Chart patterns are patterns that form on a price chart of any market. They can help a trader forecast future price movements.
With hundreds of chart patterns to learn, it can be a challenge to find the best chart patterns to narrow down and focus on.
To help narrow the focus, there are a number of the top technical analysis chart patterns listed below.
The 12 best chart patterns are:
- Cup And Handle
- Double Tops
- Double Bottoms
- Bull Flags
- Bear Flags
- Rising Wedges
- Falling Wedges
- Ascending Triangle
- Descending Triangle
- Head And Shoulders
- Rounding Bottom
These are the most common chart pattern used by traders and investors. These patterns can be used on multiple timeframes and work for both day traders and swing traders.
These chart patterns offer buying and selling signals to traders.
Cup And Handle Patterns
The cup and handle pattern is a bullish chart pattern in technical analysis. These patterns are shaped like a cup and handle and can be found in multiple markets.
In the above chart, there is a handle shape (annotated “handle”) and a cup shape (annotated “cup”).
The buying signal occurs when the price breaks above the resistance level of the cup and handle (the horizontal line on the above chart).
Double Top Chart Patterns
Double tops are a bearish chart pattern that signal a potential price reversal from bullish to bearish.
In the above chart, a double top chart pattern form when price makes a high (annotated “1” on the chart) and then makes another high (annotated “2” on the chart).
The trade entry is when it breaks the support level (the horizontal line on the chart).
The double top clearly forms two resistance levels on a chart.
Double Bottom Chart Patterns
Double bottoms are chart patterns that signal a potential future bullish movement in the market where the pattern forms.
This pattern forms two clear support levels (as annotated “1” and “2” on the chart).
The buy entry is when the price breaks through the resistance level (dotted line on chart).
These patterns are used frequently by traders and they are great to use as they are easy to learn.
Bullish flags are patterns commonly used by traders to spot potential future bullish moves in markets.
These patterns are shaped like flags as evident from the above chart.
A buy entry is triggered when the price breaks out of the tight range at the top of the flag pattern.
Bearish flags are patterns shaped like an upside down flag. They are common patterns used for providing short triggers in any financial markets.
Wait for a price downtrend and a consolidation, as evident on the above chart.
A rising wedge pattern occurs when the price tightens up between two upward-sloping trendlines.
These wedges offer potential shorting opportunities in the markets where they form.
A falling wedge pattern forms when downward price tightens within two downward sloping trendlines.
These patterns signal a potential future bullish move in the market where the pattern forms.
An entry occurs when price breaks through the downward sloping resistance level.
Ascending triangles are popular bullish chart patterns that traders attempt to find in different markets.
These patterns signal potential higher prices.
This pattern is drawn with higher lows and a flat horizontal resistance level (as annotated on the above chart).
Descending triangles are popular bearish chart patterns used by traders and technical analysts to forecast potential lower prices in the markets.
In the above chart, there are lower highs (as annotated) and a horizontal support level.
A short signal is triggered when price breaks through the horizontal support level.
These are some of the most popular chart patterns used for signaling shorting opportunities in any financial instruments.
A channel is an orderly price movement in a trend, either up, down or sideways. In the above chart, there is a clear down channel with support and resistance levels (black lines).
An entry is triggered when the price breaks out from the channel.
Head And Shoulders
A head and shoulders chart pattern is a bearish chart pattern that forms on price charts of financial markets. It can signal a potential short trade opportunity.
The head and shoulder chart pattern looks like a head and shoulders, hence the name.
In the above example, there is a left shoulder on the left, a head in the middle and the right shoulder on the right.
The neckline is the area where shorts are initiated.
The rounding bottom pattern is a bullish chart pattern that resembles a saucer or U shape.
This pattern forms when there is a steep decline in price, followed by a consolidation and then a price rise.
A trade entry is initiated when it breaks the horizontal resistance as evident on the chart above.