Chart Patterns Cheat Sheet
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 connecting common price points, such as closing prices or highs or lows, during a specific period.
Technical analysts seek to identify patterns to anticipate the future direction of a security’s price.
These patterns can be as simple as trendlines and as complex as double head-and-shoulders formations.
🔹 Reversal patterns are those chart formations that signal that the ongoing trend is about to change course. If a reversal chart pattern forms during an uptrend, it hints that the trend will reverse and that the price will head down soon. Conversely, if a reversal chart pattern is seen during a downtrend, it suggests that the price will move up later on.
🔹 Continuation chart patterns are those chart formations that signal that the ongoing trend will resume. Usually, these are also known as consolidation patterns because they show how buyers or sellers take a quick break before moving further in the same direction as the prior trend. Trends don’t usually move in a straight line higher or lower. They pause and move sideways, “correct” lower or higher, and then regain momentum to continue the overall trend.
