Chart Patterns — double bottoms and tops, head and shoulders, V shapes and triangles

Concept

Chart patterns are names given to the shapes that support, resistance and trendlines make. They come up often because many people read the same shapes in similar ways, but the shape itself does not decide the next move.

• Double bottom (W) and double top (M): two bottoms (tops) at a similar level, then the price crosses the neckline through the point between them.
• Head and shoulders: left shoulder → higher head → lower right shoulder, then a fall below the neckline joining the two lows. There is also an inverted version.
• V and inverted V: the price comes back as sharply as it fell (rose). The bottom (top) is hard to know in advance.
• Rounding bottom: the fall slowly loses speed, flattens and gradually turns into a rise.
• Triangle: highs fall and lows rise as the range narrows. Prices often move sharply one way afterwards, but the direction is not set.

How to look at a pattern

1. First look at the big picture — after a rise or after a fall? The same shape is read differently depending on where it appears.
2. Find the clear highs and lows and draw horizontal lines (necklines) or trendlines. Use “Draw horizontal” to compare the levels of two bottoms or tops.
3. Check whether the price crossed (broke) the neckline and what volume did then.
4. Decide in advance what counts as a “completed” pattern (how many %, how many days). Without a rule it is easy to fit the shape to the result.

Cautions when reading it

• Shapes you see in hindsight: a pattern can only be named once it is complete. While it forms, several shapes are possible.
• Look and you will find: if you search for a shape, you can see something like it in almost any chart.
• Failed patterns: prices often cross the neckline and come back (false breakouts). Practice with the breakout and breakdown examples too.
• These examples are synthetic data made so the patterns are easy to see. Real charts are much messier.

Chart shapes and indicators summarize past prices. The same shape is sometimes right and sometimes wrong depending on the market, and this page does not tell you when to buy or sell any stock. To practice yourself, try the chart lab or mock trading.