Know the 3 Main Types of Chart

Patterns
BySteve Burns
APR 18, 2022
Chart patterns are visual representations of price action. Chart patterns can show
trading ranges, swings, trends, and reversals in price action. The signal for buying
and selling a chart pattern is usually a trend line breakout in one direction showing
support or resistance is overcome at a key level. Stop losses are usually set on
retracements back inside the previous range and profit targets are usually set based
on the magnitude of the previous move leading into the pattern.

Many people think of chart patterns as bullish or bearish but there are really three
main types of chart pattern groups: reversal chart patterns, continuation chart
patterns, and bilateral chart patterns. Understanding the differences are important for
traders to understand the path of least resistance on a specific chart based on the
primary sentiment of the buyers and sellers price action.

Reversal Chart Patterns

Reversal patterns happen when a chart has a strong break from its current trend and
its momentum reverses course. These patterns show that a trend is coming to an
end and the price action is moving in a new direction away from the previous range
or direction. These patterns go from bullish to bearish or bearish to bullish. They can
take longer to develop than other types of chart patterns.
Continuation Chart Patterns
Continuation patterns signal that the current trend is still in place and it’s about to
resume going in the same direction after a trading range has formed. These types of
patterns usually form consolidations in price action to let buyers and sellers work
through supply and demand before moving higher or lower like the previous trend
leading into the range. These are the most popular classic bearish and bullish chart
patterns.

Bilateral Chart Patterns

Bilateral patterns are neutral in movement and  show that price can breakout in either
direction. These are usually symmetrical price action ranges that show equal support
and resistance trend lines as price consolidates there is no advantage seen by the
buyers or sellers as the upper trend line declines and the lower trend line ascends
equally. The previous trend in price before the triangle can many times also be
unclear or has been a range as well. These types of charts are like Schrodinger’s
patterns as they are both bullish and bearish until price breaks out in one direction
showing which direction has an edge in the next trend.
It is important to identify which type of chart pattern you are observing to key in on
the right sentiment of buyers and sellers to understand the probabilities of the next
directional move in price.

For a deep dive education on chart patterns you can check out my book The Ultimate
Guide to Chart Patterns available here on Amazon.