Technical Analysis Patterns: Key Trading Figures with Images and Examples

Technical analysis patterns are recurring chart formations that help traders predict future price movements. These patterns form the foundation of successful technical analysis for binary options, stocks, and Forex. Most technical analysis patterns can be easily identified on charts without the need for complex tools.

Technical analysis for traders involves confirming patterns using support and resistance levels, trend lines, and indicators. These analysis methods provide a reliable foundation backed by years of experience from professional traders. By learning to recognize these recurring patterns and confirming them with support and resistance levels, you can develop effective strategies to generate profits.

Integrating trading indicators also helps to more accurately determine entry and exit points. Using reversal patterns and trend continuation patterns can significantly improve your accuracy when making trading decisions based on price analysis.

Understanding how to effectively use technical analysis patterns in combination with other methods, such as support and resistance level analysis, will help you better comprehend the market and respond to its fluctuations. All you need is to master the methods of finding these core technical analysis figures and apply them in real trading situations to maximize profits.

Flag Pattern in Technical Analysis: How to Trade with the Flag Pattern

The "Flag" is one of the most common trend continuation patterns used by traders to confirm ongoing market movements. It signals the end of a price retracement and the resumption of the trend. If you master the analysis of the flag pattern in trading, you will be able to generate consistent profits by following trend movements.

How to Recognize the Flag Pattern on a Chart

The flag forms in trending wave-like movements when a retracement occurs against the trend's primary direction. A proper flag consists of the following parts:

• A strong trend movement, called the "flagpole"
• Breaking of the previous high (in an uptrend) or low (in a downtrend)
• A price pullback that forms the flag pattern

An example for an uptrend:

The Flag in Downtrends

In a downtrend, the flag pattern forms during upward retracements (against the main trend):

The Importance of Breaking Previous Highs and Lows

The key rule is that the breaking of previous highs or lows is necessary to confirm the flag pattern. If, after the flag forms, the price does not break the peaks or troughs, it may indicate the trend's end, rendering the pattern ineffective.

How to Trade Breakouts for Entry

For successful flag trading, traders set upper and lower boundaries of the flag, with trades placed on the breakout of the primary boundary. For an uptrend, watch for a breakout of the upper boundary, and for a downtrend, watch the lower boundary. A breakout signals the end of the retracement and the trend's resumption, making it an ideal entry point for 3-5 candles.

An uptrend on the chart may look like this:

Optimal Conditions for the Flag Formation

For best results, the flagpole should be formed without significant retracements, representing a steady trend movement. In a downtrend, the flag appears as follows:

Pennant Pattern in Technical Analysis: Trend Continuation Pattern

The "Pennant" in technical chart analysis is one of the trend continuation patterns, indicating the likely continuation of price movement in the current trend direction. The pennant resembles a horizontal triangle where the price's amplitude gradually decreases.

How to Use the Pennant to Confirm the Trend

A proper pennant forms after a strong trend movement ("flagpole"), indicating the continuation of the momentum. In an uptrend, the pennant looks like this:

For a downtrend, the pattern will look like this:

Trading Strategies Using the Pennant Pattern

The "pennant" pattern is used after the price breaks the previous high or low, and trades are opened on the breakout of the pattern's boundaries. In a bullish trend, the upper boundary's breakout is crucial, while in a bearish trend, the lower boundary's breakout is key. If you correctly identify the pattern on the chart, it will allow you to profit from the trade.

Flag vs. Pennant: What's the Difference?

Both the "Flag" and "Pennant" patterns are quite similar in how they are used in chart analysis. Both form after strong trend impulses and signal a continuation of the trend:

• Both patterns form after a trend impulse (flagpole)
• Both are considered only after breaking previous highs or lows
• They are continuation patterns
• Trades are placed on the breakout of the boundary in the direction of the trend

Double Top (M Pattern) – A Reversal Pattern in Technical Analysis

Double Top is one of the key trend reversal patterns in technical analysis, signaling a strong resistance level that the price cannot break. When this pattern appears on the chart, it suggests that the current uptrend is nearing completion, and a downtrend may soon begin.

How to Identify a Double Top on the Chart

Double Top forms after a prolonged bullish trend at its peak. There are several variations of this pattern:

• The first peak is higher than the second — a strong trend reversal pattern
• Both peaks are at the same level
• The second peak is slightly higher than the first — a weaker but still valid reversal pattern
• The figure graphically resembles the letter "M"

Using Resistance Levels and Candlestick Patterns

When working with the Double Top pattern, remember that charts typically do not have exact support and resistance levels but zones. Therefore, it is recommended to use support and resistance zones and candlestick patterns, which often form near peaks, for more accurate analysis.

