Chart patterns are visual formations in price action that indicate upcoming movements. They arise from recurring patterns of human psychology — fear, greed, hope, and capitulation.

Reversal Patterns: The End of a Trend

1. Head and Shoulders

The most reliable reversal pattern. Three peaks: left shoulder, higher head, right shoulder. Breaking the neckline confirms the trend reversal. Reliability: 83% according to Bulkowski study.

2. Double Top

Price tests the same resistance twice and fails. Forms an M-pattern. Break below the intermediate low confirms the downtrend. Reliability: 73%.

3. Double Bottom

Mirror image of the Double Top — a W-pattern. Price tests the same support twice and bounces. Break above the intermediate high confirms the uptrend. Reliability: 78%.

4. Rounding Bottom

A slow, rounded bottom. Shows a gradual sentiment shift from bearish to bullish. Rarer but very reliable when it occurs.

Continuation Patterns: The Trend Continues

5. Flag (Bull/Bear Flag)

After a strong move, price consolidates in a tight, slightly counter-trend channel. The breakout in trend direction is the signal. Ideal for short-term trading with AI signals.

6. Triangle

Three variants:

Ascending triangle: Horizontal resistance, rising lows → bullish
Descending triangle: Horizontal support, falling highs → bearish
Symmetrical triangle: Both sides converge → breakout possible in either direction

7. Pennant

Similar to flag but triangular instead of parallel. Occurs after strong impulse moves. Short-lived (1-3 weeks).

8. Wedge

Rising and falling wedges. A rising wedge in an uptrend is bearish (exhaustion). A falling wedge in a downtrend is bullish (bottoming).

Special Formations

9. Cup and Handle

A U-shaped bottom (cup) followed by a small pullback (handle), then breakout upward. William O'Neill's favorite pattern — historically associated with the strongest price advances.

10. Gap

Gaps in the chart when price jumps overnight or over weekends:

Breakaway Gap: At the start of a new trend — do not trade against the gap
Continuation Gap: In the middle of a trend — confirmation
Exhaustion Gap: At the end of a trend — caution, reversal possible

Chart Patterns + AI: The Perfect Combination

Our AI continuously scans all stocks for chart patterns. The advantage: It recognizes patterns in real-time and calculates statistical reliability based on historical data. A head-and-shoulders with declining volume and negative sentiment has higher reliability than one in an otherwise calm market.

Bottom Line: Chart patterns are not a crystal ball, but they quantify probabilities. Combined with AI analysis and fundamental data, they form a robust signal system.