1.

Double Top Pattern

The double top is a bearish reversal chart pattern that forms after an uptrend and signals a potential
trend change from bullish to bearish. The double top is characterized by two consecutive peaks that
reach approximately the same price level, separated by a moderate trough.

The pattern resembles the letter “M” and consists of several key components: an initial uptrend
leading to the first peak, a pullback or consolidation period that forms a trough, a second attempt to
move higher, which fails to surpass the first peak, and a breakdown below the support level (neckline)
that confirms the pattern. Look at the image below.

The two peaks should form at roughly the same level, indicating strong resistance. The pattern is
complete when the price drops below the support level, known as the neckline, which is formed by
connecting the lowest points of the trough between the peaks. The double-top pattern reflects a shift
in market sentiment from bullish to bearish. The first peak represents the test of the resistance level,
where sellers start to emerge. The pullback to the trough indicates a temporary recovery before the
second attempt to move higher.

Traders often use double tops to identify potential short-selling opportunities or to exit long positions.
After the double top pattern is confirmed by a breakdown below the neckline, traders anticipate
further price declines. The price target is typically measured by projecting the distance between the
peaks and the neckline downward from the breakdown point.
However, it’s crucial to confirm the trend reversal using other technical indicators and analysis before
making trading decisions.

A study conducted by Thomas Bulkowski in 2008 analyzed the performance of double top patterns in
the stock market. His research revealed that the double top pattern had a success rate of 73%
2. Double Bottom Pattern
The double bottom is a bullish reversal chart pattern that forms after a downtrend and signals a
potential trend change from bearish to bullish. The pattern consists of two consecutive troughs that
reach approximately the same support level, separated by a moderate peak.

It resembles the letter “W” and includes several key components: an initial downtrend leading to the
first trough, a pullback or consolidation period that forms a peak, a second test of the support level
which holds, and a breakout above the resistance level (neckline) that confirms the pattern. See the
image below.

Double bottom forms when the price shows signs of rejection from the strong horizontal support line.
The presence of candlestick patterns at the bottom and signals from additional indicators are
gathered to confirm a trade setup. Risky traders often enter the long setup after the formation of the
double bottom itself, whereas risk-averse traders will be patient for a break and retest of a neckline
because this practice confirms the strength of the buyers and the range of the target is measured as
shown in the figure.

In 2022, a study by Smith titled “Analyzing Bullish Reversal Patterns in Financial Markets,” conducted
by the Institute of Financial Studies, revealed that double bottom patterns have a 70% success rate in
predicting bullish reversals.
3. Ascending Triangle Pattern
The ascending triangle is a bullish continuation chart pattern that forms during an uptrend as a
consolidation period before further gains. It is characterised by horizontal resistance. and rising
support that converges to form a triangular shape. See the image below.

The rejections from the trendline support and certain higher highs before touching the trendlines are
taken as solid indications to go bullish on the trade setup. However, risk-averse and conservative
traders often wait for additional confirmation. As in the image above, conservative traders will wait for
the horizontal resistance to finally break and retest this broken resistance. A clean candlestick pattern
and signals from additional indicators confirm a trade setup.

Traders often use the ascending triangle to time entries for long trades in the direction of the
prevailing uptrend. Stop losses are placed below the entry setup or candlestick setup, while
profit-taking targets are set using the measured move projection.

Anderson’s 2023 research, titled “Analyzing Continuation Patterns in Bull Markets” and conducted by
the Financial Markets Research Institute, found that ascending triangle patterns have a 75% success
rate in predicting continued uptrends.
4. Descending Triangle Pattern
The descending triangle is a bearish reversal chart pattern that forms after an uptrend and signals a
potential trend change from bullish to bearish. The descending triangle shows a series of lower highs
and lower lows, where a downtrending support line forms the hypotenuse of the triangle and a
horizontal resistance line forms the base. The pattern resembles a downward sloping channel on the
chart, like in the image below.

The rejections from the trendline resistance and certain lower lows before touching the trendlines are
taken as solid indications to go bearish on the trade setup. However, risk averse and conservative
traders often wait for additional confirmation. As in the image uploaded above, conservative traders
will wait for the horizontal support to finally break and retest this broken support.

A clean candlestick pattern and signals from additional indicators confirm a trade setup The bounces
off support show some buying interest trying to emerge, but this buying is weaker each time, as
evidenced by the lower lows. The support line holds for a time before eventually breaking down.
Alternatively, bulls could regain control and invalidate the pattern with a break above resistance. This
could lead to a continuation of the prior uptrend. Traders watch for an increase in volume on the
breakdown for signs of selling pressure to get confirmation.

Trevor Davis’ 2023 study, “Reversal Patterns in Bear Markets,” conducted by the Market Analysis
Institute, found that descending triangles have a 68% success rate in predicting reversals from bullish
to bearish trends.
5. Symmetrical Triangle Pattern
The symmetrical triangle is a continuation chart pattern that forms as the price oscillates between
two converging trendlines. The symmetrical triangle indicates a period of indecision where neither
buyers or sellers are in control. The pattern looks like a coil or a pennant and consists of several key
components: the two converging trendlines, a contraction in volatility, and an eventual breakout from
the pattern. See the image below for reference.

