Chart patterns: shapes, confirmation and where each one fails
Each page below teaches one chart pattern with the exact rules this site uses, an exercise on a simulated chart, and an honest note on what the pattern does not tell you. Candlestick patterns are about one to three candles; chart patterns are the bigger shapes those candles build over weeks of bars.
Chart patterns are shapes that price traces over many candles, such as head and shoulders, double tops, flags, triangles and wedges. Reversal patterns suggest a trend is ending; continuation patterns suggest it is pausing. Traders usually wait for a close through a pattern's trigger level, and research shows patterns carry some information, not reliable profits.
The patterns
Cheat sheet
Every pattern on one table, each drawn from its own practice chart. Want it on paper? Use the printable cheat sheet.
| Pattern | Shape | Where it forms | Confirmed by | Wrong if |
|---|---|---|---|---|
| Head and shoulders | Three peaks, the middle one highest | Usually after a rise | Traders usually wait for a close below the neckline | Price climbs back above the right shoulder and head |
| Inverse head and shoulders | Three lows, the middle one deepest | Usually after a fall | Traders usually wait for a close above the neckline | Price falls back below the right shoulder and head |
| Double top | Two equal peaks, a sharp "M" | Price rose from below the dip | Traders usually wait for a close below the dip | Price rises clearly above the higher top |
| Double bottom | Two equal lows, a sharp "W" | Price fell from above the rally | Traders usually wait for a close above the rally | Price falls clearly below the lower bottom |
| Cup and handle | Rounded dip, then a small handle | Usually after a rise | Traders usually wait for a close above the rim | Handle sinks into the lower half of the cup |
| Bull flag | Steep pole, then a short downward drift | A pole of 8%+ within 8 candles | Traders usually wait for a close above the pole | The flag gives back more than half the pole |
| Ascending triangle | Flat top, rising lows, lines converging | Often seen during a rise | Traders usually wait for a close outside the lines | A close below the rising lower line |
| Descending triangle | Falling highs, flat bottom, lines converging | Often seen during a fall | Traders usually wait for a close outside the lines | A close above the falling upper line |
| Symmetrical triangle | Lower highs and higher lows, converging | A pause within any trend | Traders usually wait for a close outside either line | No lean to disprove; direction is open |
| Rising wedge | Both lines rise and converge | Usually inside a rise | Traders usually wait for a close below the lower line | A close above the upper line, then higher |
| Falling wedge | Both lines fall and converge | Usually inside a fall | Traders usually wait for a close above the upper line | A close below the lower line, then lower |
Reversal vs continuation
Chart patterns fall into two groups. Reversal patterns form at the end of a move and suggest it may be turning: the head and shoulders and double top after a rise, the inverse head and shoulders and double bottom after a fall. Continuation patterns form in the middle of a move and suggest a pause before it resumes: the bull flag and the cup and handle. Triangles and wedges can show up in either role, which is one reason they are harder to read.
The labels describe what the shape suggests in textbooks, not what price will do. Plenty of reversal patterns end with the trend carrying on.
Why traders wait for a close
Every pattern has a trigger level: the neckline of a head and shoulders, the dip between two tops, the rim of a cup, the top of a flag's pole. Until a candle closes through that level, most chart readers treat the pattern as a possibility, not a fact. A wick that pokes through and snaps back usually does not count. The habit exists because half-formed shapes are everywhere, and almost any chart looks like a pattern if you are allowed to finish it in your head. This site's exercises grade the shape itself and where its key points are, such as the head or the second top, not whether a breakout followed.
Where a pattern is proven wrong
Each pattern also has a point where its own logic stops making sense. A double top is a ceiling; if price rises above the higher top, the ceiling did not hold. A bull flag is a short rest; if it gives back more than half of the pole, it was not a rest. Knowing that point is as much a part of reading the pattern as spotting it.
What the research says
The most cited study is Lo, Mamaysky and Wang (2000) in the Journal of Finance. They used an automated method, kernel regression, to find patterns such as head and shoulders, double tops and bottoms, triangles and rectangles on US stocks from 1962 to 1996. They reported that several patterns carried some incremental information about later returns. They did not claim the patterns were profitable trading rules. This site gives no win rates, because no reliable ones exist for patterns drawn by hand.
Frequently asked questions
What are the most common chart patterns?
The classic set covers head and shoulders and its inverse, double tops and bottoms, cup and handle, flags and pennants, triangles (ascending, descending, symmetrical) and wedges (rising, falling). This site teaches eight pattern pages built around those shapes, each with exact rules and an exercise on a simulated chart.
Do chart patterns actually work?
Research with automated rules, notably Lo, Mamaysky and Wang (2000), found that several patterns carried some information about later returns on US stocks. That is different from saying they make money once costs and failed patterns are counted. Treat patterns as a way to describe what price has done, not as a forecast.
What is the difference between chart patterns and candlestick patterns?
Candlestick patterns are built from one to three candles, such as a doji, hammer or engulfing pair. Chart patterns are larger shapes made of many candles, such as a head and shoulders or a triangle. A chart pattern often contains several candlestick patterns inside it.
How do I know a chart pattern is confirmed?
Most chart readers wait for a close through the pattern's trigger level: below the neckline for a head and shoulders or double top, above it for the inverse versions and double bottom, above the rim for a cup, above the pole's high for a bull flag. Until that close, the pattern is only a possibility.