We’ll start with simple patterns that can be recognized on a line chart.

Patterns that show you what an asset is DOING and maybe what it’s ABOUT to do, as well. Beyond using technical indicators, these are at the very BOTTOM of technical analysis. Now, often, you’ll be seeing more than one pattern in front of you. Knowing which one to follow is a question of experience and context – bullish, bearish or trending markets. And always remember that these patterns are INDICATIONS, not holy writ. Before you go investing your hard-earned cash, make sure you have at least 3 good reasons to do so – at least one of them fundamental.

Most chart patterns are named for their shape. The head-and-shoulder is just that – a higher middle peak – the head – surrounded by 2 smaller peaks – the shoulders. The shoulders begin and end the pattern at support, and we can expect the trend to continue south after failing thrice to break resistance. The momentary support level in between is referred to as a neckline.

A double top is another failed attempt to break through resistance. It’ll usually come at the end of a rising trend, and – again – we can expect a bearish continuation. It’s called a double top, of course, because it tried to break through resistance twice. In general, the more times we try to break through either resistance or support, the stronger the level becomes.

The double bottom is the exact opposite of the double top. We also have TRIPPLE tops and bottoms. Notice here that the neckline is more pronounced.

Don’t bother looking for the saucer in the Cup and Saucer pattern. Instead, you should look for the handle. It’s a kind of retracement but with a rounded bottom, probably because market sentiment is undecided. The handle is ALSO a retracement, but mainly on profit-taking. We can expect, here, the trend before the pattern  to continue.

Our next couple of patterns show a consolidation in prices – the narrowing of volatility that comes before a reversal. We start with our wedges, which can be either rising or falling. As you can see, resistance and support here are slanting towards each other without actually meeting. Wedges can either rise or fall. And usually, when one side is more slanted than the other, it’s going to be weaker. So that we can see in our rising wedge a break to the downside and vice versa in our falling wedge, where resistance is eventually breached.

A pennant is a bit like a wedge, only we can see support and resistance nearly meeting. While the wedge usually appears in an up or down trend, the pennant usually signifies the end of a SIDEWAYS trend. What we have here is that rapidly diminishing volatility that usually prepare us for a new phase – reverse or breakthrough.

Triangles are ALSO a bit like wedges, only with one line nearly horizontal – either support or resistance. This is the line through which the asset is expected to break. So, in essence, a triangle usually means that the trend will continue.  And like wedges, triangles can either rise or descend.