Technical Analysis·Support, Resistance & Trendlines
Chart Patterns
Patterns That Repeat Across All Markets
Classic chart patterns form over days, weeks, or months and represent identifiable psychological battles between buyers and sellers. When these patterns resolve, they often provide powerful directional trades with measurable price targets. Chart patterns are among the oldest tools in technical analysis, with some dating back to Charles Dow's work in the early 1900s. Their longevity speaks to their effectiveness.
What makes chart patterns so valuable is that they come with built-in measured move targets. Unlike many other technical tools that tell you direction but not distance, chart patterns give you a mathematical framework for calculating how far price is likely to travel after the pattern resolves. This makes position sizing and risk management significantly more precise.
Three classics · triangle, head & shoulders, double top
Head & Shoulders — The Most Reliable Reversal
Definition
Head and Shoulders
A top reversal pattern with three peaks: a left shoulder (first peak), a higher head (middle peak), and a right shoulder (third peak, similar height to the left). The neckline connects the lows between the peaks. A break below the neckline signals a major bearish reversal. This is widely considered the most reliable reversal pattern in all of technical analysis, with historical completion rates of 80-85% once the neckline breaks.
Trading the Head and Shoulders
- 1
Identify the pattern
Three peaks forming a clear head-and-shoulders shape after an uptrend. The neckline connects the two lows between the peaks — it may be horizontal or slightly angled. The right shoulder should ideally be lower than the left shoulder (showing weakening buying).
- 2
Wait for neckline break
The pattern is NOT confirmed until price breaks and closes below the neckline. Anticipating the break without confirmation leads to false entries. Many traders get trapped shorting during the right shoulder formation before the neckline actually breaks.
- 3
Enter the trade
Enter short on the neckline break or on a retest of the neckline from below (the retest is the higher-probability entry with better R:R). Approximately 60-65% of neckline breaks see a retest.
- 4
Calculate the target
Measure the distance from the head to the neckline. Project that same distance downward from the neckline break. This is the measured price target. For example: head at 1.3200, neckline at 1.3000 = 200 pips. Target = 1.3000 - 200 = 1.2800.
- 5
Place stop loss
Stop above the right shoulder. A close back above the right shoulder invalidates the pattern. This gives you a well-defined risk level.
Real-world example: EUR/USD head and shoulders, January 2023
In January 2023, EUR/USD formed a textbook head and shoulders on the 4H chart. The left shoulder peaked at 1.0870, the head reached 1.0930, and the right shoulder topped at 1.0860 (notably lower than the left — a sign of weakening). The neckline at 1.0810 broke on a strong bearish candle. The measured move projected a target of 1.0690 (240 pips from head to neckline, projected down). Price reached 1.0660 within a week, exceeding the target.
Inverse head and shoulders
The inverse H&S (head and shoulders bottom) is the bullish mirror — three troughs instead of peaks, with a break above the neckline signaling a bullish reversal. Same trading rules apply in reverse. Inverse H&S patterns at major support levels on the daily chart are among the highest-conviction long setups. The pattern is also known as a head and shoulders bottom.
Double Top & Double Bottom
A
Double Top (Bearish Reversal)
- Two peaks at approximately the same price level
- Confirmed by a break below the valley between the two peaks
- Signals buyers failed to push above resistance twice
- Target = height of pattern projected downward
- Stop above the double top highs
- Second top often slightly lower than first (weaker buying)
- Volume typically lower on the second peak
B
Double Bottom (Bullish Reversal)
- Two troughs at approximately the same price level
- Confirmed by a break above the peak between the two lows
- Signals sellers failed to push below support twice
- Target = height of pattern projected upward
- Stop below the double bottom lows
- Second bottom often slightly higher than first (weaker selling)
- Volume typically higher on the breakout candle
Historical example: GBP/USD double bottom after Brexit flash crash
In October 2016, GBP/USD flash-crashed to 1.1490 during Asian trading hours. Over the following weeks, the pair formed a double bottom with the second low at 1.2090 in January 2017 — not as deep as the flash crash but testing the same support zone on a closing basis. The break above the neckline at 1.2770 confirmed the double bottom, and GBP/USD rallied to 1.3650 over the following months — a move of nearly 900 pips from the pattern confirmation.
