Chart pattern

Family VI · Charts & indicators

Not to be confused with bar chart, candlestick pattern, engulfing candlestick pattern.

Chart pattern is a general term for any recurring shape traced by price on a chart, such as a triangle, rectangle, head and shoulders, or double top. Patterns are descriptive tools: they summarise how price has moved, not why, and any implication for future prices is probabilistic rather than guaranteed. They appear on all timeframes and in all markets, and are usually classified as continuation patterns or reversal patterns.

How a pattern is formed

A pattern is defined by the sequence of highs and lows that price prints over a chosen interval. Two or more touches of a similar level form a horizontal boundary; a series of higher highs and higher lows forms an uptrend; converging boundaries form a triangle. The pattern is only complete once the required number of swings has occurred, so the same shape can look different while it is still forming.

Because the boundaries are drawn from past data, different analysts may place them slightly differently, and a pattern that looks clear on one timeframe may be invisible on another. Patterns are therefore best treated as a framework for organising price information rather than as fixed signals.

Worked example

A trader identifies a rectangle on a daily chart: price has touched roughly 1.2500 three times and roughly 1.2300 three times.

Rectangle breakout measurement

Upper boundary1.2500Resistance

Lower boundary1.2300Support

Pattern height1.2500 − 1.23000.0200

Measured target after upside break1.2500 + 0.02001.2700

The measured target is a convention, not a forecast: it projects the height of the pattern from the breakout point. Whether price reaches it depends on liquidity, news and the timeframe used, and the figure varies with the boundaries chosen.

Continuation and reversal patterns

Continuation patterns include triangles, flags and pennants, which suggest a pause within an existing trend.
Reversal patterns include head and shoulders, double tops and double bottoms, which suggest a possible change of direction.
Bilateral patterns such as rectangles and symmetrical triangles have no built-in direction and depend on which boundary breaks first.

Classification is a matter of convention and hindsight; the same shape can resolve either way, and a failed pattern is itself information about supply and demand at those levels.

Limits and usage

Patterns are subjective, and identification after the fact is easier than in real time. They do not specify position size, stop placement or holding period, and their reliability varies by market, timeframe and the liquidity conditions in force. Many traders combine them with volume, momentum indicators or support and resistance levels rather than acting on the shape alone.

Often confused with

bar chart: A bar chart is a chart type that draws each period as a vertical bar with open, high, low and close marks, whereas a chart pattern is a shape formed by any such series of bars; the visible sign is that the bar chart is the drawing method, while the pattern is the shape the drawing makes.
candlestick pattern: A candlestick pattern is a short, specific formation of one to three candles, such as a hammer or doji, whereas a chart pattern is a larger structure built from many bars; the visible sign is the number of periods involved, with candlestick patterns spanning a few candles and chart patterns spanning dozens.
engulfing candlestick pattern: An engulfing candlestick pattern is a two-candle formation in which the second real body completely covers the first, whereas a chart pattern is a multi-swing structure; the visible sign is that the engulfing pattern can be spotted in two adjacent candles, while a chart pattern requires a sequence of highs and lows across the chart.