Technical patterns are visual formations on stock charts that traders use to predict future price movements. Recognizing these patterns can help in making informed trading decisions, whether anticipating a reversal or a continuation of the current trend.

Common Reversal Patterns

Reversal patterns indicate a change in the current trend direction. They often appear after a sustained move and signal that the trend may be about to reverse.

Head and Shoulders

This pattern features three peaks: a higher peak (head) between two lower peaks (shoulders). It signals a potential trend reversal from bullish to bearish.

Double Top and Double Bottom

A double top resembles an 'M' shape and indicates a possible downward reversal after an uptrend. Conversely, a double bottom looks like a 'W' and suggests a potential upward reversal following a downtrend.

Continuation Patterns

Continuation patterns suggest that the current trend will persist after a brief consolidation or pause. Recognizing these patterns helps traders stay in profitable trades.

Flags and Pennants

Flags are rectangular-shaped consolidations that slope against the prevailing trend, while pennants are small symmetrical triangles. Both indicate a brief pause before the trend resumes.

Cup and Handle

This pattern resembles a tea cup with a handle and signals a bullish continuation. It forms after an upward trend, with the 'cup' being a rounded bottom and the 'handle' a small consolidation.

  • Head and Shoulders
  • Double Top and Double Bottom
  • Flags and Pennants
  • Cup and Handle