Option Alpha 

13 Stock Chart Patterns That You Can’t Afford To

Forget

Stock chart patterns play an important role in any useful technical analysis and can be a powerful asset for any trader at any
level. We all love patterns and naturally look for them in everything we do, that’s just part of human nature and using stock
chart patterns is an essential part of your trading psychology.

By learning to recognize patterns early on in trading, you will be able to work out how to profit from breakouts and reversals. I
am a believer in technical analysis and do feel that chart patterns are a very powerful tool.

Why Are Stock Chart Patterns So Important?

On a very basic level stock chart patterns are a way of viewing a series of price actions which occur during a stock trading
period. It can be over any time frame – monthly, weekly, daily and intra-day. The great thing about chart patterns is that they
tend to repeat themselves over and over again. This repetition helps to appeal to our human psychology and trader
psychology in particular.
If you can learn to recognize these patterns early they will help you to gain areal competitive advantage in the markets. Just
as volume, support and resistance levels, RSI, and Fibonacci Retracements can help your technical analysis trading, stock
chart patterns can contribute to identifying trend reversals and continuations.

What Stock Chart Patterns Should I Look Out For?

Why not print out this article and you will have the answer right next to you whenever you need it. All of themost common
patterns and what they mean to you as a trader are highlighted here. Keep this by your desk and I promise it will be a huge
help in the coming weeks and months. Just having them in your face each and every day will subconsciously help you learn to
recognize them during live trading.

1. Pennant

A pennant is created when there is a significant movement in the stock, followed by a period of consolidation – this creates the
pennant shape due to the converging lines. A breakout movement then occurs in the same direction as the big stock move.
These are similar to flag patterns and tend to last between one and three weeks. There will be significant volume at the initial
stock movement, followed by weaker volume in the pennant section, and growth in volume at the breakout.

2. Cup And Handle

A cup and handle pattern gets its name from the obvious pattern it makes on the chart. The cup is a curved u-shape, while the
handle slopes slightly downwards. In general, the right-hand side of the diagram has low trading volume, and it can last from
seven weeks up to around 65 weeks.

3. Ascending Triangle
This triangle usually appears during an upward trend and is regarded as a continuation pattern. It is a bullish pattern.
Sometimes it can be created as part of a reversal at the end of a downward trend, but more commonly it is a continuation.
Ascending triangles are always bullish patterns whenever they occur.

4. Triple Bottom

The Triple Bottom pattern is used in technical analysis as a predictor of a reverse position following a long downward trend.
The Triple Bottom occurs when the price of the stock creates three distinct downward prongs, at around the same price level,
before breaking out and reversing the trend.

5. Descending Triangle

The descending triangle is another continuation pattern, but this triangle is a bearish pattern and is usually created as a
continuation during a downward trend. Occasionally it can be seen as a reversal during an upward trend (the opposite of the
ascending triangle pattern), but it is considered to be a continuation.
6. Inverse Head And Shoulders

The inverse head and shoulders stock chart pattern is used as a predictor for the reversal of a downward trend. It is also
sometimes called the “head and shoulders bottom” or even a “reverse head and shoulders, ” but all of these names mean the
same thing within technical analysis. It gets the name from having one longer peak, forming the head, and two level peaks on
either side which create the shoulders.

7. Bullish Symmetric Triangle

The symmetrical triangle pattern is easy to spot thanks to the distinctive shape which is developed by the two trendlines which
converge. This pattern occurs by drawing trendlines, which connect a series of peaks and troughs. The trendlines create a
barrier, and once the price breaks through these, a very sharp movement in price follows.

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8. Rounding Bottom
This pattern is sometimes also called a “saucer bottom” and demonstrates a long-term reversal showing that the stock is
moving from a downward trend towards an upward trend instead. It can last any time from several months to years. It is very
similar to the cup and handle, but in this case, there is no handle to the pattern, hence the name.

9. Flag Continuation

The flag stock chart pattern forms through a rectangle. The rectangle develops from two trendlines which form the support and
resistance until the price breaks out. The flag will have sloping trendlines, and the slope should move in the opposite direction
to the original price movement. Once the price breaks through either the support or resistance lines, this creates the buy or
sell signal.

10. Double Top

The flag stock chart pattern forms through a rectangle. The rectangle develops from two trendlines which form the support and
resistance until the price breaks out. The flag will have sloping trendlines, and the slope should move in the opposite direction
to the original price movement. Once the price breaks through either the support or resistance lines, this creates the buy or
sell signal.

11. Bearish Symmetric Triangle

The symmetrical triangle pattern is easy to spot thanks to the distinctive shape which is developed by the two trendlines which
converge. This pattern is created by drawing trendlines, which connect a series of peaks and troughs. The trendlines create a
barrier, and once the price breaks through these, it is usually followed by a very sharp movement in price.

12. Falling Wedge

The symmetrical triangle pattern is easy to spot thanks to the distinctive shape which is developed by the two trendlines which
converge. This pattern is created by drawing trendlines, which connect a series of peaks and troughs. The trendlines create a
barrier, and once the price breaks through these, it is usually followed by a very sharp movement in price.

13. Head And Shoulders Top

The symmetrical triangle pattern is easy to spot thanks to the distinctive shape which is developed by the two trendlines which
converge. This pattern is created by drawing trendlines, which connect a series of peaks and troughs. The trendlines create a
barrier, and once the price breaks through these, it is usually followed by a very sharp movement in price.

14. Did I Forget Your Favorite Pattern?

Add your comments below and let me know what patterns you like to trade besides the 13 above. There are many morestock
chart patterns out there, but these will just get you started.
 About The Author
Kirk Du Plessis

Kirk founded Option Alpha in early 2007 and currently serves as the Head Trader. In 2018, Option Alpha hit the Inc. 500 list at
#215 as one of the fastest growing private companies in the US. Formerly an Investment Banker in the Mergers and
Acquisitions Group for Deutsche Bank in New York and REIT Analyst for BB&T Capital Markets in Washington D.C., he's a
Full-time Options Trader and Real Estate Investor. He's been interviewed on dozens of investing websites/podcasts and he's
been seen in Barron’s Magazine, SmartMoney, and various other financial publications. Kirk currently lives in Pennsylvania
(USA) with his beautiful wife and three children.
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