Price Patterns

Overview

Patterns are the distinctive formations created by the movements of security prices on a chart and are
the foundation of technical analysis.

A pattern is identified by a line that connects common price points, such as closing prices or highs or
lows, during a specific period of time.

-Investopedia
Overview

Patterns exist due to the investor’s psychology.

There is no academic research that proves the existence of price patterns, or technical analysis in
general.

However, if investors believe that something should occur…

…they will make sure that it does, unknowingly.

The two main subcategories of Patterns are:

Continuation Patterns Reversal Patterns

● Temporary interruption of the ● Signal a potential change in the

● When the pattern is broken, the ● The bulls or the bears have lost
price continues with its original control over the price
direction
Continuation Patterns (bearish)
Bearish Pennant
Rising Wedge

Bearish Flag

Bearish Rectangle
Continuation Patterns (bullish)
Bullish Pennant
Falling Wedge

Cup & Handle

Bullish Rectangle
Bullish Flag
Wedge

A wedge pattern is formed by two sloping trend lines, demonstrating lows and highs that are either
falling or rising.

The lines should appear as if they would eventually cross.

TP
Falling Wedge
TP

SL
Flag

A flag pattern is formed by two trend lines that are touching the tops and bottoms of a channel.

A flag is essentially a short term diagonal ranging channel, that acts as a pullback from the trend.
Bearish Flag

SL

TP
Bullish Flag
TP

SL
Pennant

The Pennant is a triangular pattern which is formed between a flagpole and a breakout in a horizontal
channel.

Though similar to wedges, pennants tend to be horizontal, while wedges are either rising of falling.

Pennants are also less narrow than wedges.

SL

TP
Bullish Pennant

TP

SL
Rectangle

A rectangular pattern is a signal of a choppy market, indicating uncertainty.

Within a rectangular pattern, the price moves between two horizontal trend lines (support and
resistance).
Bearish Rectangle

SL

TP
Bullish Rectangle

TP

SL
Cup & Handle

A cup and handle pattern involves a U shape that resembles a rounded cup.

The handle can be seen on the right side of the cup, in the form of a short retracement.
Cup & Handle TP

SL
Reversal Patterns (bearish)

Rising Wedge Head & Shoulders

Double Top
Reversal Patterns (bullish)

Reverse Head &

Double Bottom
Wedge (Reversal)

A wedge can occur as both a continuation pattern and as a reversal pattern.

This will depend on the direction of the pattern itself.

A continuation wedge will form its pattern against the trend, while a reversal wedge will form its pattern
in the same direction.
Wedge (Reversal)

Falling (Reversal) Wedge Falling (Continuation) Wedge

Rising (Reversal) Wedge Rising (Continuation) Wedge

SL

TP
Falling Wedge (Reversal)

TP

SL
Double Top / Bottom

A double top / bottom is a pattern where the price reaches a high, or a low, twice before reversing
direction.

The resulting pattern is reminiscent of two pyramids, above or below a baseline.

SL

TP
Double Bottom
TP

SL
Head & Shoulders

A head & shoulders pattern involves three peaks, with the middle peak being the largest.

The pattern itself is stylistically reminiscent of a human’s head and shoulders.

SL

TP
Reverse Head & Shoulders TP

SL
Head & Shoulders (Asymmetric)

A head & shoulders pattern can also be formed across a diagonal baseline.

All of the same rules will still apply.

SL

TP
Reverse Head & Shoulders (Asymmetric)

TP

SL
 The financial products offered by the company carry a high level
of risk and can result in the loss of all your funds. You should never
invest money that you cannot afford to lose.