What Are Chart Patterns?
A chart pattern is a named shape formed by price, such as a double top, a flag or a triangle. Each one comes with a line that has to break before the pattern means anything, and that line is a support or resistance level. The name describes the shape; the level is what you trade.
There are dozens of named shapes and one idea underneath all of them. This page covers three patterns and then the thing they have in common, which is more useful than the other twenty-five.
How it forms
Take the best-known one.
A double top is price reaching the same high twice and failing both times. That is the shape, and on its own it is not tradeable — plenty of charts do this and carry on upward.
What makes it a pattern is the neckline — the low between the two peaks. Until price closes below that, there is no double top, only two highs.
The part worth keeping
That is the identical chart described as two levels. A level tested twice and held, and a second level below that broke.
Everything the pattern told you is in that description, and it needed no name. The shape is a way of talking about the levels; the levels are what price is actually reacting to.
This holds for all of them, which is why this page teaches three rather than thirty.
Two more shapes
A flag is a strong move and a tight pause. Underneath: a pullback that held, inside a trend.
A triangle is a range that narrows. Underneath: compression, and the expansion that follows it — the same idea as the quiet-then-loud section on the price action page.
Two names, two shapes, and both resolve to things this site already covered without them.
Continuation or reversal
The only classification that changes what you do, and it is worth having instead of the names.
A continuation pattern is a pause inside a move — flags, pennants, most triangles. Price arrived going one way and is expected to leave the same way. These are the more reliable group for the plain reason that they agree with what is already happening.
A reversal pattern claims the direction is changing — double tops and bottoms, head and shoulders. That is a bigger claim about a rarer event, and it fails more often.
The practical rule: ask which one you are looking at before you ask what it is called. A shape that agrees with the market structure around it is a different proposition from one betting against it, whatever the textbook calls each.
And if the shape disagrees with structure, structure is the thing with a specific invalidation price in it. The shape only has an outline.
The measured move
The convention is to take the height of the pattern and project it from the break as a target.
It is a convention, not a mechanism. Nothing about a market makes the next move the same size as the last one — but it gives you a number to aim at before you enter, which is better than deciding mid-trade, and that is the honest case for it.
A worked example
Price makes a high, pulls back, and makes the same high again. Nothing to do. Two highs is a trading range so far.
You mark the low between them. That is the line, and it is the only price that matters.
Price closes below the line, and the next candle continues. Now the pattern exists — and note the order: the pattern is confirmed by the break, not the other way round.
The stop goes back inside the shape, above the neckline, because if price is back there the break did not happen.
And the target comes from the measured move, decided at the same moment as everything else. Not because the projection is reliable, but because a number chosen now is worth more than one chosen while the position is open — the argument on the entry and exit page.
The original data
Across our study of 24,971 trading videos, 498 cover chart patterns. The median one gets 2,513 views, 82% never pass 50,000, and the median length is 10.0 minutes.
That is one of the lowest medians measured for this glossary — below breakouts at 5,358 and far below trend lines at 61,185.
The likeliest reading is saturation. Chart patterns are the oldest, most reproduced content in trading education: 498 videos explaining shapes whose definitions have not changed in decades.
The corpus carries description text for 251 of those 498 — one of the largest samples in this glossary — and across those 251, six mention invalidation, failure, or what a bad read looks like.
When it fails
The pattern completes and does the opposite
Two touches of the same high is also what a level looks like just before it breaks. The double top and the breakout are the same picture until one of them resolves.
It was only a pattern once it finished
Every completed pattern is obvious and every incomplete one is ambiguous, and you can only ever act inside the second condition.
The pattern was too small to matter
A double top spanning six candles on a five-minute chart is a shape almost nobody saw. The same shape across three months on a daily chart was watched by thousands.
Size and timeframe decide how much is resting behind the line, and a textbook pattern on a chart nobody is watching has nothing behind it at all.
You are pattern-matching a random chart
Humans find shapes in noise reliably, and a chart with thirty named patterns available will always contain one that fits what you already want to do. The level test is the defence: if you cannot name the line and what happens when it breaks, there is no trade in the shape.
Related
Support and resistance is what every pattern on this page resolves to, and it is the more useful thing to learn first.
Breakout is what the neckline break actually is, including why it fails so often.
And trading range is what a double top is before it becomes one.
I do not trade shapes and I do not think in their names. What I look at is where the level is and whether it broke properly - a close through it and then a candle going the same way. If a shape happens to be there too, fine, but I have never found that knowing it was called a bear flag rather than a pullback changed a single decision. The names are a way of talking about charts, not a way of reading them.
— Michael Whitman, from this video
This page is educational, not financial advice. Test every idea on your own charts before risking money.