Chart patterns (head & shoulders, triangles, flags)

The classic patterns — and how to spot real vs noise.

TL;DR

Chart patterns are recurring shapes that historically precede specific moves. Head and shoulders, triangles, flags, double tops — the classics work because traders coordinate around them.

Reversal patterns

Mark the END of a trend.

→Head and shoulders — three peaks, middle highest. Bearish at tops; inverse is bullish at bottoms.
→Double top / bottom — two peaks at the same level
→Triple top / bottom — three touches; rarer, stronger
→Rounding top / bottom — gradual curve

Continuation patterns

Mark a PAUSE within a trend.

→Bull flag / bear flag — sharp move + counter-trend channel
→Pennant — flag with converging trendlines
→Triangle — converging trendlines; breakout often follows prior trend
→Cup and handle — rounded bottom + small pullback + breakout

How to trade them

Two rules: (1) wait for the breakout, not 'almost' completion. (2) Target = pattern height projected from breakout. Stop = other side of pattern.

Worked example

Bull flag on Tesla

TSLA rallies $200 to $250 in 5 days (pole), then chops down to $240 in a tight channel over 5 days (flag).

1Pole height$50 ($200 → $250)
2Flag breakoutClose above $245 on rising volume
3Entry$246
4Target$246 + $50 = $296
5StopBelow flag low $238
6R:R$50 / $8 ≈ 6:1

Takeaway

Flags and pennants offer some of the cleanest R:R when they appear in strong trends.

Common mistakes

What to avoid

!Trading 'almost' patterns — incomplete = noise
!Forgetting trend context
!Sizing without using pattern's stop
!Treating patterns mechanically — they all fail sometimes

Self-check

Test yourself

Q1Reversal vs continuation patterns?+

Reversal signals trend ending; continuation signals pause within an existing trend.

Q2How do you compute a bull-flag target?+

Add the pole height to the breakout price.

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