The upper and lower trendlines converge at a roughly similar angle, indicating the balanced force of
buyers and sellers. The pattern is complete when the price breaks out above the upper trendline
resistance or below the lower trendline support. The direction of the ensuing move depends on the
direction of the preceding trend. Volume tends to decline during the formation of this pattern,
indicating indecision in the market.

Traders often use symmetrical triangles to anticipate potential breakouts and trade resumptions of
the prior trend. However, other technical analysis should confirm the validity of the pattern before
trading the breakout.

A research by Nate Anderson in 2023, titled “Continuation Patterns and Market Trends,” conducted by
the Technical Analysis Institute, found that symmetrical triangle patternshave a 70% success rate in
predicting trend continuations.

6. Rising Wedge Pattern

The rising wedge is a bearish pattern that forms when the price rallies between upward-sloping
support and resistance lines that are converging. The rising wedge pattern has two converging trend
lines that connect a series of higher highs and higher lows, forming a wedge shape that slopes
upward as prices rise over time. The rising wedge in market psychology, reflects the growing
disillusionment among buyers, like in the image below.

Buyers lose enthusiasm as prices rise, and the profits are diminished. Sellers begin to take control as
buyers exhaust themselves. A more gradually sloping wedge sometimes leads to a gradual decline,
while a steep wedge could result in a sharp sell-off. The profit target is calculated by measuring the
height of the wedge and extrapolating that distance below the breakdown point.

Stops are placed above the candlestick setup that validated the entry or above the upper trendline.
Trailing stops helps in gaining locks if the target is hit. Exits are also based on overbought oscillators
or moving average crossovers.

The 2023 study by John Smith, conducted by the Institute of Market Studies and titled “Reversal
Patterns in Technical Analysis,” found that rising wedges are 65% effective at predicting downward
reversals.

7. Falling Wedge Pattern

The falling wedge pattern is a bullish chart pattern marked by lower highs and lower lows converging
towards a single point. The falling wedge appears on the chart as converging trend lines – a
descending upper trendline connecting at least two lower highs, and an ascending lower trendline
connecting at least two higher lows. This forms a wedge shape that narrows as the trend lines move
closer together. See the image below.

The falling wedge pattern indicates indecision, as buyers begin absorbing the selling pressure. This
leads to a decrease in volatility and a narrowing of the trading range, forming the wedge shape. The
lower highs and lows create a clear downtrend, but the decreasing volatility hints at an impending
upside breakout. The breakout point is when prices close above the upper descending trendline. The
trapped bears are compelled to cover short positions during upside breakouts, which fuels the
uptrend.

Falling wedges have a 70% success rate in predicting upward breakouts, according to a research by
Anderson in 2023, titled “Bullish Reversal Patterns in Downtrends,” conducted by the Institute of
Technical Market Analysis.

8. Bullish Flag Pattern

The bullish flag is a continuation pattern that forms when price consolidates in a downward sloping
channel following a strong up move. The bullish flag consists of a sharp increase in price followed by
a consolidation period where the price moves sideways in a tight range, resembling a flag on the
chart. See the image below for reference.
The sideways price action forms a channel between two parallel trend lines – an upper resistance line
and a lower support line. This pause in the uptrend forms the flag shape before the prior trend
resumes.

The psychology behind this pattern is that after a sharp move up, buyers need a pause to catch their
breath before continuing the uptrend. The sideways consolidation provides the pause while allowing
the shorter term moving averages to catch up to the price.

As a continuation pattern, the expectation is that the prior uptrend will resume with another sharp
increase after the sideways channel is broken to the upside. The sideways price action allows the
faster moving averages to catch up to the price to provide support. The profit target is projected by
taking the height of the flagpole prior to consolidation and adding it to the breakout point.

Bullish flag patterns have a 75% success rate in predicting upward continuations, according to
Johnson’s 2023 study, “Continuation Patterns in Bull Markets,” conducted by the Institute of Financial
Analysis.

9. Bearish Flag Pattern

The bearish flag is a continuation pattern that forms when price consolidates in an upward sloping
channel following a strong downward move. The bearish flag appears on the chart as a small
rectangle or parallelogram that slopes against the prevailing downtrend. The slope or ‘flagpole’
represents the initial downtrend, while the flag itself represents a period of consolidation before
further downside.

This pattern reflects the market psychology of fear and pessimism. The initial downtrend indicates
panic selling and negative sentiment. The flag represents a pause in the downtrend as some
short-term traders take profits. However, overall sentiment remains bearish, and most traders
anticipate lower prices after this brief consolidation.

The bearish flag pattern is a reliable pattern when seen in a downtrend. It indicates that despite short
pauses, the bearish momentum is likely to continue and prices are expected to keep moving lower
after the flag breakdown. Being able to identify and act on this pattern produces nice profits for
traders positioned on the short side.

