Chart Patterns Cheat Sheet
Reversal Patterns
Reversal patterns signal that the prevailing trend is about to change direction. They form after extended moves up or down.
| Pattern | Structure | Signal | Target Calculation |
|---|---|---|---|
| Head & Shoulders | Three peaks: left shoulder, higher head, right shoulder with a neckline connecting the lows | Bearish — break below neckline triggers sell | Head-to-neckline distance projected downward from break |
| Inverse Head & Shoulders | Three troughs: left shoulder, lower head, right shoulder with neckline at the highs | Bullish — break above neckline triggers buy | Head-to-neckline distance projected upward from break |
| Double Top | Two peaks at roughly the same level with a trough between them | Bearish — break below the trough (neckline) | Peak-to-trough distance projected downward |
| Double Bottom | Two troughs at roughly the same level with a peak between them | Bullish — break above the peak (neckline) | Trough-to-peak distance projected upward |
| Triple Top | Three peaks at similar levels with two troughs | Bearish — stronger than double top | Same as double top — peak to support projected down |
| Triple Bottom | Three troughs at similar levels with two peaks | Bullish — stronger than double bottom | Same as double bottom — trough to resistance projected up |
| Rounding Top (Saucer) | Gradual, curved decline in price forming an arc | Bearish — slow shift in sentiment | Depth of pattern projected from breakdown |
| Rounding Bottom | Gradual, curved rise forming an inverted arc | Bullish — accumulation over time | Depth of pattern projected from breakout |
Continuation Patterns
Continuation patterns form during a pause in the trend and signal that the prior move will resume.
| Pattern | Structure | Signal | Target Calculation |
|---|---|---|---|
| Bull Flag | Sharp rally (pole), then slight downward channel (flag) | Bullish — break above flag top | Pole height projected from breakout point |
| Bear Flag | Sharp decline (pole), then slight upward channel (flag) | Bearish — break below flag bottom | Pole height projected from breakdown point |
| Ascending Triangle | Flat resistance with rising support (higher lows) | Bullish — break above resistance | Triangle height from breakout |
| Descending Triangle | Flat support with falling resistance (lower highs) | Bearish — break below support | Triangle height from breakdown |
| Symmetrical Triangle | Converging trendlines with lower highs and higher lows | Neutral — breaks either way; usually continues trend | Widest part of triangle from breakout |
| Pennant | Small symmetrical triangle after a strong move (pole) | Continuation of prior trend | Pole height projected from breakout |
| Wedge (Rising) | Both trendlines slope up but converge | Bearish — counter-trend pattern | Height of wedge projected from breakdown |
| Wedge (Falling) | Both trendlines slope down but converge | Bullish — counter-trend pattern | Height of wedge projected from breakout |
| Cup & Handle | U-shaped base (cup) followed by a small pullback (handle) | Bullish — break above handle resistance | Cup depth projected from breakout |
Volume Confirmation Rules
Volume is the lie detector of chart patterns. Without volume confirmation, a breakout is suspect.
| Pattern Phase | Expected Volume Behavior |
|---|---|
| Pattern Formation | Volume typically decreases as the pattern develops |
| Breakout / Breakdown | Volume should spike significantly (1.5x+ average) |
| Post-Breakout | Sustained higher volume confirms the move |
| Retest | Low volume on retest of breakout level is healthy |
Key Takeaways
- Chart patterns divide into reversal patterns (trend change) and continuation patterns (trend pause)
- Head & Shoulders is the most well-known and reliable reversal pattern
- Flags, pennants, and triangles are the most common continuation patterns
- Volume must confirm breakouts — low-volume breaks frequently fail
- Use the measured move technique to set price targets from any pattern
Frequently Asked Questions
What is the most reliable chart pattern?
The Head & Shoulders (and its inverse) consistently ranks as the most reliable reversal pattern in backtesting studies. Among continuation patterns, bull flags have the highest success rate, particularly in strong uptrends.
How long do chart patterns take to form?
It varies widely. Flags and pennants form over 1–4 weeks. Triangles take 1–3 months. Head & Shoulders can take 3–6 months. Rounding bottoms may take 6–12 months. Generally, longer-forming patterns produce more reliable and larger moves.
What happens when a chart pattern fails?
A failed pattern often produces a strong move in the opposite direction. A failed Head & Shoulders breakout to the downside, for example, can trigger an aggressive rally. That is why stop-losses are essential when trading patterns.
Can chart patterns be used with candlestick patterns?
Yes, they complement each other well. Chart patterns show the broader structure while candlestick patterns provide entry timing. A bullish engulfing at the neckline of an inverse Head & Shoulders is a powerful combination.
Do chart patterns work in crypto and forex markets?
Yes. Chart patterns are based on market psychology, which is universal. They work across stocks, futures, forex, and crypto. The key is to adjust your volatility expectations — crypto patterns tend to produce larger moves.