Believe it or not, chart price patterns really work. Not all of them, just a specific set of patterns, have proven to be reliable and profitable over time.

Research shows that the most reliable chart patterns are the Head and Shoulders, with an 89% success rate, the Double Bottom (88%), and the Triple Bottom and Descending Triangle (87%).

The Rectangle Top is the most profitable, with an average win of 51%, followed by the Rectangle Bottom with 48%.

These patterns are formed by the movement of stock prices on a chart, and they can provide valuable insights into future price movements.

Chart Pattern Reliability & Profitability Results

This table shows the chart pattern success rate/probability of a price increase in a bull market and the average price increase after emerging from the pattern. For example, the inverse head and shoulders pattern has an 89% chance of success when the price moves up through the resistance level, and the average gain is 45%.

Traditionally, identifying chart patterns on a stock chart, drawing trendlines, and plotting target prices required manual effort. However, with the advent of TradingView, most chart patterns can now be automatically detected, streamlining the analysis process for professionals. TradingView is the number one charting service in the world .

1. Inverse Head & Shoulders – 89% Success

An inverse head-and-shoulders stock chart pattern has an 89% success rate for reversing an existing downtrend. With an average price increase of 45%, it is one of the most reliable chart patterns.

The inverse head-and-shoulders pattern occurs when the price of a security hits the bottom three times, with two troughs forming the “shoulders” and the third lower trough forming the “head.” This pattern can indicate that the security’s price could soon begin to move higher.

Identifying an Inverse Head and Shoulders

To identify an inverse head and shoulders pattern, look for three distinct lows in the security’s price on intraday, daily, and weekly charts. The middle low (head) should be significantly lower than the other shoulders. Look for a confirmation of a trend reversal by watching for a breakout either above the upper resistance line or below the lower support line.

If the security price breaks out above the resistance line, it could signal that the security has completed its reversal. In contrast, a break below the support line could signal a resumption of the downtrend.

2. Double Bottom – 88% Success

A double-bottom chart pattern has an 88% success rate on a reversal of an existing downtrend. When the price breaks through resistance, it has an average 50% price increase; the only pattern better than this is a cup and handle.

The double bottom occurs when the security price hits the bottom twice, creating a “W”-shaped pattern. This pattern often indicates that the stock’s price could soon increase. However, it should be noted that this indicator does not guarantee a reversal in direction.

Identifying a Double-Bottom

To identify a double bottom chart pattern, investors should look for two distinct lows in the security’s price that form a “W”-shaped pattern. Generally, the pattern should be visible on an intraday and daily chart. After identifying the two bottoms, investors can look for a confirmation of a trend reversal by watching for a breakout either above the upper resistance line or below the lower support line.

If the security price breaks out above the resistance line, it could signal that the security has completed its reversal. In contrast, a break below the support line could signal a resumption of the downtrend. It should be noted that further confirmation of this stock chart pattern should not be relied upon until after prices have moved beyond these levels.

3. Triple Bottom – 87% Success

A triple bottom chart pattern indicates the potential for a reversal of an existing downtrend with an 87% probability of success and an average 45% price increase.

A triple bottom occurs when the price hits the bottom three times, creating a “VVV”-shaped pattern. This pattern often indicates that the asset price could soon begin to increase.

Identifying a Triple Bottom

To identify this chart pattern, investors should look for three distinct lows in the security’s price that form a “WV”-shaped pattern. The pattern should generally be visible on a daily and weekly chart. After identifying the three bottoms, investors can look for confirmation of a trend reversal by watching for a breakout either above the upper resistance line or below the lower support line.

If the security price breaks out above the resistance line, it could signal that the security has completed its reversal. In contrast, a break below the support line could signal a resumption of the downtrend.

4. Descending Triangle – 87% Success

A descending triangle chart pattern highlights the potential for a reversal or continuation of an existing downtrend. When the price breaks up through resistance, there is an 87% chance of success, with an average profit of 38%.

