What you'll learn
- Recognise the common continuation and reversal patterns
- Understand what each represents
- Use patterns with structure and levels rather than alone
Continuation patterns
| Pattern | Shape | Reads as |
|---|---|---|
| Flag or pennant | A sharp move followed by a small counter-trend channel or triangle | A pause before the move resumes |
| Ascending triangle | Flat top, rising lows | Buyers pressing on resistance; often breaks up |
| Descending triangle | Flat bottom, falling highs | Sellers pressing on support; often breaks down |
| Symmetrical triangle | Converging highs and lows | Compression; breaks in either direction, usually the trend's |
Reversal patterns
| Pattern | Shape | Reads as |
|---|---|---|
| Double top or bottom | Two swing highs or lows at the same level | A level that has held twice; trend in doubt |
| Head and shoulders | A peak between two lower peaks, with a neckline through the troughs | Buyers failed to make a higher high; break of the neckline confirms |
| Rounded top or bottom | A gradual arc | A slow shift in control |
How to use them
Treat a pattern as a description of the structure, then trade the break of its boundary the way you would trade any breakout: wait for the close, look for a retest, place the stop beyond the pattern's far side. Measured targets, such as projecting the height of a triangle from the breakout point, are rough guides rather than promises. And notice that most patterns are simply support, resistance and structure drawn with extra lines.
What the evidence says
Studies of pattern performance find modest and inconsistent edges, better on higher timeframes and in the direction of the prevailing trend. A pattern with the trend at a level on a daily chart is a reasonable trade. A pattern against the trend on a five-minute chart is a shape.
Key takeaways
- Flags and triangles are pauses; double tops and head and shoulders are failed attempts to continue.
- Trade the break of the boundary as a breakout, with a stop beyond the pattern.
- Patterns are structure with more lines; use them with trend and levels.
- Higher timeframe, with the trend, at a level.
Knowledge check
Trading forex, CFDs and other leveraged products carries a high risk of losing money. This lesson is general education, not advice. Risk disclosure.