What are chart patterns?

A chart pattern is a shape built from a few swing highs and lows that traders recognize from experience: peaks at the same price, lows that keep rising, a tight pause after a sharp move. Underneath, each one is made of support and resistance and trend lines. The pattern gives those lines a name and a plan: what has to happen to confirm it, where it would be wrong, and how far the move is often measured.

The classic catalog is Technical Analysis of Stock Trends by Robert D. Edwards and John Magee, first published in 1948 and revised many times since. It sorts the shapes into reversal patterns and consolidation (continuation) formations and gives a chapter to their measuring implications. In their foreword, the authors credited much of the first part to the earlier research of Richard Schabacker.

Reversal patterns form at the end of a trend and suggest it may turn. Continuation patterns form as a pause inside a trend and suggest it may resume. Both are context, not predictions: they show you where the decision point is, not which way it will go. If technical analysis is new to you, start with technical analysis for beginners; for one- to three-candle signals, see candlestick patterns.

Neckline
The line that confirms a head and shoulders or a double top or bottom. In a top it runs through the lows between the peaks; in a bottom, through the highs between the troughs. The pattern is complete only when a candle closes beyond it.
Breakout level
The edge of a continuation pattern, such as the top of a flag, the flat side of a triangle or the boundary of a rectangle. A close beyond it confirms the pattern.
Measured move
A target convention: take the height of the pattern, or the length of the flagpole, and project it from the breakout point. It is a reference for planning, not a forecast.
False breakout
A close beyond the confirming line that quickly reverses back inside the pattern. Also called a fakeout or a failed pattern.

What is a head and shoulders pattern?

A head and shoulders top forms after an uptrend. Price makes a peak (the left shoulder), pulls back, rallies to a higher peak (the head), pulls back again, then makes a lower rally (the right shoulder) that fails beneath the head. The neckline connects the two pullback lows. In the drawing at the top of this page it is the line labeled neckline, and the pattern only counts once price breaks below it.

Until that break, the uptrend has not reversed; the right shoulder could still turn into a new high. A close below the neckline completes the pattern. Classic descriptions expect lighter volume on the rally to the head than on the left shoulder, lighter again on the right shoulder, and expanding volume on the break. The neckline can slope; one that slopes down is usually read as more bearish than one that slopes up.

A hypothetical example: the left shoulder peaks at $54.00, the head at $56.00 and the right shoulder at $54.20, with both pullback lows near $52.00. The head sits $4.00 above the neckline, so the measured-move convention puts a target at $52.00 minus $4.00, or $48.00. A candle closes at $51.70. A short there with the usual stop just above the right shoulder, at $54.40, risks $2.70 to aim for $3.70, well under 2 to 1. A tighter stop above the last small swing high before the break, say $52.90, risks $1.20 but gets hit by ordinary noise more often. The pattern does not make the trade good; the distance to the stop does.

The inverse head and shoulders is the mirror image at the end of a downtrend: three troughs, the middle one deepest, and a neckline across the two rally highs. A close above the neckline completes it, the target convention adds the head-to-neckline distance to the breakout, and the stop usually goes below the right shoulder. Many technicians treat a jump in volume on the breakout as essential for a bottom and merely helpful for a top. After either break, price sometimes returns to the neckline from the other side before moving on, which can offer a second entry; often it does not.

What is a double top (and a double bottom)?

A double top is two peaks at roughly the same price with a pullback low between them: the M shape labeled double top in the drawing at the top of this page. The confirming line is the low between the peaks. Until price closes below it, a double top is only resistance that has held twice, and plenty of uptrends pause like that and then break higher. After the break, the target convention takes the height from the peaks to that low and subtracts it from the break.

A hypothetical example: peaks at $120.00 and $119.80 with a low of $116.00 between them, so the pattern is $4.00 tall and the convention target after a break is $112.00. A candle closes at $115.70. Shorting there with a stop above the peaks at $120.30 risks $4.60 to aim for $3.70, a poor trade even if the pattern plays out. Two days later price bounces to $116.40, stalls under the old low and closes at $115.90. A short on that retest, with the stop above the retest high at $116.70, risks $0.80 for the same target. Not every break gives a retest, and missing a trade costs nothing.

A double bottom is the mirror, a W: two lows near the same price, confirmed by a close above the high between them, with the stop below the lows or below a retest low. Triple tops and triple bottoms add a third test of the same level. They are confirmed the same way, by a close beyond the lowest low (or highest high) between the tests, and measured the same way. Classic descriptions expect lighter volume on the second peak of a double top and expanding volume on the break.

