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An Introduction To Technical Analysis Chart Patterns

Patrick Stockdale
Written by Patrick Stockdale | March 10, 2022

Traders that use technical analysis to help them with trading the markets often rely on chart patterns to help govern buying and selling decisions.

Chart patterns can form on price charts of any financial instrument including forex, stocks, cryptocurrencies, bonds, indexes and commodities. They are specific and distinct formations on a price chart that can help indicate the future movements of a financial instrument.

These patterns can give traders and technical analysts an edge in the market and help them to forecast price movements.

Technical analysis chart patterns can be identified by using annotated drawings/trendlines on a price chart of historical price data of a tradable asset.

Types Of Chart Patterns

Traders and technical analysts attempt to find different patterns on a price chart. Types of chart patterns include:

  • Reversal Patterns: Reversal patterns help indicate a potential price reversal or change in a direction of the price trend in the near future.
  • Continuation Patterns: Continuation patterns help signal a potential continuation of the price trend of an instrument/market in the future.
  • Candlestick Patterns: Candlestick patterns are specific patterns that form only on candlestick price charts.
  • Bullish Patterns: Bullish patterns are chart patterns that indicate the price of an instrument may go higher in the near future.
  • Bearish Patterns: Bearish patterns are chart patterns that form on a price chart that indicate the price may go lower in the near future.

These are the types of chart patterns traders and technical analysts attempt to find on the price charts.

They are some of the best chart patterns to use when trading and investing.

Summary
There are 5 types of chart patterns that traders and technical analysts try to find on price charts.

Chart Pattern Examples

Below are examples of chart patterns drawn on price charts.

Continuation Chart Pattern Examples

Continuation chart patterns help indicate a continuation of the price trend.

Continuation price chart patterns include:

  • Bull And Bear Flags: Bull flags and bear flags are patterns shaped like flags and an upside down flag that form on a price chart that signal a potential continuation of the price trend.
  • Price Channels: Channels are patterns that form when price is trending in one direction within a defined price range or channel.
  • Triangle Patterns: Ascending triangles, descending triangles and symmetrical triangles are patterns that occur when price consolidates during a price trend. As the price of the charts gets tighter, it forms these triangle patterns which can signal a continuation of the trend if price breaks out of the triangle.

Below are price charts with these continuation chart patterns drawn on them.

Flag Chart Pattern Example

flag chart pattern example

In the above price chart, a flag pattern forms (annotated in the red lines). The pattern looks like a flag.

This pattern signals a potential continuation of the price movement in the same direction as the trend.

Trendline Support/Resistance Chart Pattern Example

Trendline chart pattern example

In the above trendline chart pattern example, the red line is the rising trendline support level where traders try and join the trend by buying at that level.

The trendline support/resistance chart pattern is a method for traders to join the price trend of a financial instrument with low risk.

Triangle Chart Pattern Example

Triangle chart pattern example

In the above chart, there is an example of a symmetrical triangle chart pattern (annotated in red lines)

The triangle chart pattern signals a potential continuation in price. In the above example, the pattern is signaling a potential move lower in price if it breaks below the lower red line.

Summary
Continuation chart patterns help signal potential continuation in price movements in the direction of the overall trend.

Reversal Chart Pattern Examples

Reversal chart patterns signal the price of the financial instrument is going to reverse from the current trend.

  • Support/Resistance Patterns: These are levels on a price chart where price reversed off in the past.
  • Head & Shoulder Patterns: Head and shoulders patterns are patterns that form on price charts. They are shaped like a head and shoulders and signal a potential reversal of the price trend.

Support/Resistance Chart Pattern Example

Support Resistance Chart Pattern Example

In the above example, there is a resistance price reversal chart pattern. Price trades up into the resistance (red line) and reverses (annotated in the black circle).

Head & Shoulder Chart Pattern Example

Head And Shoulders Example

On the above chart, there is a head and shoulders pattern. The L represents the left shoulder, the H represents the head and the R represents the right shoulder.

This pattern can signal a price reversal. In the above example, it represents price is reversing and going lower.

Summary
Reversal chart patterns signal that the price of an instrument is about to reverse from one trend to another.

Bullish Chart Pattern Examples

Bullish chart patterns help signal that the price of the financial instrument is going to go higher.

