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Types of chart patterns

Chart patterns are of two main types – reversal and continuation. The first indicates that a change is expected in the direction of the price move. The latter shows that, after some consolidation, it is more likely that the previous trend will resume. Knowing what chart pattern is in process of formation enables us to find better entries and to determine with greater accuracy the potential risk and profit.

The most popular trend reversal patterns are: head and shoulders , double top/bottom, rounded top/ bottom, 1-2-3 top/bottom, V - top/bottoms. When you see one of these patterns you can expect that that the direction of the preceding and subsequent price moves will be different.

The most popular continuation chart patterns are: flag, various types of triangles, pennant, rectangle, wedge. Common to them is that the consolidation takes place between two lines, one of which is support, and the other resistance. Differences are reflected in the extent to which the lines are parallel to each other or to the x-axis.