What are continuation patterns? Flags, pennants and triangles

Continuation patterns are pauses. After a strong move, price rests in a small, orderly shape while volume usually shrinks, then breaks out in the direction of the earlier trend, or fails. The drawing below shows three common bullish ones, each ending in a breakout up.

A hypothetical bull flag on a 5-minute chart: a stock runs from $40.00 to $42.00 on heavy volume, a $2.00 flagpole. It then drifts lower in a narrow channel to $41.30 on lighter volume. A candle closes at $41.80, above the channel top at $41.70. The convention target is $41.70 plus $2.00, or $43.70, and a stop just under the flag low at $41.25 risks $0.55. But the prior day's high at $43.00 sits in the way, so many traders plan the first target there: $1.20 of reward, a little over 2 to 1. The breakout trading strategy guide covers entry choices in detail.

  • Bull flag: a sharp rise, the flagpole, then a small channel that drifts down against the trend. The breakout is a close above the top of the channel. The target convention adds the flagpole length to the breakout level, and the stop usually goes just below the low of the flag. A bear flag is the mirror after a sharp drop.
  • Pennant: the same flagpole, followed by a tiny triangle of converging lines instead of a sloping channel, with the same breakout, target and stop logic. A flag that drags on becomes a rectangle, and a pennant that drags on becomes a symmetrical triangle.
  • Ascending triangle: a flat top made by two or more similar highs, with rising lows beneath it. Buyers keep stepping in higher, so the pattern leans bullish. The breakout is a close above the flat top; the target convention adds the widest height of the triangle to it; the stop usually goes below the last higher low.
  • Descending triangle: the mirror, with flat support at the bottom and falling highs above it, and a bearish lean. It is confirmed by a close below the flat support.
  • Symmetrical triangle: at least two lower highs and two higher lows converging toward a point, the apex. It has no lean of its own. It often breaks in the direction of the prior trend, but not always, so you wait for the close. A break that comes right at the apex is generally read as less meaningful.

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Three hand-drawn line charts: a bull flag (a sharp rise labeled flagpole, a small down-sloping channel, then a breakout up), an ascending triangle (flat resistance on top, rising lows, then a breakout up) and a symmetrical triangle (lower highs and higher lows converging after a rise, then a breakout up).

Wedges, rectangles and the cup and handle

A wedge looks like a triangle in which both lines slope the same way. In a rising wedge both lines climb and converge: price still makes higher highs, but each push gains less. It leans bearish whether it forms at the top of an uptrend or as a bounce inside a downtrend, and it is confirmed by a close below the lower line. A falling wedge is the mirror, with a bullish lean, confirmed by a close above the upper line, ideally on a clear rise in volume. There is no standard measuring rule for wedges, so traders target the next support or resistance level instead.

A rectangle is a plain trading range: two or more similar highs and two or more similar lows, with price bouncing between them. It is neutral until a candle closes outside it. The target convention adds the height of the range to the breakout, and the stop goes back inside the range. A brief rectangle right after a sharp move is usually treated as a flag.

The cup and handle was introduced by William O'Neil in his 1988 book How to Make Money in Stocks. After an advance, price forms a rounded, U-shaped base (the cup), climbs back toward the old high, then makes a short, shallow pullback near the top of the right side (the handle). The trigger is a close above the handle's high, ideally on a clear increase in volume. Sharp V-shaped bottoms do not count. The target convention adds the depth of the cup to the breakout, and the stop usually goes below the handle's low.

How do you confirm a chart pattern? Close, volume and the retest

Confirmation comes down to three checks that work the same way for every pattern in this guide. Skip any of them and you are trading a drawing, not a break.

There is also a patient option. After a break, price sometimes comes back to test the broken line from the other side. Entering on that retest, once a candle holds the line and closes away from it, gives a tighter stop, at the price of missing the moves that never look back.

  1. A close beyond the line. A wick through the neckline or the top of a flag that closes back inside is a rejection, not a breakout. Judge only closed candles on the timeframe you trade, as the guide to reading candlesticks explains.
  2. Above-normal volume on the break. Inside a consolidation, volume tends to shrink; on a real breakout more traders act at once, so volume should expand. On intraday charts, compare it with the usual volume for that time of day, since the open is always busier than lunch.
  3. Room and direction. The break should point the same way as the bigger trend, and there should be room to the next level before your target. A bull flag breaking out right under the daily high has little space to run. The multi-timeframe analysis guide shows how to check the bigger picture.

How measured-move targets and stops work

The measured move is a convention handed down from the classic chart books, not a law of the market. Price has no idea how tall your pattern was. It often stalls at an earlier support or resistance level before reaching the measured target, and sometimes runs far past it. Use the measurement to answer one question: is there enough room between entry and the likely target to justify the stop?

