@ Head and shoulders Head and shoulders is a chart pattern in which a large peak has a slightly smaller peak on either side of it. Traders look at head and shoulders patterns to predict a bullish-to- bearish reversal ‘Typically, the first and third peak will be smaller than the second, but they will all fall back to the same level of support, otherwise known as the ‘neckline: Once the third peak has fallen back to the level of support, itis likely that it will breakout into a bearish downtrend. Shoulder ShoulderB Double top A double top is another pattern that traders use to highlight trend reversals. Typically, an asset's price vill experience a peak, before retracing back toa level of support. It will then climb up once more before reversing back more permanently against the prevailing trend, Neckline§& Double bottom A double bottom chart pattem indicates a period of selling. causing an asset's price to. drop below a level of support. It will then rise te a level of resistance, before dropping ‘again. Finally, the trend will reverse and begin an upward motion as the market becomes more bullish. ‘A double bottom is a bullish reversal pattem, because it signifies the end of a downtrend and a shift towards an uptrend,Rounding bottom rounding bottom chart pattem can signify a continuation or a reversal. For instance, during an uptrend an asset's price may fall back slightly before rising once more. This. ‘would be @ bullish continuation. ‘An example of s bullish reversal rounding bottom — shown below —would beif an asset's price was in a downward trend and @ rounding bottom formed before the trend reversed and entered a bullish uptrend. \ 4 betel Reverse! into uptrend Traders will seek to capitalise on this pattern by buying halfway around the bottom, at ‘the low point, and capitalising on the continustion once it breaks above alevel of resistance,Gi Cup and handle The [Link] handle pattem is bullish continuation pattern that is used to show a period of bearich market centiment before the overall trand finally continues in a bullish motion. The cup appears similar to a rounding bottom chart pattern, and the handle is, similar toa wedge pattern — which is explained in the next section. Following the rounding bettor, the price of an acset will likely anter a tamporary retracement, which is known as the handle because this retracement is confined to two Parallel lines on the price graph. The asset will eventually reverse out of the handle and continue with the overall bullish trend.G Wedges ‘Wedges form as an asset's price movements tighten between two sloping trend lines, ‘There are-two types of wedge: rising and falling. Arising wedge is represented by a trend line caught between two upwardly slanted lines ‘of suppert and resistance. In this case the line of support is steeper than the resistance: line. This pattern generally signals that an asset's price will eventually decline more ermanentiy - which is demonstrated when it breaks through the support level Support iA falling wedge occurs between two downwardly sloping levels. In this case the line of resistance is steeper than the support. A falling wedge is usually indicative that an asset's price will rise and break through the level of resistance, as shown in the example below. ‘wt Me a al wh | Both rising and falling wedges are reversal patterns, with rising wedges representing a bearish market and falling wedges being more typical of a bullish market.Pennant or flags Pennant patterns, or flags, are created after an asset experiences a period of upward movement, followed by a consolidation. Generally, there will be a significant increase during the early stages of the trend, before it enters into a series of smaller upward and downward movements. h \w Ky Pennant Pennants can be either bullish or bearish, and they can represent a continuation or a reversal. The above chart is an example of a bullish continuation. In this respect, pennants can be a form of bilateral pattern because they show either continuations or reversals, While a pennant may seem similar to a wedge pattern or a triangle pattern - explained in the next sections - itis important to note that wedges are narrower than pennants or triangles. Also, wedges differ from pennants because a wedge is always ascending or descending, while a pennant is always horizontal.@ Ascending triangle ‘The ascending triangle is a bullish continuation pattern which signifies the continuation of an uptrend. Ascending triangles can be drawn onto charts by placing a horizontal line along the swing highs - the resistance - and then drawing an ascending trend line along the swing lows - the support. Resistance Support Ascending triangles often have two or more identical peak highs which allow for the horizontal line to be drawn. The trend line signifies the overall uptrend of the pattern, while the horizontal line indicates the historic level of resistance for that particular asset.© Descending triangle Incontrast, a descending triangle signifies a bearish continuation of a downtrend, ‘Typically, a trader will enter a short position during a descending triangle — possibly with CFDs - in an attempt to profit from a falling market. ‘he Support Descending triangles generally shift lower and break through the support because they are indicative of a market dominated by sellers, meaning that successively lower peaks are likely to be prevalent and unlikely to reverse. Descending triangles can be identified from a horizontal line of support and a downward-sloping line of resistance. Eventually, the trend will break through the support and the downtrend will continue.© Symmetrical triangle The symmetrical triangle pattern can be either bullish or bearish, depending on the market In either case, itis normally a continuation pattern, which means the market will usually continue in the same direction as the overall trend once the pattern has formed. ‘Symmetrical triangles form when the price converges with a series of lower peaks and higher troughs. In the example below, the overall trend is bearish, but the symmetrical triangle shows us that there has been a brief period of upward reversals. al Lower highs a "4 . Higher lows However, if there is no clear trend before the triangle pattern forms, the market could break out in either direction. This makes symmetrical triangles a bilateral pattern - meaning they are best used in volatile markets where there is no clear indication of which way an asset's price might move. An example of a bilateral symmetrical triangle can be seen below.| \oemvens Nia _ _ h Chart patterns summed up All of the patterns explained in this article are useful technical indicators which can help you to understand how or why an asset's price moved in a certain way - and which way it might move in the future. This is because chart patterns are capable of highlighting areas of support and resistance, which can help a trader decide whether they should ‘open a long or short position; or whether they should close out their open positions in the event of a possible trend reversal.