Top chart patterns

Head and Shoulders

The Head and Shoulders is formed by a large peak with smaller peaks on both sides. When the chart is formed, it means that the market may have a bearish reversal.

Even though two side peaks are smaller than a central peak, they all have the same support level. It is called a neckline. 

When the third peak falls on the support level again, traders expect a bearish reversal.

Double Top

Double Top is another pattern that signals a trend reversal. The asset climbs to a peak, then drops again to the support level, then climbs again for a while before reversing back and continuing the bearish trend.

Double Bottom

A double bottom indicates that traders are selling the asset, which causes the asset price to drop. The double bottom is formed when the price drops below the support level, then rises to the resistance level and finally drops again.

This chart signals the market reversal and the start of a bullish trend.

Rounding Bottom

The Rounding Bottom chart shows the continuation of a trend or its reversal. 

As an example, during a bullish trend, when the asset price drops, the formation of a Rounding Bottom chart may indicate that after the drop, the price will grow again and will continue the bullish trend.

Cup and Handle

The Cup and Handle chart is formed during a bullish trend and signals the trend continuation. It shows a slight bearish sentiment during a bullish trend, but eventually, the trend continues. The cup looks similar to the Rounding Bottom chart, and the Handle looks like a Wedge pattern that will be explained further.

After the Rounding Bottom, the asset price enters into a retracement stage which is known as a handle. After that, the asset continues its bullish movement.

Wedges

A Wedge can be of two types: falling and rising. A Rising Wedge is formed by the price movement caught between the support and resistance lines, with the support line being steeper than the resistance line. The Rising Wedge signals that the asset price is going to decline as soon as it breaks the support level.

A Falling Wedge is formed when the price is trapped between the support and resistance levels but this time, the trend is falling, the resistance line is steeper than the support line. 

This chart indicates that the asset price will eventually rise as soon as it breaks the resistance level.

Both Falling and Rising Wedges are reversal patterns. The Falling Wedge represents a bullish market, and the Rising Wedge represents a bearish market.

Pennant (Flag)

A Pennant or it is also called a Flag, is formed when the asset price experiences a period of growth, with a consolidation afterward. There is a significant increase in the price during the early stages of a trend. Then, the price enters in a series of smaller movements. This is how the Pennant is formed. A Pennant can be either bullish or bearish. In the example, a bullish Pennant is shown - the asset price continues its bullish movement.

The Pennant pattern can look like the Wedges pattern, but the Pennant can be wider than a wedge. Also, a wedge is descending or ascending, while a Pennant is horizontal.

Ascending Triangle

The Ascending Triangle is a bullish continuation chart. It signals the continuation of a bullish trend. This chart can be built by drawing lines along the resistance and the support levels. 

Normally, the resistance level is formed by two or more similar peaks that allow for drawing a horizontal line.

Descending Triangle

A Descending triangle signals the continuation of a downtrend.

Normally, this pattern shifts downwards and breaks the support level, which indicates that sellers rule the market. So, lower peaks are not likely to reverse soon.

A descending triangle can be formed by drawing lines along the resistance and support levels, but this time, the support line is a horizontal line, and the resistance line is descending.

Symmetrical Triangle

The Symmetrical Triangle pattern is a continuation pattern, so it signals the continuation of either a bullish or a bearish trend. It means that the market will continue the trend which it is when the chart is formed.

A Symmetrical Triangle is formed when the price has several peaks or drops. For example, in the image, the pattern shows a bearish trend, but the Symmetrical Triangle shows a short period of upward movements. 

One shall remember though, that if there was no clear trend when the pattern was formed, the market can start moving in either direction.

Bottom Line

The explained chart patterns can help you to understand what to expect from the market in the nearest future and build your trading strategy correctly. But to trade profitably, you need to combine these patterns with other technical indicators.