Essential Chart Patterns Every Trader Should Know

Reversal Patterns

Head and Shoulders

A bearish reversal pattern. Three peaks — the middle (head) higher than the two shoulders. A break below the "neckline" confirms the pattern. Price target = distance from head to neckline projected downward.

Inverse Head and Shoulders

The bullish mirror image — signals a bottom is forming.

Double Top / Double Bottom

Two roughly equal peaks (top) or troughs (bottom) with a pullback between. Confirms when price breaks the intervening support/resistance.

Continuation Patterns

Cup and Handle

A bullish pattern resembling a teacup — a rounded bottom (cup) followed by a small consolidation (handle). Popularized by William O'Neil.

Flags and Pennants

Short consolidations after a sharp move. Flags are rectangular; pennants are triangular. The direction of the prior move typically continues after the breakout.

Triangles

• Ascending Triangle: Flat top, rising bottom → bullish
• Descending Triangle: Flat bottom, falling top → bearish
• Symmetrical Triangle: Converging trendlines → breakout direction determines bias

Candlestick Patterns

• Doji: Open ≈ Close → indecision
• Hammer / Hanging Man: Long lower wick, small body → potential reversal
• Engulfing: A candle that fully engulfs the previous one → strong reversal
• Morning/Evening Star: Three-candle reversal formations

Best Practices

1. Confirm with volume — breakouts on high volume are more reliable.
2. Combine with support/resistance levels.
3. Set stop-losses beyond the pattern boundary.
4. No pattern works 100% of the time — manage risk always.