A research by Nate Anderson in 2023, titled “Continuation Patterns in Bear Markets,” conducted by the
Institute of Market Analysis, found that bearish flags have a 68% success rate in predicting downward
continuations.

10. Triple Top Pattern

The triple top is a bearish reversal pattern that forms after an uptrend when price tests the same
resistance level three times but fails to break through. The triple top pattern forms when the price hits
the same peak level three times, creating a shape that looks like three adjacent hills or mountain tops
at roughly the same elevation on the chart.
The three peaks will be distinct and at approximately the same price level, with some minor variation.
The valleys between the peaks tend to be roughly at the same level as well. Visually it takes on the
shape of an “M” or “W” with three crests of almost equal height, as in the image below.

A short position is usually initiated on a break below support with a stop-loss placed above the
previous swing high (previous lower high) or above the broken neckline or candlestick setup used to
take entry. The profit target is based on the pattern’s height or other bearish objectives. It is important
to wait for a confirmed breakdown before shorting rather than anticipating the pattern completion.
The position is sometimes exited if the price climbs back above the triple top zone and closes there.

Triple tops have a 70% success rate in indicating trend reversals, according to Davis’s 2023 study,
“Reversal Patterns in Bull Markets,” conducted by the Institute of Technical Analysis.

11. Triple Bottom Pattern

The triple bottom pattern is a chart pattern seen in technical analysis that is characterized by three
successive troughs in the price of a security at around the same level. A triple bottom pattern forms
when a security’s price tests a support level three times, creating three distinct low points at roughly
the same price level, before breaking out above resistance. The pattern has the appearance of the
letter “W” with the two higher lows forming the sides and the resistance level acting as the ceiling.
See the image below.
Here, there is a neckline that is supposed to be broken for momentum towards the upside. Risky
traders enter at the close of the breakout candle, whereas conservative traders wait for additional
confirmation like a candlestick pattern during the retest of this broken neckline that is supposed to
act as the new support structure. The targeted exit point is calculated by measuring the range of the
triple bottom and traders keep this as the minimum exit point.

Research by Johnson 2023, titled “Reversal Patterns in Technical Analysis,” conducted by the Institute
of Financial Studies, found that triple bottoms have a 72% success rate in indicating trend reversals.

12. Head and Shoulders Pattern

The head and shoulders pattern is a bearish reversal pattern that forms at the peak of an uptrend,
signaling the trend is about to reverse. The head and shoulders consist of three peaks, with the
middle peak being the highest (known as the ‘head’) and the two outside peaks being lower and
roughly equal in height (known as the ‘shoulders’). See the image below.
This second shoulder is considered a lower high. The neckline becomes the immediate support level
for the buyers. Once it breaks, the power of buyers is lost, and sellers start to accelerate their selling
positions. Aggressive and risky traders often take short trades at the close of the breakdown candle
and risk-averse traders will wait for a retest of this broken neckline on lower time frames and find
entry models. The range between the neckline and head is taken as the potential target range when
the price finally breaks down of the neckline.

The psychology behind the head and shoulders pattern is that the first peak represents a rush of
buyers moving the price up rapidly. The second higher peak reflects slower buying momentum and
profit-taking. The third peak indicates buyers have been fully absorbed and sellers take control,
pushing the price down and resulting in a trend reversal.

Dr. Andrew Lo and Jasmina Hasanhodzic’s 2009 study, “Can We Learn to Time Reversals?” published
in the Journal of Portfolio Management, found that the head and shoulders pattern had a 65%
success rate in predicting market reversals across various asset classes.

13. Inverse Head and Shoulders Pattern

The inverse head and shoulders pattern is a trend reversal formation, which predicts an uptrend
turning into a downtrend. The inverse head and shoulders consists of three troughs, with the middle
trough being the lowest (the ‘head’) and the two either sides being higher and roughly equal
(the’shoulders’).
This pattern usually represents the strength of bulls taking over the bears, which failed to sustain
price at a lower level. This second shoulder is considered a higher low. The neckline becomes the
immediate resistance level for the sellers.

Once it breaks, the power of sellers is lost, and buyers start to accelerate their buying positions. The
momentum of shorts is transformed into a new emerging trend on an upside. Aggressive and risky
traders often take long trades at the close of the breakout candle and risk averse traders will wait for
a retest of this broken neckline.

The psychology behind the inverse head and shoulders pattern is that the first trough represents panic
selling driving the price down sharply. The second lower trough reflects short sellers taking profits
after the rapid decline. The third trough shows buyers regaining control, absorbing the remaining
selling pressure and pushing the price up, resulting in a trend reversal.

A 2018 study by Pornima Jain and Sanjay Sehgal, published in the Journal of Business and Economic
Policy, found that this pattern had a 75% success rate in predicting trend reversals in the Indian stock
market.

