Technical Analysis8 min read
10 Chart Patterns That Signal Breakouts and Reversals
Head and shoulders, triangles, flags, and channels — learn the chart patterns that predict major price moves. Flags, wedges, triangles and head and shoulders.
Why Chart Patterns Work
Chart patterns represent the collective psychology of market participants. They show where buyers and sellers have repeatedly clashed, and where one side is about to win. The key is not the pattern itself but the volume confirmation and the breakout direction.
Reversal Patterns
- Head and Shoulders: Three peaks with the middle highest — bearish reversal. Target: height of head below neckline
- Inverse Head and Shoulders: Three troughs with middle lowest — bullish reversal. Target: height of head above neckline
- Double Top: Price hits same high twice then drops — bearish reversal
- Double Bottom: Price hits same low twice then rises — bullish reversal
- Triple Top/Bottom: Same as double but three touches — stronger signal
Continuation Patterns
- Bull Flag: Sharp rise followed by slight downward channel — continuation up
- Bear Flag: Sharp drop followed by slight upward channel — continuation down
- Ascending Triangle: Flat top, rising bottom — bullish breakout likely
- Descending Triangle: Flat bottom, descending top — bearish breakout likely
- Symmetrical Triangle: Converging lines — direction uncertain, trade the breakout
Trading Chart Patterns
- Always wait for the breakout candle to close — false breakouts are common
- Volume should increase on the breakout
- Measure the pattern height to project the target
- Stop loss goes on the opposite side of the pattern
Disclaimer: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 70-80% of retail investor accounts lose money when trading CFDs. Backtesting does not guarantee future results. Always consider whether you can afford the potential loss of your capital.