Chart Patterns

By:

The Trade School

Head n Shoulders Chart Pattern
• The Head and Shoulders chart pattern is a price reversal pattern that helps traders identify when a reversal may be underway after a trend has exhausted itself. This
reversal signals the end of an uptrend. The Head and Shoulders pattern has a distinctive appearance resembling its namesake which includes a distinct ‘left
shoulder’, ‘head’, ‘right shoulder’ and ‘neckline’ formation
Inverse Head n Shoulders Chart Pattern
• The Inverse Head and Shoulders (informally known as the 'Reverse Head and Shoulders pattern) resembles the same structure as the standard formation but
reversed. The Inverse Head and Shoulders is observable in a downtrend and indicates a reversal of a downtrend as higher lows are created.
Double Top Chart Pattern
• The double top pattern entails two high points within a market which signifies an impending bearish reversal signal. A measured decline in price will occur between
the two high points, showing some resistance at the price highs. After retracing a portion of the first peak, the market rallies back towards the high of the first peak
however, strength in the market is waning and is unable to sustain a break above the first peak.
Double Bottom Chart Pattern
• The double bottom pattern entails two low points forming near a similar horizontal price level and signifies a potential bullish reversal signal. A measured
strengthening in price will occur between the two low points showing some support at the price lows.
• The double bottom chart pattern is found at the end of a downtrend and resembles the letter "W"(see chart below). Price falls to a new low and then rallies slightly
higher before returning to the new low. Unable to push price to a new lower low to continue the downtrend, sellers give up and price bounces sharply from this area.
The bullish confirmation is specified by a break in the key price level situated at the high point between the ‘bottoms’ resistance level (neckline)
Symmetrical Triangle Chart Pattern
• The symmetrical triangle can be viewed as the starting point for all variations of the triangle pattern. As the name suggests, a triangle can be seen after drawing two
converging trend lines on a chart.
• The difference between the symmetrical and the other triangle patterns is that the symmetrical triangle is a neutral pattern and does not lean in any direction. While
the triangle itself is neutral, it still favors the direction of the existing trend and traders look for breakouts in the direction of the trend.
Ascending Triangle Chart Pattern
• An ascending triangle is a chart pattern used in technical analysis. It is created by price moves that allow for a horizontal line to be drawn along the swing highs, and
a rising trend line to be drawn along the swing lows. The two lines form a triangle. Traders often watch for breakouts from triangle patterns. The breakout can occur
to the upside or downside. Ascending triangles are often called continuation patterns since the price will typically breakout in the same direction as the trend that was
in place just prior to the triangle forming.
Descending Triangle Chart Pattern
• The descending triangle is a bearish pattern that is characterized by a descending upper trend line and a flat lower trend line that acts as support. This pattern
indicates that sellers are more aggressive than buyers as price continues to make lower highs. The pattern completes itself when price breaks out of the triangle in
the direction of the overall trend.
Rising Wedge
• A Rising Wedge is a bearish chart pattern that’s found in a downward trend, and the lines slope up.
• A rising wedge is formed when the price consolidates between upward sloping support and resistance lines.
• This indicates that higher lows are being formed faster than higher highs. This leads to a wedge-like formation, which is exactly where the chart pattern gets its name
from
• If the rising wedge forms after an uptrend, it’s usually a bearish reversal pattern.
• On the other hand, if it forms during a downtrend, it could signal a continuation of the down move.

After Uptrend During Downtrend

Falling Wedge
• the falling wedge can either be a reversal or continuation signal.
• As a reversal signal, it is formed at a bottom of a downtrend, indicating that an uptrend would come next.
• As a continuation signal, it is formed during an uptrend, implying that the upward price action would resume. Unlike the rising wedge, the falling wedge is a bullish
chart pattern.

After Downtrend During Up-trend

Rounding Bottom
• The rounded bottom pattern appears as a clear 'U' formation on the price chart and is also referred to as a ‘saucer’. It signals the end of a downtrend and the
possible start of an uptrend. This means that the rounded bottom can indicate an opportunity to go long.
Rounding Top
• The rounded top pattern appears as an inverted 'U' shape and is often referred to as an ‘inverse saucer’ in some technical analysis books. It signals the end of an
uptrend and the possible start of a downtrend. This means that the rounded top can indicate an opportunity to go short.
1. Uptrend
2. Rounded top
3. Neckline
4. Height of pattern
5. Same distance away from neckline as 4
6. Short entry
7. Stop loss
8. Take profit
Bullish and Bearish Flag Pattern
• In the context of technical analysis, a flag is a price pattern that, in a shorter time frame, moves counter to the prevailing price trend observed in a longer time frame
on a price chart. It is named because of the way it reminds the viewer of a flag on a flagpole.
• The flag pattern is used to identify the possible continuation of a previous trend from a point at which price has drifted against that same trend. Should the trend
resume, the price increase could be rapid, making the timing of a trade advantageous by noticing the flag pattern.
1. The preceding trend
2. The consolidation channel
3. The volume pattern
4. A breakout
5. A confirmation where price moves in the same direction as the breakout
 Pennant Chart Pattern
• In technical analysis, a pennant is a type of continuation pattern formed when there is a large movement in a security, known as the flagpole, followed by a
consolidation period with converging trend lines—the pennant—followed by a breakout movement in the same direction as the initial large movement, which
represents the second half of the flagpole.
 Cup with Handle Chart Pattern
• A cup and handle is a technical chart pattern that resembles a cup and handle where the cup is in the shape of a "u" and the handle has a slight downward drift.
• A cup and handle is considered a bullish signal extending an uptrend, and is used to spot opportunities to go long.
• Technical traders using this indicator should place a stop buy order slightly above the upper trend line of the handle part of the pattern.
 Inverted Cup with Handle Chart Pattern
• An ‘inverted cup and handle’ is a chart pattern that indicates bearish continuation, triggering a sell signal. Think of it as an upside-down cup and handle.
• If you look at the regular cup and handle pattern, there is a distinct ‘u’ shape and downward handle, which is followed by a bullish continuation. This means the
inverted cup and handle is the opposite of the regular cup and handle. Instead of a ‘u’ shape, it forms an ‘n’ shape, with the handle bending slightly upwards on the
chart.
 Price Channel Chart Pattern
• A price channel is a continuation pattern that slopes up or down and is bound by an upper and lower trend line. The upper trend line marks resistance and the lower
trend line marks support. Price channels with negative slopes (down) are considered bearish and those with positive slopes (up) bullish. For explanatory purposes, a
“bullish price channel” will refer to a channel with positive slope and a “bearish price channel” will refer to a channel with negative slope
• Main Trend Line: It takes at least two points to draw the main trend line. This line sets the tone for the trend and the slope. For a bullish price channel, the main trend
line extends up and at least two reaction lows are required to draw it. For a bearish price channel, the main trend line extends down and at least two reaction highs
are required to draw it.
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