The 10 Most Important Chart Patterns

For serious traders, understanding chart patterns is a critical aspect of technical analysis. Recognising these patterns assists traders in understanding and anticipating future market trends.

In this post, we will discuss the 10 share market chart patterns that every trader should utilise and incorporate along their trading journey.

Head and Shoulders

This pattern consists of three peaks of which the middle one is highest. In this case, the pattern points towards a change in the direction of the trend. As such, this is a head and shoulders pattern, while the other two shoulders are lower, approximately the same in height as the other shoulder.

Signal: This pattern depicts a bearish reversal after an uptrend.

Inverse Head and Shoulders

This pattern is exactly the opposite of the head and shoulders pattern and is often seen towards the end of a downtrend. It also comprises three sections with the most outer component being the lowest of the two sides.

Signal: Suggests a bullish reversal after a downtrend.

Double Top

Signal: When a price is led to the same level but in essence, the price is grabbing two peaks at the same level, it is likely that the price will fall.

Double Bottom

This bullish pattern indicates the price movement is reversing on a support level after touching the lower trend line twice. After this, the price movement is likely to go upwards.

Signal: After lifting off from a support level multiple times, the price is likely to increase.

Triangle Patterns (Symmetrical, Ascending, Descending)

With a breakout that isn't fixed on a specific area, price changes are often in a triangular shape, and we can figure further measures using set boundaries given by the upper figure line along the lower triangle figure line.

Symmetrical Triangle: Prices form in between two converging trend lines.

Ascending Triangle: The trend line moves up and flat resistance is encountered.

Descending Triangle: The line of resistance moves down while flat support is encountered.

Signal: Triangles exhibit breakout behaviour that is typically in line with prevailing trends.

Cup and Handle

The formation begins with a rounded bottom along with a downward drift, forming the handle of the cup. This pattern occurs following a movement upward.

Signal: Continuation pattern in the bullish direction indicating that the uptrend is likely to continue.

Flag Pattern

Flag patterns represent an advance following a movement where the price rapidly rises and price levels tend to drift sideways, which is seen as a form of consolidation.

Signal: An increase in price level along the previous path followed, post consolidation.

Pennant Pattern

A formation following a rapid increase or decrease in stock value in a short time but is broader within a sideways price range than a horizontal line.

Signal: An increase following set patterns to predict trends which allows for an increase are the continuation of previous trends after a breakout.

Wedge Pattern (Falling and Rising)

Falling Wedge: A bullish pattern that occurs when the price is making lower highs and lower lows within a constricting range.

Rising Wedge: A bearish pattern that occurs when the price is making higher highs and higher lows within a constricting range.

Signal: Breakout direction is determined by the type of wedge.

Rectangle Pattern

The price oscillates horizontally, forming a rectangle shape, which is a price level. It demonstrates indecision in the market prior to a breakout or breakdown.

Signal: Neutral pattern – wait for confirmation of a breakout or breakdown.

Conclusion

Knowing these top 10 share market chart patterns will greatly enhance your technical analysis capabilities. These patterns outline possible movements in the market and offer traders a strategic advantage when making trades.

To build confidence as a trader, learn to identify these patterns on actual charts and engage in practice sessions. Continuous learning promotes better decisions in trading.