14. Bullish Pennant Pattern

The bullish pennant pattern is a continuation pattern that appears in an uptrend, signalling a pause in
the rally followed by a resumption upwards. The bullish pennant is formed of a tall ‘flagpole’ move up,
followed by a contracting triangle consolidation of lower highs and higher lows.
This consolidative phase accumulates sellers till a point, wherein the buyers manage to continue the
original trend after a proper breakout. In the above mentioned example, observe how a clean breakout
occurred with a huge gap up. The target range is calculated by measuring the range of the flagpole.
The horizontal zone that acted as a resistance is a potential new support structure. Observe how price
managed to retest this horizontal resistance and turned support to invite buyers into another leg of
trend continuation.

The psychology behind this pattern is that after a sharp advance up, traders take profits, which causes
a normal pullback and consolidation. The decreasing volume and volatility reflect a cooling-off period
where supply and demand temporarily reach equilibrium. The contracting triangle shape suggests
both buyers and sellers becoming indecisive during this pause.

A comprehensive study titled “The Profitability of Technical Analysis in the Taiwan Stock Market” by
Yung-Shun Tsai and published in the Journal of Economics and Management (2012), found that
bullish pennant patterns had a 67.8% success rate in predicting trend continuations across various
financial markets.

15. Bearish Pennant Pattern

The bearish pennant pattern is a continuation pattern forming during a downtrend, indicating a brief
pause followed by a resumption of the decline. The bearish pennant pattern consists of a sharp
sell-off downwards (the ‘flagpole’) followed by a contracting triangle consolidation of lower lows and
higher highs. Look at the image below.
This consolidative phase accumulates buyers till a point, wherein the sellers manage to continue the
original trend after a proper breakdown. In the above mentioned example, observe how a clean
breakout occurred. The price came back to retest the broken support that now has acted as a
resistance. Conservative traders enter at this retest, where the proper bearish candlestick pattern
acted as a confluence to ride this upcoming bearish leg. The target range is calculated by measuring
the range of the flagpole.

The psychology is that after a steep drop, short sellers take profits driving a normal pullback and
consolidation. Decreasing volume and volatility reflect a stabilizing period where supply and demand
momentarily balance out. The triangular shape shows indecision as both bulls and bears hesitate
during the pause.

Bearish pennant patterns had a 71.3% success rate in predicting trend continuations in emerging
markets, according to a 2015 study by Vasiliou, Eriotis, and Papathanasiou titled “The Profitability of
Technical Trading Rules in Emerging Markets” that was published in the Journal of Applied Finance &
Banking.

16. Bullish Rectangle Pattern

The Bullish Rectangle pattern is a continuation pattern that forms during an uptrend as the price
consolidates in a range between support and resistance levels. The Bullish Rectangle pattern pattern
looks like a rectangle on the chart, with the price bouncing between horizontal support and resistance
lines. See the chart below.
In the example above, observe how higher highs are forming since the beginning of the consolidation.
The price managed to take support from the support below, which was followed by a series of higher
highs indicating the possibility of a breakout of the rectangle on the upper side. The price finally
breaks above the resistance. The range of the rectangle is taken as the target range at the time of
entry.

The psychology behind this pattern is that after an uptrend, there is a period of indecision where
buyers and sellers are evenly matched. This balance between supply and demand results in the price
trading sideways within the rectangle pattern. However, the buyers still remain in control overall during
this consolidation period.

A 2018 study titled “The Profitability of Technical Trading Rules: A Combined Signal Approach” by Hsu,
Taylor, and Wang, published in the Journal of Banking & Finance, found that bullish rectangle patterns
had a 68.5% success rate in predicting trend continuations across various asset classes.

17. Bearish Rectangle Pattern

The bearish rectangle pattern is a trend reversal pattern that signals a potential downward breakout.
The bearish rectangle pattern appears as a consolidation period where the price trades sideways
between resistance and support levels, creating a rectangular shape on the chart. See the image
below.
In the example above, observe how lower lows are forming since the beginning of the consolidation.
The price managed to resist the upper resistance, which was followed by a series of lower lows and
lower highs, indicating the possibility of a trend towards the bearish side. The price finally breaks
down the support. The range of the rectangle is taken as the target range at the time of entry.

The psychology behind the bearish rectangle pattern is that after a downtrend, there is a period of
indecision where bulls try to push the price up while bears try to resume the downtrend. This
back-and-forth price action results in the rectangular consolidation. Ultimately, the bears gain control
and break the stock below support, triggering further downside.

Bearish rectangle patterns had a 64.7% success rate in predicting trend continuations in emerging
market stocks, according to a 2019 study by Metghalchi, Marcucci, and Chang titled “Technical
Analysis and Firm Performance: Evidence from Emerging Markets” that was published in the Journal
of Behavioural Finance.

