This cheat sheet organizes chart patterns into three main categories: Reversal, Continuation, and Bilateral patterns. Below is a detailed explanation of each pattern, including their structure, trading signals, and significance.
Reversal Chart Patterns (Signal Trend Direction Changes)
## 1. Double Top (Bearish Reversal)
- **Structure**: Two distinct peaks at approximately the same price level with a moderate trough (neckline) between them.
- **Trading Signals**:
- **Entry**: When price breaks below the neckline after forming the second peak.
- **Stop Loss**: Placed above the most recent peak.
- **Target**: Measured by projecting the height of the pattern downward from the neckline break.
- **Psychology**: Shows failed attempt to break resistance twice, leading to bearish momentum.
### 2. Head and Shoulders (Bearish Reversal)
- **Structure**: Three peaks - higher middle peak (head) between two lower peaks (shoulders), with a neckline connecting the troughs.
- **Trading Signals**:
- **Entry**: On neckline breakdown after right shoulder forms.
- **Stop Loss**: Above the right shoulder.
- **Target**: Distance from head to neckline projected downward from break point.
- **Psychology**: Progressive weakening of bullish momentum culminating in trend reversal.
### 3. Rising Wedge (Bearish Reversal in Uptrend)
- **Structure**: Price consolidates between two upward-sloping, converging trendlines with weakening momentum.
- **Trading Signals**:
- **Entry**: On breakdown below lower trendline.
- **Stop Loss**: Above the most recent swing high within the wedge.
- **Target**: Typically the height of the wedge's base projected downward.
- **Psychology**: Shows buyers losing conviction despite higher lows.
### 4. Double Bottom (Bullish Reversal)
- **Structure**: Mirror image of double top - two distinct troughs at similar levels with moderate peak (neckline) between them.
- **Trading Signals**:
- **Entry**: On breakout above neckline after second trough.
- **Stop Loss**: Below the most recent trough.
- **Target**: Height of pattern projected upward from neckline.
- **Psychology**: Sellers fail twice to push price lower, leading to bullish reversal.
### 5. Inverse Head and Shoulders (Bullish Reversal)
- **Structure**: Three troughs - lower middle trough (head) between two higher troughs (shoulders), with neckline connecting peaks.
- **Trading Signals**:
- **Entry**: On neckline breakout after right shoulder forms.
- **Stop Loss**: Below the right shoulder.
- **Target**: Distance from head to neckline projected upward.
- **Psychology**: Selling exhaustion leads to trend reversal.
### 6. Falling Wedge (Bullish Reversal in Downtrend)
- **Structure**: Price consolidates between two downward-sloping, converging trendlines.
- **Trading Signals**:
- **Entry**: On breakout above upper trendline.
- **Stop Loss**: Below most recent swing low within wedge.
- **Target**: Height of wedge's base projected upward.
- **Psychology**: Sellers losing momentum despite lower highs.
## Continuation Chart Patterns (Signal Trend Resumption)
### 1. Falling Wedge (Bullish Continuation)
- **Appears in**: Uptrend (different context from reversal version).
- **Structure**: Similar to reversal version but occurs during pullback in uptrend.
- **Trading Signals**: Same as reversal version but implies trend continuation.
### 2. Bullish Rectangle
- **Structure**: Parallel horizontal support/resistance lines forming consolidation box.
- **Trading Signals**:
- **Entry**: On breakout above resistance.
- **Stop Loss**: Below support.
- **Target**: Height of rectangle projected upward.
- **Psychology**: Temporary pause before continuation.
### 3. Bullish Pennant
- **Structure**: Small symmetrical triangle after sharp move (flagpole).
- **Trading Signals**:
- **Entry**: On breakout from pennant.
- **Stop Loss**: Opposite side of pennant.
- **Target**: Typically length of flagpole projected from breakout.
- **Psychology**: Brief consolidation before trend resumes.
### 4. Rising Wedge (Bearish Continuation in Downtrend)
- **Appears in**: Downtrend (pullback context).
- **Structure**: Similar to reversal version but occurs during counter-trend bounce.
- **Trading Signals**: Same as reversal version but implies downtrend continuation.
### 5. Bearish Rectangle
- **Structure**: Parallel horizontal lines during downtrend consolidation.
- **Trading Signals**:
- **Entry**: On breakdown below support.
- **Stop Loss**: Above resistance.
- **Target**: Height of rectangle projected downward.
- **Psychology**: Sellers regrouping before next push down.
### 6. Bearish Pennant
- **Structure**: Small symmetrical triangle after sharp decline.
- **Trading Signals**:
- **Entry**: On breakdown from pennant.
- **Stop Loss**: Opposite side of pennant.
- **Target**: Length of flagpole projected downward.
- **Psychology**: Brief pause in selling before continuation.
## Bilateral Chart Patterns (Can Break Either Way)
### 1. Ascending Triangle
- **Structure**: Flat top resistance with rising trendline support.
- **Trading Signals**:
- **Bullish Breakout**: More common, target is height of pattern.
- **Bearish Breakdown**: Less common, would invalidate pattern.
- **Stop Loss**: Opposite side of breakout.
- **Psychology**: Buyers becoming more aggressive at higher lows.
### 2. Descending Triangle
- **Structure**: Flat bottom support with descending trendline resistance.
- **Trading Signals**:
- **Bearish Breakdown**: More common, target is height of pattern.
- **Bullish Breakout**: Less common, would invalidate pattern.
- **Stop Loss**: Opposite side of breakout.
- **Psychology**: Sellers becoming more aggressive at lower highs.
### 3. Symmetrical Triangle
- **Structure**: Two converging trendlines with similar slopes.
- **Trading Signals**:
- **Entry**: On breakout in either direction.
- **Stop Loss**: Opposite side of breakout.
- **Target**: Height of base projected in breakout direction.
- **Psychology**: Balance between buyers and sellers until breakout.