How to Recognize 10 Chart Patterns You Must Use for Trading Properly

When it comes to Price Patterns in technical analysis, many people often think of them as complex tools. But in reality, Price Patterns are about reading the stories already written on the price chart. Once you understand how to read them, the world of trading will open up to reveal hidden opportunities. This article will take you to explore the secrets of Price Patterns and introduce 10 essential types every trader should know.

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Price Pattern is the “Language” of the Price Chart

Price Pattern or Chart Pattern refers to recurring formations of price movements caused by the battle between buyers and sellers. These can help traders predict the next direction of the price.

Why does it work? Because human psychology tends to be quite consistent. Day traders and long-term investors often respond similarly to price situations, causing the same patterns to repeat on the chart multiple times.

Additionally, Price Patterns reflect the strength of buying and selling forces over different periods, allowing traders to identify which patterns are worth watching and which should be ignored.

Understanding the 3 Main Types of Price Patterns

All Price Patterns can be categorized into 3 types, each telling a different story:

Type 1: Reversal Pattern - Signals of Trend Change

Reversal Pattern is a warning that “the current trend is about to end.” An asset that has been falling may start to stabilize, or an asset that has been rising may break out.

The key point is that Reversal Patterns often occur at extreme points—either at the peak of an uptrend or the trough of a downtrend. It’s when buying or selling pressure has become exhausted, giving the opposite side an opportunity.

Type 2: Continuation Pattern - Rest Before the Next Move

Continuation Pattern indicates that “the trend will continue.” The price is consolidating its strength to resume moving in the same direction.

These patterns usually appear in the middle of a strong trend, during a period of buildup before the next surge.

Type 3: Bilateral Pattern - Choosing a Side

Bilateral Pattern suggests “we still don’t know.” Buying and selling forces are battling to a standstill, with no clear direction. Trading volume is light, and the price remains within the same range.

Waiting for either side to gain the upper hand is necessary to determine the true direction.

The 10 Chart Patterns Every Trader Must Know

1. Symmetrical Triangle - When Neither Side Leads

This pattern occurs when highs are gradually decreasing while lows are gradually increasing, causing the price to form a narrowing triangle.

How to Use: The narrower the range, the bigger the breakout when it occurs. Use indicators like RSI or MACD to confirm which side will win.

2. Head and Shoulders - The Most Clear Reversal Signal

Features three peaks with the middle one being the highest. The head is the peak, with two lower shoulders on either side. When the price breaks below the neckline, it signals a trend reversal.

How to Use: Measure from the head down to the neckline, then project that distance downward. That is the target price after the breakdown.

) 3. Double Top and Double Bottom - Two Failed Attempts

Both Double Top ###2 peaks at the same height( and Double Bottom )2 troughs at the same depth( indicate attempts to break through but failing.

Double Top: The price tries to reach a new high twice but fails, indicating a potential reversal downward.

Double Bottom: Two attempts to reach a low suggest selling pressure has exhausted, and buying may take over.

) 4. Rounding Bottom - Rounded Reversal

Instead of sharp turns, the price gradually declines in a curved manner, forming a semi-circular shape.

How to Use: Once the price breaks above the neckline, measure from the lowest point to the neckline; that is the target for upward movement.

5. Cup and Handle - The Longer Pattern

Similar to Rounding Bottom but with a “handle” formation after the cup. After breaking the neckline, the price may dip slightly to form the handle before a strong upward move.

How to Use: Considered a very strong pattern because it tests the breakout twice. The less volume during the handle, the higher the chance of a successful breakout.

6. Rising Wedge - Warning of Potential Reversal

Features higher highs and higher lows, but the highs increase faster than lows, indicating a loss of momentum.

Often occurs after a strong rally, suggesting the price may break downward.

7. Falling Wedge - Potential End of Downtrend

The opposite of Rising Wedge: lows decrease faster than highs, indicating weakening selling pressure.

This pattern warns that the downtrend may be ending, and an uptrend could begin.

8. Flag - Mid-Range Pause

A short rectangular shape that appears after a sharp price move up or down. The price pauses to consolidate before continuing in the same direction.

How to Use: Measure the pole (the initial move), then project from the breakout point to estimate the target.

9. Pennant - Small Triangle Pattern

Similar to Flag but with a narrower, smaller triangle shape. The same principle applies: a pause before continuation.

( 10. Ascending and Descending Triangles

Ascending Triangle )High stays flat, Low rises###: Indicates weakening selling pressure; a bullish sign.

Descending Triangle ###High decreases, Low stays flat(: Indicates weakening buying pressure; a bearish sign.

Important Reminder: Price Patterns Are Not Exact Science

• Subjective: Different traders may interpret the same pattern differently.
• False Signals in Short Timeframes: Patterns on 1-minute charts are more prone to false signals than those on daily charts.
• Volume Matters: Patterns formed with low volume are often false signals.
• Use with Other Tools: Experienced traders never rely solely on Price Patterns; always combine with indicators.

Summary

Price Patterns are a form of trading science that is simple to understand but requires practice and experience to use accurately. The 10 patterns outlined here are fundamental knowledge for every trader, whether trading crypto, stocks, or commodities. This is because Price Patterns are the language of the market, used everywhere.

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