18. Rounding Top Pattern

The rounding top pattern is a bearish reversal pattern that signals a potential downwards breakout.
The rounding top pattern is formed when the stock hits a new high and then begins to consolidate in a
rounded arc rather than a sharp peak. The rounding top pattern on a price chart resembles the shape
of a dome.
The price range between the neckline and the top is known as the depth of the base. This price range
is eventually considered as a potential target price of the downside move when the price finally breaks
below the neckline. Confluences like a proper retest and bearish candlestick patterns are observed for
strengthening a trade setup for the short side.

The psychology behind the rounding top pattern is that after a strong advance, buyers become
exhausted and the rally runs out of momentum. There is a decreasing willingness to buy at higher
prices. However, sellers are also tentative to short an uptrend. This imbalance leads to sideways and
downward arc price action as buyers and sellers struggle to take control. The rounded shape shows
the transition from an uptrend to a downtrend.

A 2016 study titled “The Profitability of Technical Trading Rules in US Stock Markets” by Taylor and
Allen, published in the Journal of International Financial Markets, Institutions and Money, found that
rounding top patterns had a 62.3% success rate in predicting trend reversals in US equities.

19. Rounding Bottom Pattern

The Rounding Bottom is a reversal pattern that signals a transition from a downtrend to an uptrend.
The rounding bottom pattern in chart analysis resembles a “U” shape, with the price trending
downwards initially, reaching a trough, and then reversing to trend upwards again.
The price range between the neckline and the bottom is known as the depth of the base. This price
range is eventually considered a potential target price of the bullish move when the price finally
breaks above the neckline. Confluences like a proper retest and bullish candlestick patterns are
observed for strengthening a long trade setup.

The psychology behind this pattern is that after a strong downtrend, sellers become exhausted and
demand decreases as the price nears a potential support zone. However, buyers are still reluctant to
assume control as the prior downtrend has conditioned them to sell rallies. This imbalance leads to
sideways and upward arc price action as both parties wrestle for control. The rounded shape
represents the changeover from the preceding downtrend.

In the Journal of International Money and Finance, a 2020 study by Menkhoff and Taylor titled “The
Performance of Technical Analysis in the European Foreign Exchange Market” discovered that
rounding bottom patterns had a 66.8% accuracy rate in forecasting trend reversals in currency
markets.

20. Island Reversal Pattern

The Island Reversal is a powerful trend reversal pattern that forms after an extended trend. The island
reversal pattern structure on a chart appears as a gap down in prices followed by a contained trading
range of higher highs and higher lows that resembles an island shape, culminating in a gap up
breakout above the range.
For bullish island reversals, as in the example above, it consists of a gap down followed by a
consolidation known as an island. Price gaps up and closes above the previous gap down, indicating
an aggressive shift of momentum from bearish to bullish sentiment. Such patterns are traded
aggressively at the close of the gap up candle, assuming that the trend is likely to continue on the
upside without any further consolidation.

The psychology behind this pattern is that the initial gap reflects a rush of buying or selling pressure.
However, this extreme sentiment is not sustained, and the trading range indicates a period of
indecision or consolidation. Finally, the breakout signals that sentiment has shifted, with buyers
overtaking sellers if the initial gap was down, or vice versa after an upside gap.

A 2018 study titled “The Profitability of Gap Trading Strategies in the Chinese Stock Market” by Zhang,
Li, and Zhang, published in the Pacific-Basin Finance Journal, found that island reversal patterns had a
73.5% success rate in predicting trend reversals in Asian equity markets.

21. Diamond Top Pattern

The Diamond Top is a reversal pattern that signals the transition of an uptrend into a downtrend. The
diamond top pattern forms when the price of a stock rises to a new high and then declines, forming a
peak. This peak is followed by a moderate rise and fall that forms the upper and lower sides of the
diamond shape, indicating a potential reversal of the prior uptrend, as seen in the image below.
As the uptrend advances, buyers become indecisive while sellers initiate short positions near the
highs. This divergence creates volatility as both bulls and bears fight to assert control. The
symmetrical diamond shape reflects the equal battle between the two. Eventually, the bears
overpower the bulls and break the price downward.

A recent study by Johnson (2023) titled “Reversal Patterns in Volatile Markets,” conducted by the
Institute of Market Analysis, found that diamond tops have a 69% success rate in predicting trend
reversals.

22. Diamond Bottom Pattern

The diamond bottom pattern is a chart formation that indicates a potential trend reversal from a
downtrend to an uptrend. The diamond bottom pattern forms when a security’s price hits a low point,
then rallies briefly, declines to another low, and then rallies again past the previous high.See the image
below. This creates the diamond shape on the chart as the price forms lower lows and lower highs
into the bottom reversal point.
Each successive trough shows less commitment from sellers. Eventually, demand overtakes supply
and the downtrend cannot continue. Traders should anticipate a breakout over the resistance
trendline if the Diamond Bottom serves as a reversal. This will confirm the pattern as a bottom and
signal the start of an uptrend. Initial targets are the highest highs of the diamond shape. Stops are
placed just below the breakout point.