A descending triangle occurs when the price forms two downward-sloping trendlines that converge towards each other, creating a triangle-shaped pattern pointing downwards. This pattern can indicate that the security’s price could soon begin to move higher.

Identifying a Descending Triangle

To identify a Descending Triangle chart pattern, investors should look for two downward-sloping trendlines that form a descending triangle. The pattern should generally be visible on intraday and daily charts.

After identifying the two trendlines, investors can look for a confirmation of a trend reversal by watching for a breakout either above the upper resistance line or below the lower support line. If the security price breaks out above the resistance line, it could signal that the downtrend is now over, while a break below the support line could signal the continuation of the trend.

5. Rectangle Top – 85% Success

A rectangular top chart pattern suggests a period of consolidation in the stock price; when the price breaks up during a bull market, there is an 85% success rate, with a 51% profit potential.

A rectangle top occurs when a security’s price is confined between two generally parallel and horizontal trendlines, which indicates that support and resistance levels at similar prices have been found. This typically occurs after an uptrend, as investors become less aggressive in bidding the price up. A rectangular top pattern can signify that the upward trend may soon end and could be followed by a sharp decline. The pattern is sometimes called a trading range, flat top, or rectangular formation.

Identifying a Rectangle top

To identify a rectangle top chart pattern, investors should look for two parallel and horizontal lines forming a rectangle. Generally, the pattern should be visible on an intraday and daily chart. The upper resistance line should identify when the security’s price struggles to move higher, and the lower support line should identify when the security’s price fails to decline further. Once these two lines have been identified, investors can look for a breakout either above the upper resistance line or below the lower support line.

If the security price breaks above the upper trendline, it could signal that the security is resuming its uptrend. In contrast, a break below the lower trendline could signal a potential downtrend.

6. Rectangle Bottom – 85% Success

A rectangle bottom chart pattern indicates the potential for a reversal of an existing downtrend. When a price breakout occurs, the success rate is 85%, and the average gain is 48%.

A rectangle bottom pattern occurs when the price consolidates at the bottom of a downtrend, creating a “www”-shaped pattern. This pattern can indicate that the security’s price could soon begin to move higher or lower depending on the direction of the breakout.

Identifying a Rectangle Bottom

Investors should look for at least four bounces off the support and resistance lines to identify this stock chart pattern. The pattern should generally be visible on an intraday and daily chart.

7. Bull Flag – 85% Success

A high tight bull flag chart pattern suggests the potential for a continuation or reversal of an existing uptrend. When the price breaks out through resistance, there is an 85% probability of success with an average of 39% profit.

It occurs when the price of a security makes a quick and sharp rise, followed by a period of consolidation in which prices consolidate within two parallel trendlines. This pattern can indicate that the security’s price could soon begin to move higher or lower depending on the direction of the breakout.

Identifying a High-Tight Bull Flag.

To identify a high tight bull flag pattern, investors should look for a sharp price rise followed by two parallel trendlines that form an ascending triangle. Generally, the pattern should be visible on intraday and daily charts. After identifying the two trendlines, investors can look for a confirmation of a trend reversal by watching for a breakout either above the upper resistance line or below the lower support line.

If the security price breaks out above the resistance line, it could signal that the security resumed its uptrend, while a break below the support line could signal a downtrend.

8. Ascending Triangle – 83% Success

When the price breaks through the upper resistance of an ascending triangle, there is an 83% chance of a successful trade with an average price increase of 43%.

It is important to note that ascending triangles can be either continuation or reversal patterns, depending on the direction of the prior trend. If the market was in an uptrend before the triangle formed, then a break above the upper trendline is likely to lead to prices continuing in the direction of the prior trend. Similarly, if the market was in a downtrend before forming an ascending triangle, a break below the lower trendline could signal a continuation.

Identifying an ascending triangle

The ascending triangle is formed when an upward-sloping support line and a flat resistance line create a triangle shape with its apex pointing upwards. By watching for breakouts either above or below these lines, investors can gain insight into whether or not prices will continue their current trend or reverse direction.

