Chart Patterns

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Introduction to the Chart
Patterns

The chart patterns are important figures that are formed in the price charts and that allow us to detect the movements that the price will take in the future.

There is a great variety of graphic patterns, in this course we will see the most used and known. Depending on the chart pattern and time frame you are applying it to, they may reveal powerful price breakouts or explosions.

Chart patterns will help you detect potential price movements before they occur.

Chartist Patterns

Symmetric Triangles

A symmetric triangle is a chart formation in which the slope of high prices and the slope of low prices converge towards the same point in the shape of a triangle.

The triangle shape is generated because lower highs and higher lows are being generated, that is, each new high is less than the previous one and each new low is greater than the previous one. From this we can deduce that neither the buyers nor the sellers have the strength to generate a definite trend and are reaching a tie.

As we can see in the previous graph, there is no defined trend and the market is in consolidation or ranges. What this figure tells us is that it is possible that a break is about to occur, we do not know clearly if the break will be up or down.

In the chart we can see that an upward break occurs and the market starts an uptrend. There could also have been a downward breakout and the market could have started a downward trend.

TIP: A breakout is considered more reliable if the breakout candle is a long-body candle (bullish or bearish candle depending on where the breakout was made).

Shoulder Head Shoulder

The shoulder head shoulder pattern is a trend reversal formation. This figure is made up of three important elements, a first peak called the shoulder, a second peak (higher than the first) called the head, and a third peak called the shoulder. In this pattern, the neck line is drawn by joining the two valleys generated between the head and the shoulders.

In the chart we can clearly see the figure of the shoulder – head – shoulder. The head is represented by the middle peak (which is higher than the other two), likewise, the two shoulders are part of the figure (which are below the head).

This pattern can be used when there is a previous uptrend in the market, what the market tells us is that the buying force is running out and the market has entered a consolidation zone.

Now we will see what happens in the market.

As can be seen in the graph, when the neckline is broken down, the price starts a strong bearish rally.

TIP: A breakout is considered more reliable if the breakout candle is a long-body candle (bearish candle in this case).

Double Roof

The Double Top is a trend reversal pattern that forms after a marked uptrend. The double top represents two peaks that form when the price reaches a certain level.

The first ceiling represents a maximum in the uptrend, after that maximum a pullback (correction) will occur and then a new peak will be generated that will reach the same price level (or one very close to) that of the first peak, when the 2nd pullback is generated. we will have our Double Roof formed.

In the chart we can see that two peaks or tops are formed after a previous uptrend. What this figure tells us is that the buying force is weakening (having hit the same resistance zone twice and not being able to overcome it later strong uptrend).

Let’s see what happens next.

We can see that after breaking the neck line to the downside, the price makes a bearish rally and assumes a downtrend.

TIP: A breakout is considered more reliable if the breakout candle is a long-body candle (bearish candle in this case).

Double Floor

The Double Floor is a trend reversal pattern that forms after a marked downtrend. The double floor represents two floors that are formed when the price reaches a certain level.

The first floor represents a minimum in the downtrend, after that minimum a pullback (correction) will occur and then a new floor will be generated that will reach the same price level (or one very close to) that of the first floor, when the 2nd pullback is generated. we will have our Double Floor formed.

In the chart, we can see that two floors are formed after a previous downtrend. What this figure tells us is that the selling force is weakening (having hit the same support zone twice and unable to overcome it after a strong downtrend).

Let’s see what happens next.

We can see that after breaking the neckline to the upside, the price rallies upwards and assumes an uptrend.

TIP: A breakout is considered more reliable if the breakout candle is a long-body candle (bullish candle in this case).