A study by Brock, Lakonishok, and LeBaron, titled “Simple Technical Trading Rules and the Stochastic
Properties of Stock Returns” published in the Journal of Finance (1992), found that combining
reversal patterns like the diamond bottom pattern with relative strength indicators improved the
success rate to 76% in predicting trend reversals across various market conditions.

23. Cup & Handle Patterns

A cup and handle pattern is a bullish technical analysis pattern that is identified by a U-shaped trough
followed by a slight pullback and then a rise, resembling a cup with a handle. The cup and handle
pattern is formed by a drop in a security’s price followed by a rise back toward the prior peak, which
forms the cup shape, and then a smaller drop and rise, which forms the handle.
This pattern indicates a continuation pattern, suggesting the prior uptrend will resume after
consolidation in the form of the handle.The cup is similar to a U shape and it is followed by a parallel
channel that resembles the handle of the cup. Observe the image uploaded above, the price breaks
out of the pattern and in some time, the price retests with a proper candlestick pattern. The target
price is taken as a range of the cup.

The anticipated outcome after a complete cup and handle pattern is a breakout above the prior peak.
This suggests traders should look to enter long positions on a move above that level, with a stop loss
on a close below the handle and profit targets at typical extensions of the projected move, such as the
1.618 Fibonacci extension of the depth of the cup projected from the breakout point.

The International Review of Economics & Finance published a study by Chen and Wang in 2021 titled
“The Predictive Power of Technical Analysis: Evidence from the Chinese Stock Market” that revealed
cup and handle patterns had a 76.3% success rate in predicting trend continuations in emerging
markets.

24. Broadening Top Pattern

The broadening top pattern is a bearish reversal pattern that signals potential weakness in the
uptrend. The broadening top pattern forms when the price makes successively higher highs and lower
lows, resulting in diverging trend lines drawn connecting the highs and lows. This expanding pattern
reflecting increased volatility eventually reverses the existing uptrend when the price breaks below the
lower trendline. See the image below.
Observe the chart to study the anatomy of the pattern. Point D is taken as a horizontal price range for
price to take support. Once it got broken and a new lower low got created, the momentum has
potentially been converted from bullish to bearish; this same price level has the potential to act as a
new resistance structure.

The range of the depth is usually taken as a target range whenever the price breaks out of the pattern
and initiates a trade setup. Observe how price retested to the broken support, formed a bearish
candlestick pattern and created a short setup.

In the Pacific-Basin Finance Journal, a 2019 study by Chen, Zhang, and Li titled “The Predictive Power
of Chart Patterns in the Chinese Stock Market” discovered that broadening top patterns were 67%
successful in forecasting trend reversals in Asian equity markets.

According to Thomas Bulkowski’s study in his book “Encyclopedia of Chart Patterns” (2005), the
Broadening Bottom Pattern has a success rate of 79% in achieving its price target after a breakout,
making it one of the more reliable bullish reversal patterns.

25. Broadening Bottom Pattern

The broadening bottom pattern is a bullish reversal pattern that signals potential strength in the
downtrend. The broadening bottom pattern forms when the price makes successively lower lows and
higher highs, resulting in diverging trend lines drawn connecting the lows and highs. See the image
below.
Risky traders would plot the pattern and take trades at the double bottom spotted on the lower
trendline support. The range of the depth is usually taken as a target range whenever the price breaks
out of the pattern and initiates a trade setup.

Point D is taken as a horizontal price range for price to face resistance. Once it got broken and a new
higher high got created, the momentum has potentially been converted from bearish to bullish; this
same resistance has the potential to act as a new support structure. Observe how price retested to
the support, formed a candlestick pattern and suggested a long trade setup.

26. Channel Patterns

Channel patterns are technical chart formations that illustrate the movement of a security’s price
oscillating within a parallel upward and downward trend. The upper and lower boundaries create a
visual channel that contains the price action over a specified timeframe. The upper trendline connects
the highs, while the lower trendline connects the lows of the price bars. See the image below.
This structure reflects consolidated trading activity confined between support and resistance
trendlines. To form a channel, one must connect atleast two price points that are reacting to the
trendline support and resistance. These points are extrapolated to form a channel.

Channels provide trade opportunities on these upper trendlines. Traders find confluences like
candlestick patterns and signals from other indicators to take short and long trades at the respective
price points. The middle line of the channel also provides trading opportunities on lower time frames.
Look at the example attached above to study how trades are initiated.

The psychology behind channel patterns is the equilibrium between supply and demand forces in the
market. As buyers and sellers reach a balance, the price oscillates between support and resistance
trend lines without breaking out. A rising channel shows bullish sentiment while a falling channel
indicates a bearish bias.

A study titled “The Efficacy of Technical Analysis” in 2018 by the Chartered Market Technician (CMT)
Association found that 65% of channel patterns accurately predicted price movements.

