Stock Chart Patterns

Now we have looked at candlestick patterns, it is time to look at stock chart patterns.

Stock chart patterns can be a very important part of technical analysis. Some chart patterns can accurately pin point tops, bottoms, continuations and reversal points.

Head and Shoulders Pattern

A head and shoulders pattern is one of my favorite chart patterns. I have found it to be one of the most reliable  patterns for picking out tops and bottoms.

As the name suggests, this chart pattern is made up of a head and two shoulders. The head is a high point and the two shoulders are two lower highs  either side of the head, just like in the picture above.

This chart pattern is excellent for picking out reversal points. There have been many occasions where a head and shoulders pattern has formed before a significant reversal. A good example is the Dow Jones. At the end of 2007, the Dow Jones weekly chart formed a head and shoulders. We all know what happened next.

Double top

I like chart pattern. It is where price makes two identical highs. A double top is often a sign of a reversal. If a price changes direction three times at a particular price, this is known as a triple top.

A previous high and double top will often provide resistance and if the resistance is not broken, it can even be a sign that a reversal is on the horizon.

Double Bottom

As you now know what a double top is, i’m sure you can guess that the double bottom chart pattern is the exact opposite of the double top.

A double bottom is where fails to break through two identical bottom points. If this happens three times, it is known as a triple bottom.

The Wedge


A wedge chart pattern is made up by drawing two trend lines. The first one over the highs and the second one over the lows.

In a wedge pattern, the range of a stock is narrowing, both trend lines get nearer to each other, they would eventually meet each other if price didn’t break through.

If the current trend is upwards, both the trend lines will be pointing upwards (ascending). If the current trend is down, the lines will be pointing downwards (descending).

Each trend line must connect to at least two price points.

In the chart above the current trend is ascending. If price breaks out of an ascending channel to the downside, it can often be a sign that a  reversal may occur.

Here is another other wedge pattern to help you get the idea:


Flag Pattern


The way I think of flag patterns is simply by imagining a pole and a flag attached to it. The pole is long up trend, and the flag is a period of consolidation. The consolidation period usually has trend lines that are sloping a little. These trend lines often act as support and resistance until they are broken.

A flag pattern is continuation pattern. This means that after the period of consolidation there is a good chance the the trend will continue in the same direction like in the example shown above.

Pennant Pattern


A Pennant Pattern is very similar to a flag pattern. The only difference is that instead of consolidation period forming a rectangle, it forms a triangle like the one above.


I can understand that it may seem a little confusing at first. Despite this it is definitely worth learning these chart patterns. They can be very useful.

Chart patterns are often an important part of a strategy, but it is important that you still employ good risk management and have a solid set of stock trading rules.

It is definitely worthwhile testing your chart pattern strategies on a simulated stock trading account prior to trading a real money  account. This allows you to make your “newbie” mistakes without losing money.

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