Examples of bullish chart patterns include:

  • Bull Flags: These are patterns shaped like a flag on a price chart.
  • Ascending Triangle: The ascending triangle pattern is a pattern that occurs when there is a solid horizontal resistance level with higher lows.
  • Descending Channel Break: The descending channel pattern occurs when there is a downtrend in price and a clear channel as price goes lower. When price breaks the channel, it signals a potential bullish move is coming.

Below are charts with these bullish chart patterns annotated on them.

Bull Flag Chart Pattern Example

bull flag example

The above chart illustrates a bull flag pattern on a price chart (annotated in black).

The pattern looks like a flag and traders attempt to buy when price breaks out above the flag.

Ascending Triangle Pattern Example

Ascending Triangle Example

In the above chart, there is an ascending triangle chart pattern that forms. The buying occurs when price breaks above the horizontal resistance level (marked black on chart).

The lower rising trendline indicates higher lows as price reaches the ascending triangle resistance level.

Descending Channel Break Chart Pattern Example

Downward channel break chart pattern

In the above chart, there is a downward channel pattern. When price breaks the resistance level, it is a bullish signal that price could potentially go higher.

Summary
Bullish chart patterns signal a potential for the price to move higher if it breaks out from the pattern.

Bearish Chart Pattern Examples

Bearish chart patterns help signal that the price of the financial instrument can potentially go lower in price.

Examples of bearish chart patterns include:

  • Bear Flags
  • Descending Triangle
  • Upward Support Trendline Break

Below are charts with these bearish chart patterns annotated on them.

Bear Flag Chart Example

Bear Flag Chart Pattern Example

In the chart above, there is a bear flag chart pattern (annotated in black). This pattern is shaped like an upside down flag and indicates a potential lower price is coming.

Descending Triangle Chart Pattern Example

Descending Triangle Pattern Example

A descending triangle is drawn on the above chart. It signals that price could potentially go lower.

If price breaks the lower horizontal support level, be prepared for lower prices. In the above chart, this is exactly what happens.

Upward Support Trendline Break Chart Pattern Example

Trendline support break pattern example
Summary
Bearish chart patterns signal a potential move lower in the price of an financial instrument or market.

Candlestick Chart Pattern Examples

Candlestick chart patterns are patterns that form on candlestick price charts. They help a trader forecast a future price move in any market where the pattern forms.

Examples of candlestick chart patterns include:

  • Hammer
  • Shooting Star

These candlestick patterns work best when used in conjunction with other patterns.

Hammer Candlestick Chart Pattern Example

hammer candlestick chart pattern

The hammer candlestick pattern is when the price candle forms a hammer shape. The candle forms a relatively short body with a longer wick below the body.

This can indicate a potential bullish move, as evident in the chart above (marked in the black circle).

These hammer candlestick patterns are best used in conjunction with other chart patterns.

Shooting Star Candlestick Chart Pattern Example

shooting star candlestick pattern

A shooting star pattern is a bearish candlestick pattern that signals a potential move down in the near future.

In the above example (marked in the black circle), there is a bearish shooting star pattern followed by a large move lower.

Shooting stars have long wicks with a short body at the bottom of the candlestick.

Summary
Candlestick patterns are patterns that form exclusively on candlestick price charts. They help a trader forecast future moves of any market.

Types Of Price Charts Where Chart Patterns Form

Technical analysis chart pattern traders use different types of price charts to try and find chart patterns. This is a matter of preference for the individual trader.

The types of price charts used to find chart patterns include:

These are the three most common types of price charts used with candlestick price charts being the most widely used in modern trading and investing.

An example of a candlestick price chart is below.

shooting star candlestick pattern
Summary
Traders use different types of price charts to try spot chart patterns. The most popular types of charts are candlesticks, point and figure and line charts.

Frequently Asked Questions

Below are frequently asked questions about technical analysis chart patterns.

Which Chart Patterns Do Traders Use The Most?

Traders use charts patterns like ascending and descending triangles, bull and bear flags and wedge patterns the most.

Does Using Technical Analysis Chart Patterns Work?

Evidence from multiple successful traders suggests that some of the top traders in the world successfully apply chart patterns to profitably trade different markets (1).

These traders are proof that chart patterns, when applied correctly, can work.

How Accurate Are Chart Patterns?

The accuracy of chart patterns will depend on the chart pattern used and the timeframe used. From our chart pattern statistics data, a head and shoulders pattern used in the treasuries market has the highest win rate with an accuracy level of 71%. In contrast, a rounding bottom pattern used in the forex market has the lowest win rate with a 35% accuracy level.