Triangle Patterns — Continuation & Breakout
| Triangle Type | Shape | Bias | Trading Approach |
|---|---|---|---|
| Ascending Triangle | Horizontal resistance, rising support line | Bullish — buyers getting more aggressive | Buy breakout above flat resistance |
| Descending Triangle | Horizontal support, falling resistance line | Bearish — sellers getting more aggressive | Sell breakdown below flat support |
| Symmetrical Triangle | Both lines converging — lower highs and higher lows | Neutral — wait for breakout direction | Trade whichever direction it breaks |
Trading Triangle Breakouts
- 1
Identify the triangle
Mark at least two touches on each boundary line. The more touches, the more significant the pattern. The triangle should form over at least 10-15 candles to be meaningful.
- 2
Wait for the breakout zone
Triangles typically break out when price reaches the last third of the pattern (the apex area). Earlier breakouts tend to be more powerful; breakouts very close to the apex can be weak.
- 3
Confirm the breakout
Wait for a candle to close outside the triangle boundary. A wick-only break is not sufficient. Volume should expand on the breakout candle.
- 4
Calculate the target
Measure the widest part of the triangle (the base). Project this distance from the breakout point in the breakout direction. This is your measured move target.
- 5
Manage the trade
Stop loss goes on the opposite side of the triangle. For an upside breakout, stop below the rising support line. Move to breakeven after the initial thrust.
False breakouts are common
Triangles often produce false breakouts — price briefly breaks out and then reverses back inside the pattern. To reduce false entries, wait for a candle to close clearly outside the triangle (not just wick through) before entering. Volume expanding on the breakout is a positive confirmation. Some traders wait for a retest of the broken triangle line before entering, accepting a later entry for higher probability.
Flags and Pennants
Definition
Bull Flag
A continuation pattern that forms after a sharp upward move (the flagpole). Price then consolidates in a small downward-sloping channel (the flag). When price breaks above the upper flag boundary, the trend resumes. The measured move target is the height of the flagpole projected from the breakout. Bull flags are among the most reliable continuation patterns, especially in trending markets.
Definition
Pennant
Similar to a flag but the consolidation forms a small symmetrical triangle instead of a parallel channel. Pennants form after explosive moves and represent a brief pause before the trend continues. They typically resolve faster than flags and the breakout is often equally explosive. The measured move is the same: flagpole height projected from the breakout.
| Pattern | Formation Time | Breakout Direction | Measured Move |
|---|---|---|---|
| Bull Flag | 1-3 weeks (daily chart) | Upward (continuation) | Flagpole height from breakout |
| Bear Flag | 1-3 weeks (daily chart) | Downward (continuation) | Flagpole height from breakdown |
| Pennant (bullish) | 1-2 weeks (daily chart) | Upward (continuation) | Flagpole height from breakout |
| Pennant (bearish) | 1-2 weeks (daily chart) | Downward (continuation) | Flagpole height from breakdown |
| Ascending Triangle | 2-6 weeks (daily chart) | Usually upward | Base height from breakout |
| Head & Shoulders | 4-12 weeks (daily chart) | Downward (reversal) | Head-to-neckline from breakout |
| Double Bottom | 4-12 weeks (daily chart) | Upward (reversal) | Pattern height from breakout |
Entry
1.0920
Stop
1.0965
Target
1.0790
Head and shoulders pattern on EUR/USD daily chart. Head at 1.1050, neckline at 1.0920. Right shoulder lower than left (bearish). Entry on the neckline break at 1.0920. Stop above the right shoulder at 1.0965. Measured move target at 1.0790 (130 pips head-to-neckline projected down). R:R approximately 1:2.9.
Knowledge check
In a head and shoulders pattern, where is the price target measured from?
Knowledge check
An ascending triangle has flat resistance at 1.2500 and a rising support line. Price breaks above 1.2500 with strong momentum. The widest part of the triangle is 150 pips. What is the measured move target?