Chart patterns
Double tops, head and shoulders, triangles and flags, and how to measure their targets.
Chart patterns are recurring shapes that show the balance between buyers and sellers changing. They are not magic; they are visual summaries of support, resistance and momentum.
Reversal patterns
Double top / double bottom. Price tests the same high twice and fails. The pattern completes when price breaks the low between the two peaks (the neckline). A double bottom is the mirror image.
Head and shoulders. Three peaks, the middle one highest. Completes on a break of the neckline drawn through the two troughs. Inverse head and shoulders forms at bottoms.
Continuation patterns
Flags and pennants. After a sharp move, price drifts in a small, tight channel against the trend, then continues. They reflect traders pausing, not reversing.
Triangles. Price makes converging highs and lows. Ascending triangles (flat top, rising lows) tend to break up; descending triangles tend to break down; symmetrical ones can go either way.
Measuring targets
Most patterns give a measured objective:
| Pattern | Target |
|---|---|
| Double top | Height from peaks to neckline, projected down from the break |
| Head and shoulders | Height from head to neckline, projected from the break |
| Flag | Length of the pole before the flag, projected from the breakout |
| Triangle | Height of the triangle's widest part, projected from the break |
Treat these as rough guides. Take partial profit at the next obvious level if it comes first.
Confirmation
A pattern is a possibility until it breaks its trigger level. Many apparent double tops become ranges or continue higher. Wait for the close beyond the neckline, and put the stop where the pattern would clearly be invalidated.
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