Classical Chart Patterns

Patterns Provide Structure — Not Predictions

Classical chart patterns are formations that repeat across all markets and timeframes because they reflect recurring human psychology — greed, fear, and indecision playing out the same way, over and over. Patterns give you a predefined entry, stop, target, and invalidation. They do not guarantee outcomes; they define the risk/reward structure of a trade.

• Chart pattern identification is subjective — let price dictate the pattern, not your bias
• Only trade patterns AFTER completion — reactive, not anticipatory
• Volume must confirm patterns — no volume on the breakout = no confidence in the move
• Patterns provide: entry, stop, target, and invalidation — all predefined
• Failed reversal pattern = likely continuation of the existing trend
• Always wait for a retest of the broken trend line after the initial break — that is your entry

Continuation and Reversal Patterns

Patterns split into two families: continuation (the trend pauses, then resumes) and reversal (the trend ends and price moves the other direction). Each has a target calculation based on the height of the pattern's key structure — usually called the 'pole' for continuation patterns and the 'head-to-neckline distance' for reversal patterns.

• Bull Flag: bullish continuation; only trade in uptrends; descending channel after a sharp pole; volume declines in flag then spikes on breakout; target = height of pole from breakout point
• Bear Flag: bearish continuation; only in downtrends; ascending channel after a sharp downward pole; volume declines in flag then spikes on breakdown; target = height of pole from breakdown
• Rising Wedge: bearish; higher highs outpace higher lows; volume declines into wedge → spike on breakdown
• Falling Wedge: bullish; lower highs outpace lower lows; volume declines into wedge → spike on breakout
• Head & Shoulders (H&S): bearish reversal at TOP of trend; left shoulder → head (highest) → right shoulder (lower than head) → neckline break; target = head-to-neckline distance
• Inverse H&S: bullish reversal at BOTTOM of trend; same structure inverted; neckline breakout is the entry
• Ascending Triangle: higher lows + flat top resistance; bullish bias; target = height of triangle from breakout
• Descending Triangle: lower highs + flat bottom support; bearish bias; target = height of triangle from breakdown

Price has made a sharp downward move over 7 sessions (the pole). It then forms an ascending channel with progressively higher highs and higher lows — but this is happening within a confirmed downtrend. The channel is now at resistance. What pattern is forming and what should you expect?

• ● Bear Flag — bullish correction within a downtrend; expect breakdown from channel and continuation down
• ● Trend reversal — ascending channel signals buyers taking control; expect upside breakout
• ● Symmetrical Triangle — direction uncertain; wait for a confirmed break of either side

Answer it (with a live chart) in the interactive lesson.