Candlesticks tell you what is happening right now. Chart Patterns tell you what might happen next.
Patterns are simply mass psychology visible on a chart. They show the battle between Buyers (Bulls) and Sellers (Bears).
When one side wins, the price explodes. This is called a Breakout.
In this guide, we will cover the 5 most reliable patterns used by professional traders to catch big moves.
1. Reversal Patterns (Trend Change)
These patterns signal that the current trend is dying and a new trend is about to start.
The Head and Shoulders (H&S)
The most famous pattern in trading. It indicates the end of an Uptrend.
- Left Shoulder: Price makes a high and pulls back.
- Head: Price makes a higher high (The peak).
- Right Shoulder: Price fails to make a higher high (Weakness).
- The Neckline: The support level connecting the lows.
Entry: Sell when price breaks below the Neckline.
Double Top ("M" Pattern)
Price hits a resistance level twice and fails to break it.
It looks like the letter "M". It shows that buyers are exhausted.
Entry: Sell when price breaks the neckline support.
2. Continuation Patterns (Trend Following)
These are safer to trade because you are trading with the trend.
The Bull Flag
This forms after a strong vertical move up (The Pole). Price then consolidates downwards in a tight channel (The Flag).
Psychology: Traders are taking profit, but no new sellers are entering. The bulls are just resting before the next leg up.
Entry: Buy when price breaks the top of the flag.
The Triangle (Ascending / Descending)
Price gets squeezed into a tighter and tighter range. Volatility drops.
Like a coiled spring, when it breaks, it moves fast.
3. The "Retail Trap" (Fakeouts)
Be careful. Everyone knows these patterns. The banks know that you know.
Often, price will break the neckline, trigger your Sell Stop, and then immediately reverse up to hit your Stop Loss.
How to Avoid the Trap (The Retest Rule):
- Aggressive Entry: Enter immediately on the breakout candle. (High Risk).
- Conservative Entry: Wait for the breakout, then wait for price to come back and Retest the broken level. If it holds, then enter. (Lower Risk).
4. Measuring Targets
How much profit should you take? Patterns give you a mathematical target.
measured Move:
- For a Head & Shoulders: Measure the distance from the Head to the Neckline. That is your target.
- For a Bull Flag: Measure the length of the Pole. Project that length from the breakout point.
Final Thoughts
Patterns are powerful because they simplify the chaos of the market.
However, context is everything. A Bull Flag at a major Resistance level is dangerous. A Bull Flag in a clear Uptrend is money in the bank.
Verify the trend before trading patterns: Check the Trend with 200 EMA