How to Trade the Double Top Pattern

The lowest point between the two peaks is called the "neckline." The distance from the neckline to the second peak approximately indicates how far the price will drop once the pattern works out, and the downtrend begins.

On the chart, the Double Top pattern will look like this:

Best Moments to Enter a Trade

Trade entry based on the Double Top depends on the breakout of the neckline:

• Trades are opened immediately after the neckline is broken — this is a riskier method but has higher profit potential.
• Trades are opened after the candlestick that breaks the neckline closes — a safer method, though part of the move may be missed.

Confirming the Trend with Candlestick Patterns

In the example above, the second peak formed a candlestick engulfing pattern, which is another signal for a trend reversal. This further confirms that the price may reverse sharply. Using candlestick patterns allows traders to enter trades with lower risk and more accurately predict price direction.

Double Bottom (W Pattern) – A Reversal from Downtrend to Uptrend

Double Bottom is another important trend reversal pattern that signals the end of a downtrend and the beginning of a new uptrend. This pattern is the mirror image of the Double Top and indicates a strong support level that the price cannot break.

How the Double Bottom Forms

The Double Bottom pattern forms at the very bottom of a downtrend and looks like the letter "W". Here are the key conditions for its formation:

• The pattern always occurs at the bottom of a downtrend.
• Both bottoms should be at approximately the same level.
• If the second bottom is higher than the first, this indicates the strength of the pattern and a high probability of a trend reversal.
• The distance from the neckline to the second bottom indicates how far the price will rise in the new uptrend.

How to Trade the Double Bottom Pattern

There are two methods for entering trades:

• Open a trade immediately after the neckline is broken — this is a more aggressive approach that can yield higher returns.
• Open a trade after the candlestick that breaks the neckline closes — a more conservative approach that reduces risk.

Using Support Zones and Candlestick Patterns for Confirmation

For a confident entry into a trade, it is recommended to use additional tools such as support and resistance zones, reversal candlestick patterns, and oscillators, which can indicate a possible trend reversal.

On the chart, the price forms a "Double Bottom" like the letter "W":

Head and Shoulders – A Reversal Pattern for Uptrends

Head and Shoulders is one of the most well-known reversal patterns in technical analysis, signaling the end of an uptrend. The pattern consists of three peaks, each forming at a level of resistance. Traders frequently use this pattern to predict the upcoming reversal in the trend.

How to Identify the Head and Shoulders Pattern

The Head and Shoulders pattern forms when the price reaches new highs during an uptrend but starts showing signs of weakness. Let’s break down this pattern:

• Left Shoulder: The first peak forms during a regular uptrend, hitting a resistance level.
• Head: The second peak is higher than the first, indicating the continuation of the uptrend after breaking through the previous resistance level.
• Right Shoulder: The third peak is lower than the second, indicating a weakening in bullish momentum and signaling a potential reversal.

Trading the Head and Shoulders Pattern

The strategy for trading the Head and Shoulders pattern is based on opening trades when the neckline is broken. The neckline is a horizontal or slightly inclined line connecting the lowest points between the left and right shoulders. After the neckline is breached, it is recommended to enter trades in the direction of the new trend.

Symmetry of Shoulders and Reversal Signal

Often, symmetry is observed between the left and right shoulders. If the right shoulder is lower than the left, it reinforces the reversal signal. Traders should be attentive to this pattern as it indicates the start of a strong downward movement.

On the chart, the "Head and Shoulders" pattern will look like this:

The Height of the Head and Shoulders Pattern

The height of the Head and Shoulders pattern (the distance from the neckline to the peak of the head) indicates the potential price movement after the reversal completes. This distance can be used to set profit targets in a downtrend.

Inverse Head and Shoulders – A Reversal from Downtrend

Inverse Head and Shoulders is a reversal pattern in technical analysis, signaling the end of a downtrend and the beginning of an uptrend. This pattern is the mirror image of the classic "Head and Shoulders" pattern and is used by traders to enter the market during the reversal phase.

How the Inverse Head and Shoulders Pattern Forms

The Inverse Head and Shoulders pattern consists of three troughs, each forming at a level of support. Here’s how the pattern appears:

• Left Shoulder: The first trough forms during a downtrend, indicating a temporary continuation of the downward movement.
• Head: The second trough makes a new low, but the price fails to continue falling sharply, signaling the weakening of bearish momentum.
• Right Shoulder: The third trough forms above the head, indicating that the market is ready to reverse into an uptrend.

