5 Most Popular Chart Patterns

Chart patterns play an important role in the life of a trader. Regardless of your trading style or level of experience, charts will help you identify and execute profitable trades.

Below, we look at five popular chart patterns you can leverage in your trades. Remember: all chart patterns are a way of viewing a series of price movements over a specific period.

  1. Double Tops and Bottoms

The double top or double bottom pattern are easy to recognize and simple to apply, making them a favorite for many technical traders. To identify a double top or double bottom, you need to look for a sustained trend when price action tests the same support or resistance twice without setting a new high or low. For example, if the EUR/USD rises to 1.1980, falls and then reaches that level again without a breakthrough, you’ve identified a double top formation. If the EUR/USD falls to 1.1850 twice over a specified period without a lower low, you’ve just witnessed a double bottom. These patterns signal the start of a trend reversal.

  1. Gaps

Gaps occur when the price of an asset opens much higher or lower than the previous close. If there’s a gap, the new price represents an important price level. Gaps higher create support that will allow the asset to move higher, whereas gaps lower create resistance that could drive prices lower. Pay close attention to gaps when you start your trading day.

  1. Triangles

Triangles frequently appear in forex trading. They can be symmetrical, ascending and descending, depending on the nature of the pattern. They can last anywhere from a few weeks to several months. Symmetrical triangles are represented by two trend lines converging on each other. Ascending triangles can be identified by a flat upper trend line and a rising lower trend line. A descending triangle have a flat lower trend line and a descending upper trend line.

  1. Head and Shoulders

Like the name implies, this charting pattern looks like a head and shoulder formation. When a head and triangle pattern occurs, we typically see a rise within an existing uptrend to a new high. This creates the left shoulder. Prices move lower before rebounding to another new high to form the head. Then we typically see prices fall again toward levels that are consistent with the left shoulder, which creates the right shoulder. By connecting the lows following the left should and head formations, we can identify the neckline. This is the level we carefully monitor.

  1. Flags and Pennants

Flags and pennants aren’t as easy to identify as the other chart patterns, but typically represent a price consolidation following a sharp rise or fall in price. A flag is usually identified by a small rectangular pattern that forms against the trend, while pennants are small symmetrical triangles that look similar. For short-term trades, traders look at the length of the “flagpole,” which is “the left vertical side of the pattern applied to the point of the breakout, as with the triangle patterns.” These patterns usually last a few weeks; if they last longer than that, they are usually re-classified as rectangle patterns of symmetrical triangle patterns.

[1] Justin Kuepper. Technical Analysis: Chart Patterns. Investopedia.

[2] StockTrader.com (18 May 2017). “5 Great Stock Chart Patterns Every Investor Should Know.”

[3] Justin Kuepper. Technical Analysis: Chart Patterns. Investopedia.

[4] Justin Kuepper. Technical Analysis: Chart Patterns. Investopedia.

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