Chart patterns are shapes that price forms on a chart.
Each pattern reflects a market condition : hesitant buyers, sellers losing momentum, a trend resuming or reversing, and so on.
When the same shape appears in similar conditions, traders use it to anticipate where price might go next, because buyers and sellers tend to repeat the same behaviours.
Why do chart patterns work?
Many traders watch the same patterns and react to the same signals. Their combined orders can help produce the move they were expecting.
That’s the basic idea behind chart analysis : reading market psychology through price movements.
The main types of chart patterns
There are two main categories:
- Continuation patterns : these suggest that the current trend may resume after a short pause.
- Reversal patterns : these suggest that a trend may end and change direction.
How to confirm a chart pattern
A chart pattern isn’t confirmed just because it looks like a familiar shape.
It’s confirmed when price breaks a specific level, as shown in the table below.
That said, even a well-formed pattern can fail or give a false signal.
