Classic Chart Patterns Explained

Chart patterns are recognizable shapes formed by price over time, believed by many traders to reflect recurring dynamics between buyers and sellers. They generally fall into two broad categories: continuation patterns and reversal patterns.

Reversal Patterns

• Head and shoulders — three peaks with the middle one highest, often watched as a potential sign a prior uptrend is ending
• Double top / double bottom — two attempts to break a level that fail, sometimes read as exhaustion of the prior trend

Continuation Patterns

• Triangles — converging trendlines suggesting a period of consolidation before a potential resumption of the prior trend
• Flags and pennants — brief pauses after a sharp move, sometimes viewed as a pause before the move continues