neckline break happens on thin volume or against a strong higher-timeframe trend.

The inverse head and shoulders is the same structure flipped: a low, a deeper low, then a shallower low at the end of a downtrend, with the break happening upward through the neckline.

A double top forms when price rallies to a level, pulls back, then returns to almost exactly the same level and fails again. Two rejections at the same price mean a real seller is defending it. The pattern only completes when price breaks the low between the two tops — the neckline.

• What it signals: buyers tried twice and could not get through. Supply is sitting at that level.
• Entry consideration: on the neckline break, or on the retest of the broken neckline from below.
• Stop: above the second top. Target: the height of the pattern projected down from the neckline.
• A second top slightly higher than the first is still valid — patterns are approximate, not surveying tools.

The double bottom is the mirror image at the end of a downtrend: two failed attempts to break lower, then a break above the peak between them. Triple tops and bottoms are the same idea with one more attempt.

Triangles are compression patterns. The range narrows as one side keeps giving ground, until the market runs out of room and picks a direction. They are usually continuation patterns, meaning price tends to leave in the direction it arrived.

An ascending triangle has a flat ceiling and rising lows: buyers keep paying more while one seller defends a single price. It usually resolves upward.

A descending triangle is the opposite — a flat floor with falling highs, as sellers keep accepting less while buyers defend one level. It usually resolves downward.

A symmetrical triangle has both falling highs and rising lows. Neither side is winning, so it carries no directional bias on its own: you trade whichever side breaks, ideally in the direction of the larger trend.

• Entry consideration: a close outside the trendline, not a wick poking through it.
• Stop: back inside the triangle, beyond the opposite trendline or the last swing.
• Target: the height of the triangle at its widest, projected from the breakout point.
• Beware the last third of the triangle — breaks that happen very close to the apex are the most likely to fail.

Flags and pennants are short continuation patterns that appear after a sharp, near-vertical move called the flagpole. The market pauses to catch its breath: profit takers sell into the move while new buyers wait, producing a small orderly drift against the trend.

A bull flag drifts slightly lower inside two parallel lines. A pennant does the same job but converges into a tiny symmetrical triangle instead. Both signal continuation — the original move usually resumes.

• What it signals: a pause, not a reversal. The trend is resting.
• Entry consideration: on a close out of the flag or pennant in the direction of the pole.
• Stop: below the flag's low (or above its high for a bear flag). Target: the length of the flagpole projected from the breakout.
• If the pullback is deep, slow and messy rather than tight and orderly, it is not a flag — it is a reversal forming.

1. 1Wait for the close. An unconfirmed pattern is a drawing, not a signal.
2. 2Check the higher timeframe. A bullish pattern into daily resistance is a trap far more often than an opportunity.
3. 3Size the trade off the stop, never off how convinced you feel — the risk-management rules from Module 4 do not change.
4. 4Accept that patterns fail. A failed head and shoulders that snaps back above the right shoulder is itself useful information: the sellers were not there.