Top 10 Chart Patterns you

should know when Trading in

the Stock Market

 by Elearnmarkets
 
 August 1, 2023
 
in Technical Analysis, Charts, Patterns & Indicators
 
Reading Time: 14 mins read
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Chart patterns play a crucial role when analyzing charts for trading. In technical
analysis, the transitions in the trends are signalled by these charts’ patterns.

By learning about these chart patterns, you will be able to learn how to profit from
these technical price patterns. But before you start analyzing these patterns, it’s
better to learn about them.
In order to get grips with them, here are the top 10 chart patterns that every
trader should know when trading in the stock market. But before knowing that let
us discuss the basics of the chart patterns:

Table of Contents
 What are Chart Patterns?
 Why is it Important to analyze the Chart Patterns?
 Types of Chart Patterns:
 1. Head and Shoulders
 2. Double top
 3. Double Bottom
 4. Cup and Handle
 5. Rounding Bottom
 6. Wedges
 7. Pennants
 8. Symmetrical Triangles
 9. Ascending Triangles:
 10. Descending Triangles
 How to use Chart Patterns Scanners in StockEdge?
 You can also watch our video below-
 Bottomline
 Frequently Asked Questions
 What is the most successful chart pattern?
 How many chart patterns are there?
 What is the secret of chart patterns?
 What are the 3 main groups of chart patterns?

What are Chart Patterns?

Chart patterns put all buying and selling that’s happening in the stock market into
a concise picture. It provides a complete pictorial record of all trading and a
framework for analyzing the battle between bulls and bears.

Chart patterns can help us in determining who is winning the battle, and also
allow traders to position themselves accordingly. Chart pattern analysis can be
used to make short-term as well as long-term forecasts.

The data used by the chart patterns can be intraday, daily, weekly, monthly or
yearly. Gaps and reversals may form in one trading session, while broadening
tops and dormant bottoms may require many months to form.
Why is it Important to analyze the Chart
Patterns?
Chart patterns are a great way of viewing price actions which occur during the
stock trading period.

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Chart patterns tend to repeat themselves over and over again which helps to
appeal to human psychology and trader psychology in particular.

If you are able to learn to recognize these patterns early they will help you to gain
a real competitive advantage in the markets.

Just as volume, support and resistance levels, RSI, Fibonacci Retracements and

other technical indicators, stock chart patterns helps in identifying trend reversals
and continuations.
Types of Chart Patterns:
Chart patterns can be basically classified into:
 Continuation patterns: These kinds of chart patterns give continuation signals of the ongoing
trend
 Reversal Patterns: These kinds of chart patterns give reversal signals
 Bilateral Patterns: These kinds of chart patterns shows uncertainty and high volatility in the
market.
Below is the 10 most useful trade chart patterns poster:

1. Head and Shoulders

This is a bullish and bearish reversal pattern which has a large peak in the
middle and smaller peaks on either side. The head and shoulders chart pattern is
considered to be one of the most reliable reversal chart patterns.
This pattern is formed when the prices of the stock rise to a peak and fall down to
the same level from where it had started rising. Again the prices rise and form a
peak higher than the last peak and again it declines to the original base.

Prices again rise to form a third peak, which is lower than the second peak and
from here it starts declining to the base level. When the prices break the baseline
with volume then bearish reversal takes place.

2. Double top
A double top is another bearish reversal pattern that traders use a lot.
The stock price will form a peak and then retrace back to a level of support. It will
then form a peak once more before reversing back from the prevailing trend.

3. Double Bottom
A double bottom a.k.a W pattern is a bullish reversal pattern that is totally
opposite of a double top.
The stock price will form a peak and then retrace back to a level of resistance. It
will then form a peak once more before reversing back from the prevailing trend.
4. Cup and Handle
A cup and handle is a bullish reversal chart pattern which resembles a cup and
handles where the cup is in the shape of a “U” and the handle has a slight
downward drift.
The cup appears similar to a rounding bottom chart pattern, and the handle is
similar to a wedge pattern.

The right-hand side of the pattern has a low trading volume that may be as short
as seven weeks or as long as 65 weeks.
5. Rounding Bottom
This pattern is also known as the “saucer bottom” and is a long-term reversal
chart pattern. Rounding Bottom shows that the stock is reversing from a
downward trend towards an upward trend.
It can take any time from several months to years to form. It is very similar to the
cup and handle, but the only difference is that there is no handle to the pattern.
6. Wedges
Wedges are bullish and bearish reversal as well as continuation patterns which
are formed by joining two trend lines that converge. It can be a rising wedge or a
falling wedge.

A rising wedge occurs when the price of the stock is rising over time whereas
a falling wedge occurs when the price of the stock is falling over time.
A wedge pattern can be drawn by using trend lines and connecting the peaks
and the troughs. Once there is a price breakout, there is a sharp movement of
prices in either of the directions.
7. Pennants
A pennant pattern or a flag pattern is created when there is a sharp movement in
the stock either upward or downward. This is followed by a period of
consolidation that creates the pennant shape because of the converging lines.
Then a breakout movement occurs in the same direction as the big stock
move. Pennant patterns are similar to flag patterns and tend to last between one
and three weeks.
At the initial stock movement, there is a significant volume which is followed by
weaker volume in the pennant section and then a rise in the volume at the
breakout.
8. Symmetrical Triangles
Symmetrical Triangles can be bullish or bearish continuation chart patterns that
are developed by two trend lines that converge. These two trend lines join the
peaks and troughs and they occur in the direction of the ongoing trend.
9. Ascending Triangles:
This triangle appears during an upward trend and is regarded as a bullish
continuation pattern.

Sometimes it can be also created at the end of a downward trend as a reversal

pattern, but it is more commonly considered as a continuation chart pattern.

Ascending triangles are always regarded as bullish patterns whenever they are
formed in the charts.
10. Descending Triangles
Like the ascending triangle, the descending triangle is a continuation chart
pattern. The only difference is that it is a bearish continuation pattern and it is
created during the downtrend.
Sometimes it can be also created at the end of an uptrend as a reversal pattern,
but it is more commonly considered as a continuation chart pattern.