Simple and friendly guide;
Most powerful and common chart patterns in trading, explained in a simple way to help you understand and apply them easily. These patterns are divided into two types: Reversal Patterns and Continuation Patterns.
1️⃣. Reversal Patterns
These patterns indicate a potential change in the current trend (e.g., from uptrend to downtrend or vice versa).
Head and Shoulders (Bearish Reversal)
Appearance: Looks like three peaks — the middle one (head) is the highest, and the two side peaks (shoulders) are smaller.
What it Means: It signals the end of an uptrend and the beginning of a downtrend.
How to Trade:
Enter a short trade when the price breaks below the "neckline."
Place your stop loss above the right shoulder.
Inverse Head and Shoulders (Bullish Reversal)
Appearance: The opposite of the Head and Shoulders pattern — a low (head) with two smaller lows (shoulders) on either side.
What it Means: Signals the end of a downtrend and the start of an uptrend.
How to Trade:
Enter a long trade when the price breaks above the neckline.
Place your stop loss below the right shoulder.
Double Top (Bearish Reversal)
Appearance: Two peaks at the same level, resembling an "M" shape.
What it Means: Indicates that the price tried to break a resistance level twice but failed, suggesting a downtrend is likely.
How to Trade:
Enter a short trade when the price breaks below the "neckline" (the bottom of the M).
Place your stop loss above the peaks.
Double Bottom (Bullish Reversal)
Appearance: Two lows at the same level, resembling a "W" shape.
What it Means: Indicates the price has found strong support and is likely to reverse upward.
How to Trade:
Enter a long trade when the price breaks above the "neckline" (top of the W).
Place your stop loss below the lows.
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2️⃣. Continuation Patterns
These patterns suggest the trend is likely to continue in the same direction.
Flags (Bullish or Bearish)
Appearance:
After a sharp move (called the "flagpole"), the price consolidates in a small rectangle or channel (the flag).
What it Means: The trend will likely continue in the same direction as the flagpole.
How to Trade:
Enter when the price breaks out of the flag in the direction of the trend.
Place your stop loss below (bullish) or above (bearish) the flag.
Triangles
Symmetrical Triangle
Appearance: Price forms a series of higher lows and lower highs, creating a triangle shape.
What it Means: Indicates a breakout is likely, but the direction is uncertain until the breakout happens.
How to Trade:
Wait for the breakout (up or down) before entering a trade.
Ascending Triangle (Bullish Continuation)
Appearance: Flat top (resistance) with higher lows (support moving up).
What it Means: Signals a likely breakout to the upside.
How to Trade:
Enter a long trade when the price breaks above the flat top.
Descending Triangle (Bearish Continuation)
Appearance: Flat bottom (support) with lower highs (resistance moving down).
What it Means: Signals a likely breakout to the downside.
How to Trade:
Enter a short trade when the price breaks below the flat bottom.
Cup and Handle (Bullish Continuation)
Appearance: A rounded "cup" followed by a small downward consolidation (handle).
What it Means: Indicates a continuation of the uptrend.
How to Trade:
Enter a long trade when the price breaks above the handle.
Place your stop loss below the handle.
Wedges (Bullish or Bearish)
Falling Wedge (Bullish Reversal or Continuation)
Appearance: Price moves within a narrowing downtrend.
What it Means: A breakout to the upside is likely.
How to Trade:
Enter when the price breaks above the wedge.
Rising Wedge (Bearish Reversal or Continuation)
Appearance: Price moves within a narrowing uptrend.
What it Means: A breakout to the downside is likely.
How to Trade:
Enter when the price breaks below the wedge.