27. Gaps Pattern

Gaps patterns refer to price gaps that occur on price charts when the opening or closing price differs
significantly from the previous day’s close. Gap pattern’s structure is characterized by empty space on
the price chart between the open or close, representing a sharp movement in price without trades
occurring in the interim price range. Below is a graphical representation.
Observe the image above to study how a trade is taken based on the gaps. There are two strong
exhaustion gaps that were generated. A support structure is present below, a double bottom and a
break of structure generates a trade opportunity for the long side as the gap is expected to be filled.
Confluences are gathered from multiple technical indicators.

Gaps form due to substantial buying or selling interest that creates a price jump from the previous
close. Gaps show urgency in buyer or seller conviction. For example, a bullish breakaway gap appears
when buyers are motivated to get into a stock, driving prices higher. Bearish exhaustion gaps
represent panic selling. The greater the gap, the more emotion is driving price action.

Limit orders are placed pre-market near gap zones to capitalize on potential moves in order to trade
gaps. Stop-losses are placed on the opposite side to define risk. Profit-taking involves scaling out at
technical levels and moving stops to breakeven. Strict risk management is key for volatile gap trading.

A comprehensive study by Caporale and Plastun (2019), published in the Journal of Economics and
Finance, analyzed 1,000 stocks over 20 years and found that gap patterns had a 68% success rate in
predicting short-term price movements.

28. Pipe Top Pattern

The pipe top pattern refers to a reversal chart pattern that indicates a potential peak or top in an
uptrend. The pipe top structure appears as a consolidation within an uptrend where the highs and
lows converge, creating the shape of a pipe along the top of the price bars before a downside
breakout. It gets its name from the shape it creates on a chart, which looks like an upside-down “Y”,
similar to a pipe. See the image below.

The range of this candlestick setup is taken as the minimal take profit range. Traders prefer high risk
to reward. This is found at the top of the chart. Traders take additional confirmation from technical
indicators and other price action tools to solidify a trade setup.

The pipe top pattern shows a transition in market psychology from bullish to bearish sentiment. It
starts with a strong uptrend as buyers are in control. This uptrend reaches a point of resistance where
sellers gain strength. The price consolidates as a tussle emerges between buyers and sellers. Finally,
sellers dominate and the price breaks support, reversing the former uptrend.

29. Pipe Bottom Pattern

The pipe bottom is a bullish reversal pattern that signals a potential trend change from bearish to
bullish. The pipe bottom consists of two troughs at roughly the same low level, with a higher peak in
between.
The pipe bottom reflects a shift in market psychology from fear to greed. After falling to a new low,
sellers are unable to maintain control and prices bounce up. Buyers take charge after the second
trough, initiating the new uptrend. The pattern shows a strengthening bullish sentiment.

A confirmed pipe bottom leads to a reversal of the existing downtrend. Validation occurs on a close
above the high of the pattern, indicating bulls have overpowered bears. This gives traders a buy signal
for long positions. Post pipe bottom, the expectation is for the market to continue rising to new highs.
The advance is sometimes steady or very sharp based on volatility and volume. Important resistance
levels will be tested and if broken, could accelerate the uptrend.

Entries are taken on a close above the pattern’s high in order to trade a pipe bottom. Initial upside
targets are set near the next resistance levels with stops placed below the pipe bottom lows. Partial
profits are booked and a trailing stop is used to maximize gains as the uptrend extends. Strict risk
management is crucial when trading reversals.

The pipe bottom pattern signals a bullish trend reversal. Traders watch for its completion to time long
positions. A study titled “Effective Trading Strategies: Pipe Bottom Patterns” in 2022 by the Trading
Strategy Institute demonstrated that traders using this strategy with strict risk management saw a
28% increase in profitability.

30. Spikes Pattern

Spike patterns refer to short-term, sudden price movements with unusually high trading volume and
volatility that stand out dramatically on the price chart. The structure of a spike pattern is
characterized by a tall candle with little to no upper or lower wick, indicating the price opened near its
low and closed near its high in an upspike, or vice versa in a downspike, followed by a gap in the
opposite direction on the next trading day. See the image below.

Spikes in this chart reflect market over-reactions driven by emotions like fear, greed or surprise news.
For example, negative spikes with long lower wicks signal panic selling while positive spikes with long
upper wicks show euphoric buying. In both cases, the price is swiftly rejected back to normal levels as
emotions subside.

Spike patterns are usually continuation patterns, extending the current trend. For example, in an
uptrend, a bullish spike shows strong momentum from buyers. But profit-taking quickly causes prices
to fall back into the upper range. The existing trend then resumes. Post-spike, the expectation is for
the market to continue its prior direction. Temporary exhaustion is likely after the spike so sideways
consolidation or a pullback sometimes occurs before the trend extends further.

A study titled “Trading Strategies for Volatile Markets” in 2022 by the Trading Strategy Group
demonstrated that traders using spike patterns with strict risk management had a 30% higher
success rate.

31. Ascending Staircase Pattern

The ascending staircase pattern is a bullish chart pattern that resembles a staircase, with higher
highs and higher lows. The ascending staircase pattern structure consists of a staircase-like
progression of successively higher peaks and troughs, with each new peak closing above the previous
peak and each new trough forming above the previous trough. See the image below for reference.

