Chart Patterns (H&S, Wedges, Flags)
Overview
Chart patterns are geometric price formations that signal continuation or reversal. Major patterns include: Head & Shoulders (reversal), Double Top/Bottom (reversal), Bull/Bear Flags (continuation), Rising/Falling Wedges (reversal), Ascending/Descending Triangles (continuation/reversal). All are measured-move patterns with projected price targets.
Key Concepts
Head & Shoulders: three peaks with the middle highest. Measured target = head-to-neckline distance projected from neckline break. Double Top/Bottom: two peaks/troughs at similar levels. Flags: small rectangle against the trend. Wedge: converging trendlines (rising wedge = bearish, falling wedge = bullish). Triangles: symmetrical, ascending, descending.
Entry Signals
H&S: short on neckline break with volume. Double bottom: buy on neckline break above the peak between the two troughs. Bull flag: buy breakout of the flag with volume. Falling wedge: buy on upper trendline break. Ascending triangle: buy break of flat resistance.
Exit Signals
All patterns have measured-move targets: project the pattern height from the breakout point. Stop on the opposite side of the pattern. Volume confirms: if breakout volume is low, the pattern may fail.
Best Timeframes
4H and Daily are most reliable for pattern formation
Pro Tips
Pattern completion rates improve dramatically when you trade WITH the prior trend. A bull flag in an uptrend has a much higher success rate than a bull flag in a downtrend, which is actually potentially a bear flag in disguise.
More Topics in This Category
Trend Lines & Channels
Trend lines connect swing lows (uptrend) or swing highs (downtrend) to define the trend direction and provide dynamic support/resistance. Channels add a parallel line to create a trading range within the trend. Trend line breaks signal potential trend changes. Valid trend lines require at least two touches, with three or more being more significant.
Bollinger Bands
Bollinger Bands consist of a middle band (20 SMA by default) and upper/lower bands set at 2 standard deviations from the middle. The bands expand during high volatility and contract during low volatility. The squeeze (narrow bands) often precedes a significant move, making Bollinger Bands excellent for volatility-based setups.
Gap Trading Strategies
Gaps occur when price opens significantly above or below the prior close, leaving an unfilled space on the chart. Gap trading strategies exploit the tendency for gaps to either fill (price returning to close the gap) or continue (price extending in the gap direction). Understanding gap types — common, breakaway, runaway, and exhaustion — helps traders determine whether to fade the gap or trade its continuation.
Pivot Points Analysis
Pivot points are mathematically derived horizontal levels calculated from the previous period's high, low, and close that serve as potential support and resistance for the current period. The central pivot point acts as the primary directional bias level, while support and resistance levels above and below provide profit targets and stop placement zones. Pivot points are widely used by institutional and floor traders, creating self-fulfilling price reactions.