A chart pattern is a shape within a price chart which helps traders and investors to predict future prices of an asset. In order to understand and spot chart patterns may require some time but here are 10 commonly used chart patterns which will help you.
Oftenly, chart patterns are used in a candlesticks chart which makes it easier to understand chart patterns and identify their type.
There are multiple chart patterns to identify future prices of an asset and their nature might be different from each other such as some chart patterns are used in an uptrend/bullish market and some patterns are used in downtrend/bearish market. Also some patterns which are trend reversals patterns and continuation patterns.
In this article, I will be discussing 10 commonly used chart patterns by traders which are highly effective and useful.
- Head And Shoulders Chart Pattern
Head and Shoulders is a chart pattern which consists of a large peak with two small peaks on either side of it. Investors and traders identify this kind of pattern to identify bullish to bearish trend reversal, that means that head and shoulder pattern is a bearish chart pattern.
These peaks are generally formed on a same demand area which is known as a neckline. Once, third peak approaches the support area, price will try to break through the neckline. Once, neckline is broken it will be a bearish signal and can result in downtrend.
![head and shoulder chart pattern](https://www.bhomiiksoan.com/wp-content/uploads/2023/10/head-and-shoulder-chart-pattern.jpg)
- Double Bottom Chart Pattern
A double bottom chart pattern is a bearish to bullish reversal chart pattern. A double bottom chart pattern is formed when the price of a particular asset falls to a certain support and on that support, price creates a ‘W’ structure.
Once the neckline of the chart pattern is broken it can be identified as a bearish to bullish trend reversal.
![double bottom chart pattern](https://www.bhomiiksoan.com/wp-content/uploads/2023/10/double-bottom-chart-pattern-e1696504880767.jpg)
- Double Top Chart Pattern
A double top pattern is a bullish to bearish reversal chart pattern. A double top chart pattern is formed when the price of a particular asset rises to a certain supply area and on the area price tries to create a ‘M’ structure.
Once the neckline of the double top chart pattern is broken it signifies a bullish to bearish trend reversal.
![double top chart pattern](https://www.bhomiiksoan.com/wp-content/uploads/2023/10/double-top-chart-pattern.jpg)
- Rounding Bottom Chart Pattern
A rounding bottom pattern can be used both as a reversal and as well as continuation pattern. During an uptrend price might fall back slightly before rising back one more time.
In a downtrend, this pattern can act as a trend reversal pattern. Once price breaks through the resistance it can act as a bearish to bullish trend reversal pattern.
![rounding bottom chart pattern](https://www.bhomiiksoan.com/wp-content/uploads/2023/10/rounding-bottom-chart-pattern-e1696505036360.jpg)
- Cup and Handle Chart Pattern
The cup and handle pattern is a bullish continuation pattern that is used in bearish market sentiment before the trend is finally reversed from a short term correction/downtrend in a bullish trend. The cup appears similar to a rounding bottom chart pattern, and the handle is similar to a wedge pattern.
Once the price breaks through the handle, it can represent a bullish continuation.
![cup and handle chart pattern](https://www.bhomiiksoan.com/wp-content/uploads/2023/10/cup-and-handle-chart-pattern.jpg)
- Ascending Triangle Chart Pattern
An ascending triangle pattern is a continuation or a trend reversal pattern. In order to draw this pattern draw a horizontal line on the swing high (resistance) and draw an ascending trend line connecting swing lows (support).
Trend line represents an upside motion and horizontal line represents an historical resistance. Once price breaks through the resistance it can act as a trend reversal to uptrend or can act as a continuation of an uptrend.
![ascending triangle chart pattern](https://www.bhomiiksoan.com/wp-content/uploads/2023/10/ascending-triangle-chart-pattern.jpg)
- Descending Triangle Pattern
A descending triangle pattern is a continuation or a trend reversal chart pattern. In order to draw this pattern draw a horizontal line on the swing lows (support) and draw a descending trend line connecting swing highs (resistance).
Trend line represents a downside motion and horizontal line represents historical support. Once price breaks through the support, the following pattern can act as a trend reversal or continuation pattern.
![descending triangle pattern](https://www.bhomiiksoan.com/wp-content/uploads/2023/10/descending-triangle-pattern-e1696505503306.jpg)
- Symmetrical Triangle Pattern
A symmetrical triangle pattern can be either bullish or bearish, depending on the market. In either case, it is normally a continuation pattern, which means the market will usually continue in the same direction as the overall trend once the pattern has formed.
In order to draw this pattern connect lower highs and higher lows using the trend lines. These trend lines will act as a support and resistance.
In case when the trend is not clear this pattern can act as a bullish and bearish pattern, depending on where the price breaks through.
![symmetrical triangle chart pattern](https://www.bhomiiksoan.com/wp-content/uploads/2023/10/symmetrical-triangle-chart-pattern.jpg)
- Rising Wedge Pattern
Wedges form an asset’s price movements tighten between two sloping trend lines.
A rising wedge pattern is represented by a trend line caught between two upwardly slanted lines of support and resistance. In this case support is steeper than the resistance. This pattern represents that the price of an asset is about to fall which makes this chart pattern a bearish pattern.
![rising wedge pattern](https://www.bhomiiksoan.com/wp-content/uploads/2023/10/rising-wedge-chart-pattern-edited.jpg)
- Falling Wedge Pattern
A falling wedge pattern is formed when two downwardly sloping levels are created.
A falling wedge pattern is a bullish chart pattern. When price breaks through the resistance a trend reversal or continuation in trend can be seen.
![falling wedge pattern](https://www.bhomiiksoan.com/wp-content/uploads/2023/10/falling-wedge-chart-pattern.jpg)
Conclusion
Chart patterns are one of the most important and effective parts of technical analysis, but in order to identify and improve its effectiveness you need to spend time reading charts. Over time, your chart reading skills will start to pay off but in the meantime you have to follow discipline and constantly work on yourself with patience for a long time.