Trading the Inverse Head and Shoulders Pattern

The trading strategy for the Inverse Head and Shoulders pattern involves entering long positions upon the breakout of the neckline. This is the key moment when the price begins to move upward, signaling the start of a new trend. The neckline connects the highest points between the troughs, and its breakout is a strong buy signal.

On the chart, the pattern looks like this:

The Height of the Inverse Head and Shoulders Pattern

Similar to the classic Head and Shoulders pattern, the height of the Inverse Head and Shoulders pattern indicates the potential upward movement of the price after the reversal completes. This distance can be used to set profit targets.

Cup with Handle - A Trend Reversal Figure in Technical Analysis

The Cup with Handle pattern is a popular formation in technical analysis, signaling a reversal from downtrend to uptrend. Like other chart patterns, it is frequently used by traders to analyze the market and identify profitable entry points.

How the Cup with Handle Pattern Forms

The "Cup with Handle" pattern consists of two main parts: the cup and the handle. The cup represents a section of the chart where the downtrend gradually reverses into an uptrend. During this process, lows and highs play a critical role: the lows stop creating new lower lows, while the highs begin creating higher highs.

The first price correction in the new uptrend forms the handle, which confirms that the bulls have gained control of the market. The upper boundary of the cup aligns with the resistance level, and its breakout serves as the key signal for entering trades.

Trading the Cup with Handle Pattern

Traders typically enter trades when the upper boundary of the handle is breached, signaling the continuation of the uptrend. Entry conditions are similar to those for other patterns like the Flag and Pennant — a breakout of the upper boundary of the retracement is a buy signal.

The bottom of the cup may appear as a trough or a consolidation zone, as seen in our example. It’s crucial that the new uptrend is clearly visible and the handle is forming. Here’s an example of the pattern:

Inverse Cup with Handle – A Reversal from Uptrend to Downtrend

Inverse Cup with Handle is the mirror version of the traditional Cup with Handle pattern, signaling the end of an uptrend and the beginning of a downtrend. It forms when, after a prolonged uptrend, the price begins to slow and pull back, forming a cup followed by a handle.

How to Trade the Inverse Cup with Handle Pattern

Similar to the regular cup, the upper boundary of the cup aligns with the resistance level. A breakout of this boundary signals the beginning of a downtrend. Traders can also open positions when the handle's boundary is breached, indicating a continuation of the downward movement.

On the chart, it will look like this:

How to Identify Trend Reversal

The Inverse Cup with Handle pattern helps traders identify the point where the uptrend reverses. Highs on the chart stop creating new higher highs, while the lows start moving lower, signaling the formation of a new downtrend.

Rectangle Pattern – A Consolidation Figure in Technical Analysis

The Rectangle pattern is a consolidation or sideways price movement figure. It forms when the market temporarily slows down to accumulate energy for the next trend impulse.

How to Trade the Rectangle Pattern

The Rectangle pattern indicates a zone of supply and demand, where the price is unable to break through the boundaries. Traders can use several strategies to trade this pattern:

• Breakout trading: Enter trades when the price breaks the rectangle’s boundaries in the direction of the trend.
• Rebound trading: Enter trades when the price rebounds from the upper or lower boundary of the rectangle.
• Rebound after breakout: Enter trades when the price returns to the broken boundary for a more favorable entry point.

It is important to consider the trend in which the Rectangle forms, as this will affect the choice of entry points.

Rectangle Pattern in Bullish Trends: Trading Strategy

The Rectangle pattern is a classic consolidation model that often appears on charts during uptrends. This model signals a temporary pause before the trend continues, and its breakout can provide excellent entry points for traders using technical analysis patterns.

How to Trade the Rectangle Pattern in an Uptrend

• The Rectangle acts as a retracement, and it is highly likely that this is a temporary phenomenon, after which the upward movement will resume.
• The support zone within the pattern is key — trades should be entered from this zone.
• The height of the rectangle approximately corresponds to the distance the price will move after breaking through its boundaries, providing a target for potential profits.
• Breakout of the upper boundary is more likely, making this the key entry point for trades.

Rectangle Pattern in Bearish Trends: Continuation Pattern

In a downtrend, the Rectangle pattern also serves as a continuation pattern, signaling a temporary halt before further declines. Traders should pay particular attention to the resistance and support zones for finding optimal entry points.