The stop goes where the pattern would be proven wrong, which is why every pattern has a natural place for it. Compare the distance to the stop with the distance to the target before entering; many traders want at least twice as much reward as risk, as in the drawing below. Then size the position so a stop-out costs a small, planned share of the account. The position size calculator does the math, and the risk-reward ratio and stop loss and take profit guides go deeper.

  • Head and shoulders top: target = head-to-neckline distance projected down from the break; stop above the right shoulder, or above the last swing high before the break for a tighter one. Inverse: the mirror image.
  • Double or triple top: target = height from the peaks to the low between them, projected down from the break; stop above the peaks, or above a retest high. Bottoms: the mirror image.
  • Flag and pennant: target = flagpole length added to the breakout; stop below the low of the flag or pennant.
  • Triangles and rectangles: target = widest height of the pattern added to the breakout; stop below the last higher low of an ascending triangle, or back inside a rectangle.
  • Cup and handle: target = depth of the cup added to the breakout; stop below the handle.
  • Wedges: no standard measurement, so target the next level; stop beyond the last swing inside the wedge.

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A hand-drawn trade plan: an entry line, a red box down to the stop labeled risk = 1R, a green box up to the target labeled reward = 2R, and a note reading R:R = 1:2.

Why do chart patterns fail?

Patterns fail often, and clean-looking ones fail too. A false breakout is a close beyond the line that reverses back inside within a few candles. It happens because a breakout level is where many traders' orders sit: buy stops above a flag, sell stops below a neckline. Once those fill, if no new buyers or sellers follow, price falls back, and the trapped traders then have to exit, which can push price quickly the other way.

A hypothetical failure, shown as plainly as a success: an ascending triangle on a 15-minute chart has a flat top at $75.00 and rising lows at $73.80, $74.30 and $74.60. A candle closes at $75.25 on ordinary volume. A buyer there with a stop below the last higher low, at $74.50, risks $0.75 a share. The next candle closes back at $74.80, inside the triangle, and two candles later the stop fills. On 200 shares that is a $150 loss, planned and limited. Price keeps falling to $73.50; a trader who skipped the stop and hoped would be down $350 instead.

Patterns also look far more obvious in hindsight than they do live. On a finished chart you see the completed head and shoulders. In real time, the right shoulder is just a bounce that might become a new high, every rally could be the head of something, and two traders will draw the same neckline a few cents apart. Memory makes it worse, because the patterns that worked are the ones people remember and share. Treat a pattern as a hypothesis with a defined exit, never as a forecast. The usual warning signs:

  • The breakout candle, or the one after it, closes back inside the pattern.
  • Volume on the break is no higher than normal for that time of day.
  • The break runs straight into a nearby level, such as the prior day's high or low.
  • The pattern points against the bigger trend.

How to draw chart patterns on TradingView

TradingView has what you need in the drawing toolbar on the left, under Trend tools and Patterns. Draw the lines first and name the pattern second: if you cannot draw a clean neckline or breakout level through at least two touches, there is no pattern to trade. The drawing below shows the habit with a simple trend line: three touches circled and numbered, a dashed parallel line over the highs, and a close below the line labeled break. The trend lines guide covers drawing them in depth.

A note on our own tool, so you can weigh it: UpTickFlow, our invite-only TradingView indicator, does not detect chart patterns. It waits for a candle to close at a support or resistance level, then draws the entry, stop and target, scores the setup from 0 to 100 and stays quiet in choppy conditions. Use it, if at all, as a second check that the level under a pattern is worth trading, not as a pattern scanner. It costs $19 every 30 days; see the pricing page or the home page.

  1. Mark the swing highs and lows on the timeframe you trade, then check the next higher timeframe for the trend.
  2. Draw the confirming line with Trendline or Horizontal line (under Trend tools): the neckline, the flat top of a triangle or the edges of a rectangle. Use Parallel channel for a flag.
  3. If you like labeled shapes, the Patterns group has a Head and shoulders pattern tool and a Triangle pattern tool.
  4. Measure the pattern with the Price range tool (under Forecasting and measurement tools) and copy that height to the breakout point to see the measured-move reference.
  5. Plan the trade with the Long position or Short position tool, so you see entry, stop, target and reward-to-risk before you commit.
  6. Set an alert on the line if you like, as shown in the TradingView alerts guide, then judge the closed candle yourself.

Turn your phone sideways to read the drawing. Tap to close.

An uptrend with a rising trendline drawn under three higher lows, the touches circled and numbered 1, 2 and 3, a dashed parallel channel line over the highs, and a final candle that closes below the trendline, labeled break.