Charts and indicatorsUpdated 2 min readBy the FXNOD team
Chart patterns: the main ones and how reliable they are
Chart patterns are recurring shapes in price, grouped into continuation patterns, such as flags and triangles, and reversal patterns, such as head and shoulders and double tops. Each implies a likely direction and a measured target once it completes. They are tendencies, not rules: many patterns fail, and one is confirmed only by the breakout.
Continuation patterns
| Pattern | Looks like | Implies |
|---|---|---|
| Flag | A sharp move, then a small tilted channel against it | The move resumes |
| Pennant | A sharp move, then a small symmetrical triangle | The move resumes |
| Ascending triangle | Flat top, rising lows | A break upward |
| Descending triangle | Flat bottom, falling highs | A break downward |
| Symmetrical triangle | Lower highs and higher lows | A break, usually with the prior trend |
Reversal patterns
| Pattern | Looks like | Implies |
|---|---|---|
| Head and shoulders | Three peaks, the middle one highest, on a neckline | A turn down when the neckline breaks |
| Inverse head and shoulders | Three troughs, the middle one lowest | A turn up |
| Double top | Two peaks at a similar level | A turn down below the low between them |
| Double bottom | Two troughs at a similar level | A turn up above the high between them |
| Rising or falling wedge | Converging lines sloping the same way | A break against the slope |
Measured targets
Most patterns project a target from their own size: the height of a triangle or a double top, or the length of the move before a flag, added to the breakout point. Treat it as a reasonable first objective, and as a way to check that the reward justifies the risk.
How reliable are they?
- A pattern is only complete when the price breaks out. Before that it is a guess about a shape.
- Breakouts often fail and reverse.
- Patterns are easy to see in hindsight and ambiguous while forming.
- Results improve with context: a continuation pattern in a clear trend, a reversal pattern at a major level.
Trading one
Wait for the break
A close beyond the pattern's boundary.
Place the stop inside the pattern
Where the idea is wrong.
Check the target against the stop
Skip it if the measured move is smaller than the risk.
On random charts
Random price series produce every pattern on this page. That is worth remembering on a synthetic index, where a perfect head and shoulders is an accident with no consequence.
Questions people ask
- What is the most reliable chart pattern?
- None is reliable alone. Patterns that agree with the larger trend and form at significant levels do better than isolated ones.
- How many chart patterns should I learn?
- Three or four that you can recognise without forcing. Depth with a few beats a cheat sheet of fifty.
- Do chart patterns work on all timeframes?
- They appear on all of them. They carry more weight on higher timeframes, where there is less noise.
Put it on a chart
Trade Pilot's chart has moving averages, RSI and Bollinger Bands, and a bot in Bot Forge can use indicators to choose its side. Try both on your Deriv demo account.
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