Trading Strategy for Bearish Trends

• The best entry points can be found at the resistance zone — the upper boundary of the rectangle where the price temporarily stops.
• Breakout of the lower boundary of the rectangle indicates that the support zone has been broken, and further downtrend continuation should be expected.
• Traders may also enter trades after the price returns to the broken support zone, providing better conditions for entering with the trend.

The Rectangle pattern can act as a horizontal retracement or as an attempt to break a strong support level. In both cases, it confirms the trend's continuation:

Diamond Pattern – Continuation Figure in Technical Analysis

The Diamond (or Rhombus) pattern is a powerful continuation model that forms during complex retracements. Traders use this pattern to identify entry points when key boundaries are broken, confirming the continuation of the trend direction.

How to Identify the Diamond Pattern on the Chart

The Diamond pattern forms in the shape of a rhombus, and depending on the trend, different parts of the pattern are of interest to the trader. If the pattern appears during an uptrend, the upper edges of the diamond are the most important. In a downtrend, the lower edges are more significant.

Trading the Diamond Pattern: Key Points

• In an uptrend, the upper left edge of the diamond is defined by at least two peaks, while the right edge connects the highest (central) and next (right) peaks. A breakout of this edge will indicate the continuation of the trend.
• In a downtrend, the lower edges are drawn along the troughs. Breaking the lower left edge will signal the entry point and confirm the continuation of the downtrend.

Rising Wedge – A Reversal Pattern in Technical Analysis

The Rising Wedge is a popular technical analysis pattern frequently found on charts. This reversal pattern may also act as a trend continuation figure, depending on the context in which it forms.

How to Identify a Rising Wedge on the Chart

A Rising Wedge appears as a narrowing triangle pointing upward. When this pattern forms at the top of a trend, it serves as a signal of a likely reversal and the beginning of bearish movement:

In the case of a Rising Wedge within a downtrend, it indicates a temporary pullback before the continuation of the trending movement:

Trading the Rising Wedge

• The boundaries of the Rising Wedge signal weakening bullish momentum, and the breakout of the lower boundary signals the continuation of the downward movement.
• Breaking the lower boundary is often followed by strong movement, which can be estimated using the width of the wedge’s base, providing a target exit point.
• Use the Rising Wedge as an entry signal when it forms at the top of a trend, preparing for a trend reversal.

Falling Wedge – A Continuation and Reversal Pattern

Falling Wedge is the opposite of the Rising Wedge. Depending on where it forms, it may act as either a reversal pattern or a continuation figure. Proper evaluation of the chart context is crucial for making trading decisions.

Features of the Falling Wedge

The width of the Falling Wedge’s base indicates the distance the price might move after breaking through the upper boundary. Unlike the Rising Wedge, in this case, a breakout of the upper boundary signals the start of an upward movement.

Trading the Falling Wedge

• If the Falling Wedge forms during an uptrend, it becomes a continuation figure, and traders should expect a breakout of the upper boundary for trend continuation.
• The Falling Wedge is an ideal entry point either for entering the market at a trend reversal or for continuing the bullish trend, depending on the context of its formation.
• The width of the wedge’s base can help estimate the potential price movement after the breakout.

Triangle Pattern in Technical Analysis: A Continuation and Reversal Figure

The Triangle pattern is one of the most common models in technical analysis, alongside Double Bottoms and Flags. Triangles can act as both trend continuation and reversal models. The type of triangle depends on where it forms and the angle of its edges.

Types of Triangles in Technical Analysis

• A symmetrical triangle forms when the edges converge, creating a sharp angle. This triangle serves as a trend continuation model.
• An expanding triangle indicates market uncertainty and possible sharp price movement after breaking one of its boundaries.

Trading the Triangle Pattern

Triangles often form during trending movements and signal market consolidation before another move. For instance, in an uptrend, the triangle will look like this:

For a downtrend, the triangle indicates the possibility of continued downward movement:

How to Use Triangles in Trading

• To enter a trade, watch for the breakout of the triangle’s boundaries. Breaking the lower or upper boundary will indicate trend continuation or reversal.
• The height of the triangle’s base provides a minimum distance the price may travel after exiting the figure, helping to plan trades accurately.
• In symmetrical triangles formed after sideways movement, expect a strong impulse after one of the edges is breached, although predicting the breakout direction may be challenging.

