Stock Market · Technical Analysis

Chart patterns

Chart patterns = recurring psychological formations

Chart patterns are visual formations that appear repeatedly across markets and timeframes. They reflect the collective psychology of buyers and sellers playing out in recognizable shapes.

Head & Shoulders (H&S), the classic reversal

Appears after an uptrend. Three peaks: left shoulder (peak), head (higher peak), right shoulder (lower peak). A neckline connects the two troughs.

When price breaks below the neckline. Sell signal. Price target = distance from neckline to head, projected downward from the breakout point.

> Inverse H&S (head & shoulders bottom) is the bullish version. Three troughs, neckline breakout upward.

Triangles, continuation and consolidation

Price compresses into a triangle before breaking out:

• Ascending triangle: flat top resistance + rising support. Bullish. Buyers gradually push up the floor.
• Descending triangle: flat bottom support + falling resistance. Bearish. Sellers gradually push down the ceiling.
• Symmetrical triangle: converging highs and lows. Neutral. Could break either way; wait for the breakout direction.

Flags and Pennants, momentum continuation

After a strong, sharp move (the 'pole'), price consolidates briefly before continuing in the same direction.

• Flag: sideways/slightly counter-trend rectangle consolidation
• Pennant: small symmetrical triangle consolidation

Both signal that the sharp move will continue. Price target = pole height, measured from the breakout.

Flags/pennantsamong the most reliable continuation patterns with clear price targets

Double Top & Double Bottom

Double Top: two peaks at roughly the same level, signaling resistance is holding, bearish reversal. Double Bottom: two troughs, signaling support is holding, bullish reversal.

The golden rule

Never trade a pattern until it breaks out. Many patterns fail mid-formation. Wait for the confirmed break with volume.

Takeaway. H&S = trend reversal. Triangles = consolidation before breakout. Flags/pennants = brief pause in a strong move. Always wait for the breakout.