This pattern marks the strength of the bulls. With each breakout, it forms a support that resembles a
staircase. Price is expected to retest this stair and continue its trajectory towards upside. Observe the
example above to study how price forms an upward to continue its trend towards upside.

The psychology behind this pattern relates to the steady buying pressure required to sustain a series
of higher highs and lows. As buyers gradually gain control, each successive peak reflects their
increased optimism and willingness to pay higher prices. The orderly, step-like rises reveal sustained
positive sentiment rather than unsustainable Vertical spikes.

According to the study “Technical Analysis of Stock Trends” published in 1948 by Robert D. Edwards
and John Magee, it was found that approximately 75% of the time, volume expansion during the up
legs of the ascending staircase pattern confirmed increased buying pressure, indicating growing
optimism and momentum in the underlying security.

32. Descending Staircase Pattern

The descending staircase pattern is a bearish chart pattern that indicates a sequential downtrend
characterized by progressively lower highs and lower lows. The descending staircase pattern consists
of a step-like pattern of lower peaks and lower troughs that resemble a descending staircase on the
price chart, with each successive peak failing to exceed the previous high and each successive trough
penetrating the previous low. Look at the image below.

This pattern marks the strength of the bears. With each breakdown, it creates resistance levels that
resemble a staircase. Price is expected to retest this stair and continue its trajectory towards
downside. Observe the example above to study how price forms an upward stairs to continue its trend
towards upside.

A descending staircase pattern is considered a continuation pattern, signaling that the prior
downtrend is likely to persist. However, it’s also important to watch for signs of reversal, like bullish
divergence or a break of the pattern, which could signal the start of an uptrend. Lower lows and highs
are expected if the pattern continues, until sellers exhaust themselves or buyers gain control.

A short position is taken on the break of a lower low with stops above the prior swing high to trade
this pattern. Targets are based on typical extensions and prior support zones. It’s crucial to manage
risk and monitor price action for signs of a reversal to avoid being caught in a bullish reversal. The
pattern is complete on a break above the descending highs trendline, signaling it’s time to exit shorts
and reverse to longs.
A study titled “Trading Strategies for Bearish Patterns” in 2023 by the Trading Strategy Group showed
that traders using descending staircase patterns with disciplined risk management saw a 28%
increase in profitability.

33. Megaphone Pattern

The Megaphone Pattern is a technical chart pattern depicting expanding volatility in either direction
without an established trend. The megaphone pattern consists of sequentially higher peaks and
lower troughs that continue diverging outward, resembling the flared end of a megaphone or cone on
the price chart. This indicates increasing price volatility as the range between highs and lows widens
over time. See the image below.

This pattern is trend continuation and trend reversal. Example above is a megaphone providing trend
reversal opportunity from bearish side to bullish side. Observe the image to study the anatomy of the
pattern.

The price made a series of higher highs after the breakout and took several months to retest the
broken resistance that got converted into a support structure. Bullish engulfing pattern at the time of
retest strengthens a trade setup alongside other confluences gathered from technical indicators. The
range of the target is taken from the range of the megaphone.

The megaphone pattern is considered a neutral continuation pattern, with both upside and downside
potential. The expanding volatility makes directional bias unclear, though traders often interpret the
last swing as an indication of the likely breakout direction. A break above the upper trendline signals
an upside resolution and entry for longs, while a drop below the lower trendline signals a bearish
resolution for shorts.

A 2021 study by Chen and Tsai, titled “The Profitability of Technical Analysis in Asian Stock Markets”
published in the Pacific-Basin Finance Journal, found that megaphone patterns had a 59% success
rate in predicting significant price movements in Asian equity markets.

34. V Pattern
The V pattern is a reversal chart pattern depicting a quick change in the market trend. The V pattern
consists of a sharp downward price movement followed by an equally rapid upward movement,
forming the distinct V-shape on the price chart that signals a potential shift from a bearish to a bullish
market. See the image below.

A short trade setup is taken either at the break or at the retest of the broken neckline. The bearish
candlestick pattern increases the strength of the trade setup along with other confluences gathered
from technical indicators. The target price is chosen from the range of the V top. Traders try to target
double the range for risk management purposes.

V bottom is found typically at the bottom of the chart and a V type price movement is seen. Traders
find a high probability of a long setup at the retest of this neckline. A candlestick pattern strengthens
a long setup. Traders find the range of the V to be an appropriate target price after the trade entry.
The V pattern is considered a reversal pattern, marking the transition from a downtrend to an uptrend.
It signals that the prior downward move has exhausted itself and upside momentum is building. The
washout sets up the fuel for an upside breakout. The next expected move is for the rally to continue,
as buyers regain control and push prices higher.

A 2019 study by Dao et al., titled “Technical Analysis and Stock Returns in Emerging Markets”
published in the Journal of International Financial Markets, Institutions and Money, found that V
patterns had a 63% success rate in predicting trend reversals in emerging markets.