Ascending Triangle – A Reversal Pattern

The Ascending Triangle is a popular reversal pattern in technical analysis. It forms when the price repeatedly tries to break through a resistance level but fails. Several attempts by the bulls to break through the level result in failure, causing the price to reverse downward:

These triangles are easily noticeable and typically form at the peaks of trending movements. The width of the triangle’s base provides the minimum distance the price is likely to move downward. Breaking the support line slightly below the resistance level may be a reversal signal.

Trading the Ascending Triangle

• Watch for the price attempting to break through the resistance level to determine the right time to enter the trade.
• A breakout of the support line will confirm the start of bearish movement.
• Expect strong movement after the breakout, using the triangle’s base width as a guide.

Descending Triangle – A Reversal Pattern

The Descending Triangle is the mirror image of the Ascending Triangle. The principle is the same, but here the price faces a support level. Bears make several attempts to break this level, but each successive attempt is weaker, and the price reverses upward, starting a new uptrend:

The Descending Triangle often forms at the bottom of a bearish trend, indicating its potential end and the start of a price rise. However, not all triangles guarantee a reversal. In some cases, after breaking the support level, the price may continue moving downward, although such instances are rare.

Trading the Descending Triangle

• Monitor the support levels to confirm the potential trend reversal.
• In case of a breakout of the support level, a short-term signal for continuing the downtrend may occur, but this is less likely.
• Expect upward movement after unsuccessful attempts to break the support level.

Three Types of Chart Patterns in Technical Analysis

Chart patterns in technical analysis can be divided into three main categories, each of which helps traders determine the next price movement. These categories include:

• Trend continuation patterns
• Reversal patterns
• Neutral patterns or models of uncertainty

Trend Continuation Patterns

Trend continuation patterns suggest a high probability that the current trend will persist. These consolidation patterns form during price retracements when the market temporarily pauses before a new impulse:

Trading Trend Continuation Patterns

• Continuation patterns often form during pullbacks. Expect the movement to resume after the figure completes its formation.
• Watch for key support and resistance levels to confirm the direction of the movement.
• Open trades only after confirming the trend continuation.

Reversal Patterns

Reversal patterns indicate the end of the current trend and the beginning of the opposite movement. These models include:

• Double Top
• Double Bottom
• Head and Shoulders
• Inverse Head and Shoulders
• Rising Wedge
• Falling Wedge
• Cup and Handle
• Inverse Cup and Handle

How to Trade Reversal Patterns

• Reversal patterns typically form at the peaks or troughs of trends, signaling a change in price direction.
• Wait for trend reversal confirmation before entering trades.
• Use additional indicators to confirm the appearance of a reversal model.

Neutral Patterns or Models of Uncertainty

One of the most common neutral patterns is the Symmetrical Triangle. Such models do not provide a clear direction for the price, but breaking through one of the triangle's boundaries signals the dominance of either the bulls or the bears. After the breakout, expect a strong trend impulse in the direction of the breakout:

Trading Neutral Patterns

• Do not attempt to predict the movement direction before the breakout of a neutral pattern.
• After the breakout, expect a strong impulse in the direction of the break.
• Use additional indicators to confirm the true direction after the breakout.

Why Should You Study Technical Analysis Patterns?

Technical analysis is the foundation of market data analysis, and the entire process is based on studying price charts. Charts are our main source of information, revealing past price movements, the current market situation, and potential future changes. The ability to interpret market signals and chart patterns correctly allows traders to make well-informed trading decisions.

Why Study Technical Analysis?

Technical analysis patterns are key elements that help traders recognize recurring price movement models and predict future trends. Chart patterns are time-tested and confirmed by the extensive experience of thousands of traders worldwide. Thanks to their predictability and repeatability, you can use them to enhance your trading efficiency.

How to Apply Technical Analysis Patterns in Trading?

Regardless of the trading strategy you use, technical analysis patterns can always improve your results. Trading based on technical analysis patterns not only helps improve your understanding of market processes but also increases the accuracy of your trade entries and exits. By mastering these models, you will be better equipped to interpret market signals and use them to make profitable trading decisions.

Benefits of Studying Chart Patterns

• Increased accuracy of trade entries and exits
• Utilizing proven strategies to enhance results
• Recognizing key moments of trend reversal or continuation
• Improving overall trading strategy effectiveness

Learning technical analysis patterns allows traders to effectively analyze charts, helping predict future price movements and make decisions based on solid analysis. This will improve your current results and allow you to trade with greater confidence.