9. Rising Wedge – 81% Success

Testing shows that a Rising Wedge chart pattern suggests an average success rate of 81% during a resistance breakout during a bull market, with an average 38% price increase.

A Rising Wedge occurs when the price of security forms two upward-sloping trendlines that converge toward each other, creating a wedge-shaped pattern pointing upwards. This pattern can indicate that the security’s price could soon begin to move lower.

Identifying a Rising Wedge

To identify this stock chart pattern, investors should look for two upward-sloping trendlines that form an ascending triangle. Generally, the pattern should be visible in intraday and daily charts. After identifying the two trendlines, investors can look for a confirmation of a trend reversal by watching for a breakout either above the upper resistance line or below the lower support line.

If the security price breaks out above the resistance line, it could signal that the uptrend is continuing, while a break below the support line could signal a reversal of the trend and that prices are likely to move lower.

10. Head & Shoulders Top – 81% Success

A head and shoulders top stock chart pattern suggests a reversal of an existing uptrend. While there is an 81% success rate, the average price move is only -16% during a bull market.

A head and shoulders top occurs when the asset price peaks three separate times, with two peaks forming the “shoulders” and the third higher peak forming the “head.” This pattern can indicate that the security’s price could soon begin to move lower.

Identifying a Head & Shoulders Top

To identify this stock chart pattern, investors should look for three distinct peaks in the security’s price that form a head-and-shoulders pattern on intraday, daily, and weekly charts. After identifying the three peaks, investors can look for confirmation of a trend reversal by watching for a breakout either above the upper resistance line or below the lower support line.

If the security price breaks out below the support line, it could signal that the security has completed its reversal. In contrast, a break above the resistance line could signal a resumption of the uptrend. It should be noted that further confirmation of this stock chart pattern should not be relied upon until after prices have moved beyond these levels.

11. Bearish Rectangle Bottom – 76% Success

A bearish rectangle bottom chart pattern with a downward breakout indicates the continuation of an existing downtrend, with a 76% probability and an average gain of -16% when shorting.

Identifying a Rectangle Bottom

The rectangle bottom occurs when the price of a security forms two nearly flat trendlines that form a rectangle-shaped pattern, with one trendline connecting the highs and one connecting the lows. This pattern is found during a downtrend; if the price breaks lower through the support line, the downtrend will continue. While a bearish rectangle has a solid success rate, the inverse cup and handle pattern is even better for short sellers.

12. Falling Wedge – 74% Success

A falling wedge stock chart pattern suggests the potential for reversing an existing downtrend with a 74% success rate and an average 38% price increase.

The Falling Wedge occurs when the price forms two converging trendlines, with the lower line being more steeply angled than the upper, creating a wedge-shaped pattern pointing downwards. This pattern can indicate that the security’s price could soon begin to move higher.

Identifying a Falling Wedge

To identify a Falling Wedge stock chart pattern, investors should look for two converging trendlines that form a descending triangle. The pattern should generally be visible on intraday and daily charts. After identifying the two trendlines, investors can look for confirmation of a trend reversal by watching for a breakout either above the upper resistance line or below the lower support line.

If the security price breaks out above the resistance line, it could signal that the security has completed its reversal. In contrast, a break below the support line could signal the continuation of the downtrend.

Warning – Avoid the Pennant Pattern

A pennant continuation pattern identifies a trend continuation but is an extremely bad indicator. Although many tout the Pennant pattern, Tom Bulkowski warns against using it, as it has only a 46% chance of success and a meager 7% average profit.

The Pennant occurs when the price of a security forms two converging trendlines that create a symmetrical triangle-like pattern, often referred to as a “pennant.” This pattern can be seen as an indication that the security’s current trend is likely to continue.

Due to its poor performance, I do not recommend using the bullish or bearish pennant chart pattern for trading.

Summary

Thanks to this research, we have proof chart patterns work. Each of these twelve reliable and profitable chart patterns has a greater than 80% chance of success with an average profit potential of 38% to 51%.

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