Common Chart Patterns

Chart patterns work because they represent recurring human psychology. Fear, greed, and indecision create recognizable formations. When enough traders see and act on a pattern, it becomes a self-fulfilling prophecy.

Head and Shoulders (Bearish Reversal)
- Left shoulder → Head (higher) → Right shoulder
- Neckline connects the lows
- Breaks below neckline = Target is head height projected down

Inverse Head and Shoulders (Bullish Reversal)
- Same pattern, upside down
- Breaks above neckline = Bullish

Double Top (Bearish)
- Two peaks at similar level, "M" shape
- Breaks below middle = Bearish target

Double Bottom (Bullish)
- Two lows at similar level, "W" shape
- Breaks above middle = Bullish target

Bull Flag
- Strong move up (flagpole)
- Consolidation downward (flag)
- Break up continues the trend
- Target = flagpole height added to breakout

Bear Flag
- Same concept, inverted

Triangle Patterns
- Ascending: Flat top, rising lows → Usually breaks up
- Descending: Flat bottom, falling highs → Usually breaks down
- Symmetrical: Converging lines → Can break either way

One of the most powerful bullish patterns:

1. Cup: U-shaped decline and recovery (not V-shaped)
2. Handle: Small pullback forming the "handle"
3. Breakout: Above the cup's rim
4. Target: Depth of cup projected upward

This pattern can take weeks to months to form, making it especially reliable.