Chart Patterns

A description of common chart patterns

Why Are Chart Patterns Important?

In the financial market, prices are determined by supply and demand forces. Are the buyers winning or the sellers winning? Chart patterns provide a visual representation of the battle between buyers and sellers so you see if a market is trending higher, lower, or moving sideways. Knowing this can help you make your buy and sell decisions.

There are tons of chart patterns. Most can be divided into two broad categories—reversal and continuation patterns. Reversal patterns indicate a trend change, whereas continuation patterns indicate the price trend will continue after a brief consolidation.

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In the StockCharts platform, you can scan for various chart patterns in the Predefined Scans available in the Scan Workbench.

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Chart Patterns for Trading

Below is a list of common chart patterns useful in technical analysis. If you'd like more details on using chart patterns when analyzing a chart, you may find Introduction to Chart Patterns helpful. Note that the chart patterns have been classified based on whether they're typically reversal or continuation patterns. Remember that many of these patterns can indicate either a reversal or continuation, depending on the circumstances.

You can explore the chart patterns in the list below and learn how to use them in trading.

Reversal Patterns

• Broadening Top

• Double Top Reversal

• Double Bottom Reversal

• Head and Shoulders Top

• Head and Shoulders Bottom

• Falling Wedge

• Rising Wedge

• Rounding Bottom

• Triple Top Reversal

• Triple Bottom Reversal

• Bump and Run Reversal

Continuation Patterns

• Flag, Pennant

• Symmetrical Triangle

• Ascending Triangle

• Descending Triangle

• Rectangle

• Price Channel

• Measured Move - Bullish

• Measured Move - Bearish

• Cup with Handle

Chart Pattern Limitations

While chart patterns can help decide if a stock is trending higher or lower, whether buyers or sellers are in control, and if it's a good time to get into a trade, they have limitations. Sometimes, a chart pattern may fail to do what you expect. Other times, you may have to exercise patience while waiting for a specific pattern to develop. Chart patterns are subjective and can be misinterpreted. Because of these caveats, you must practice looking at chart patterns by viewing charts of longer timeframes.

Did a similar pattern form in the past? If so, how did the forces of supply and demand react? How often did price reach its expected target? How often did it fail?

Final Thoughts

Analyzing chart patterns and understanding how specific securities react to price patterns can help you determine whether the bulls or bears are in control. This, in turn, can help you strategize your trades by identifying entry points, exit points, and stops.

Chart Pattern FAQs

What are chart patterns?

Chart patterns are a visual representation of the forces of supply and demand behind stock price movements. The patterns help traders identify if more buying or selling is happening, which can help make entry and exit decisions.

How many different types of chart patterns are there?

There are thousands of chart patterns, but most generally fall under two broad categories—continuation patterns and reversal patterns. Continuation patterns are often a pause in a trend and indicate that the trend direction before the pattern will continue after price breaks out of the continuation pattern. Reversal patterns indicate a change in trend and are usually considered top and bottom formations.

How can I use the StockCharts platform to scan for various chart patterns?

You can use the Predefined Scans to scan for specific chart patterns. You could also create your own scan in the Scan Workbench.