Chapter 4

Common Chart Patterns

Over time, the swings of price sometimes trace out recognisable shapes. Traders have named the most common ones and studied what tends to follow them. This chapter walks through the classics — and ends with the single most important caveat about all of them.

Sources: 10 Chart Patterns (IG), Common Chart Patterns (AnalystPrep / CFA)

Educational use only. Chart patterns describe tendencies, not certainties. This material explains how to recognise them, not what to buy or sell, and is not investment advice.
In this chapter
  • The difference between reversal patterns (trend may turn) and continuation patterns (trend may resume).
  • How to recognise head-and-shoulders, double tops and bottoms, the three triangles, and flags and pennants — and what each is typically read to suggest.
  • Why every pattern is probabilistic: it tilts the odds, it does not guarantee the outcome.

Reversal vs continuation

Chart patterns fall into two broad families. A reversal pattern forms at the end of a trend and suggests the direction may be about to turn — an uptrend rolling over into a downtrend, or vice versa. A continuation pattern forms in the middle of a trend during a pause, and suggests the existing trend may resume after the rest. Knowing which family a pattern belongs to is half of reading it. In every case, a pattern is only considered confirmed when price breaks out of it — closing beyond the shape's boundary, ideally on strong volume, as covered in Chapter 3.

Head and shoulders

The head and shoulders is the best-known reversal pattern, and it appears at the top of an uptrend. It has three peaks: a left shoulder, a higher head in the middle, and a right shoulder at roughly the same height as the left. A line drawn across the two troughs between the peaks is the neckline. The pattern is considered confirmed when price breaks below the neckline, which suggests the prior uptrend may be reversing to the downside.

The inverse head and shoulders is the same shape flipped upside down, appearing at the bottom of a downtrend: three troughs with the lowest in the middle, and a break above the neckline suggesting a possible turn to the upside.

Head and shoulders reversal pattern Three peaks: a left shoulder, a taller central head, and a right shoulder at similar height to the left. A horizontal neckline connects the two troughs; a break below it confirms the pattern. left shoulder head right shoulder neckline
Figure 1. Head and shoulders: two similar-height shoulders around a taller head, with a neckline across the troughs. A close below the neckline confirms the reversal.

Double top and double bottom

A double top is a reversal pattern shaped like the letter M. Price rises to a resistance level, pulls back, rallies to that same level a second time, and fails to break through — then falls away. It signals that buyers tried twice to push higher and were rejected both times. The pattern is confirmed when price breaks below the trough between the two peaks.

A double bottom is the mirror image, shaped like a W: price falls to a support level twice, holds both times, and then breaks upward through the peak between the two lows. It suggests sellers failed twice to push lower, tilting the balance toward a possible upside turn.

Triangles

Triangles form as a price range narrows — the swings get smaller and smaller, coiling toward a point. They are usually read as continuation patterns, though the breakout is what ultimately settles the direction. There are three kinds.

  • Ascending triangle — a flat upper resistance line with a rising lower support line. Because buyers keep stepping in at higher lows while sellers defend one price, it carries a bullish bias, with the expectation that price may eventually break upward through the ceiling.
  • Descending triangle — a flat lower support line with a falling upper resistance line. The mirror image, carrying a bearish bias toward a downside break.
  • Symmetrical triangle — both lines converge, support rising and resistance falling toward each other, with no built-in bias. Here the direction of the eventual breakout is what tells you which way the balance tipped.
The three triangle patterns Ascending triangle with a flat top and rising bottom; descending triangle with a flat bottom and falling top; symmetrical triangle with converging lines. Ascending Descending Symmetrical
Figure 2. The three triangles. Green = support line, brown = resistance line, blue = price coiling inside. The breakout direction confirms the move.

Flags and pennants

Flags and pennants are short-term continuation patterns that appear as a brief pause after a sharp move (the "flagpole"). A flag is a small rectangular consolidation that slopes gently against the prior trend — a bull flag drifts slightly downward after a rise, a bear flag drifts slightly upward after a fall. A pennant is a small symmetrical triangle of converging lines forming the same brief pause. Both suggest the market is catching its breath, with the prior trend often resuming once price breaks out of the little shape in the original direction.

Patterns are probabilities, not guarantees

This is the most important paragraph in the chapter. A chart pattern does not guarantee what price will do next. It describes a tendency observed across many past cases — a tilt in the odds, not a promise. Patterns fail routinely: a "confirmed" head and shoulders can reverse right back, a triangle can break the "wrong" way, a flag can dissolve into a full trend change.

A pattern is a hypothesis about what might happen next, not a prediction of what will. Treat every one as "this suggests," never "this guarantees." — Core caution of technical analysis

This is why the earlier chapters matter as much as this one. Patterns are read in context: alongside the prevailing trend, the location of support and resistance, and whether volume confirms a breakout. A pattern that agrees with everything else on the chart is worth more attention than one standing alone. And none of it forecasts the future with certainty. Reading a chart well means understanding what price has done and what the evidence suggests — while always respecting how much remains genuinely unknown.

Ready to test yourself? The self-check quiz revisits every idea in this handbook — candlesticks, support and resistance, moving averages, and patterns — with answers you can reveal one at a time.