Quick Recap: Types of Chart Patterns and What They Signal
Reversal Chart Patterns
Reversal patterns signal that the current trend is about to change direction.
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If a reversal pattern shows up during an uptrend, it suggests the price may soon turn down.
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If it appears during a downtrend, the price might be getting ready to move up.
We covered six reversal patterns. Can you name them all?
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Double Top
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Double Bottom
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Head and Shoulders
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Inverse Head and Shoulders
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Rising Wedge
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Falling Wedge
If you got them all, nice job!
How to Trade Reversal Patterns
Place your order just beyond the neckline, following the expected new trend direction.
Set a profit target roughly equal to the height of the pattern — for example, from the bottom to the neckline in a double bottom.
And don’t forget your stop loss! A good rule of thumb is to place your stop around halfway into the pattern’s height to manage risk properly.
Continuation Chart Patterns
Continuation patterns suggest that the current trend will carry on after a short pause or consolidation.
Trends rarely move in a straight line — they take breaks, move sideways, or correct before pushing forward again.
We covered these continuation patterns:
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Wedges (can be reversal or continuation depending on context)
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Rectangles
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Pennants
How to Trade Continuation Patterns
Place your order above or below the pattern, following the existing trend.
For wedges and rectangles, aim for a profit target at least the size of the pattern. For pennants, you can target the height of the “mast” — the big move that happened before the pennant formed.
Stops typically go just outside the pattern’s boundaries — for example, above the resistance for bearish rectangles.
Bilateral Chart Patterns
Bilateral patterns are trickier because price can break either up or down.
Triangles fall into this group — remember how price can break to either side?
How to Trade Bilateral Patterns
Prepare for both scenarios: place one entry order above the top and another below the bottom of the triangle.
When one triggers, cancel the other — you’re set to catch the move whichever way it goes.
Double the chances, double the fun!
Just be careful not to place your orders too close to the pattern’s edges to avoid false breakouts. And of course, always set your stop losses!
You’re now armed with the knowledge to recognize, trade, and manage these chart patterns like a pro. Let’s get those profits rolling!