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WWW Liberatedstocktrader Com Chart Patterns Reliable Profitable
WWW Liberatedstocktrader Com Chart Patterns Reliable Profitable
12 Accurate Chart Patterns Proven Profitable &
Reliable
By Barry D. Moore CFTe April 24, 2023
Research shows the most reliable and profitable chart patterns are the Head &
Shoulders, with an 89% success rate, the Double Bottom (88%), and the Triple
Bottom and Descending Triangle (87%). The most profitable chart pattern is the
Rectangle Top, with a 51% average profit.
We know the success rates and profitability of chart patterns because Tom
Bulkowski, the author of The Encyclopedia of Chart Patterns, has spent decades
researching this topic. I thank Tom for his permission to use a few of his valuable
insights.
Chart Patterns & Stock Chart Insights & Lessons
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Table of Contents
Chart Pattern Reliability, Success & Profitability
This table shows the chart pattern success rate/probability of a price increase in a
bull market and the average price increase after emerging from the pattern. For
example, the inverse head and shoulders pattern has an 89% chance of success
when the price moves up through the resistance level, and the average gain is
45%.
Pennant Patterns (Avoid) 46% 7%
Performance Data Courtesy of https://thepatternsite.com/ permission granted by Tom Bulkowski.
*Figures for a downward break through the support line.
How to Identify Chart Patterns?
Traditionally, you need to find each chart pattern on a stock chart manually, draw
trendlines, and plot target prices. Today, all the patterns in this article can be
automatically detected using TradingView, and TradingView also plots the price
target for you. TradingView is the number one charting service in the world and is
loved by Liberated Stock Trader readers.
We independently research and recommend the best products. We also work with partners to negotiate
discounts for you and may earn a small fee through our links.
Automatic Pattern Recognition with TradingView
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12 Most Reliable & Profitable Chart Patterns
1. Inverse Head & Shoulders – 89% Success
An inverse head and shoulders stock chart pattern has an 89% success rate for a
reversal of an existing downtrend. With an average price increase of 45%, this is
one of the most reliable chart patterns.
The inverse head and shoulders occurs when the price of security hits the bottom
three times, with two troughs forming the “shoulders” and the third lower trough
three times, with two troughs forming the “shoulders” and the third lower trough
forming the “head.” This pattern can indicate that the security’s price could soon
begin to move higher.
Inverse Head & Shoulders Bottom (Inverse H&S) Stock Chart Pattern With Target Reached
Autodetect this Chart Pattern with TradingView
Identifying an Inverse Head and Shoulders
To identify an inverse head and shoulders pattern, look for three distinct lows in the
security’s price on intraday, daily, and weekly charts. The middle low (head) should
be significantly lower than the other shoulders. Look for a confirmation of a trend
reversal by watching for a breakout either above the upper resistance line or below
the lower support line.
If the security price breaks out above the resistance line, it could signal that the
security has completed its reversal. In contrast, a break below the support line
could signal a resumption of the downtrend.
2. Double Bottom – 88% Success
A double bottom chart pattern 88% success rate on a reversal of an existing
downtrend. When the price breaks through resistance, it has an average 50% price
increase; the only pattern better than this is a cup and handle.
The double bottom occurs when the security price hits the bottom twice, creating a
“W”shaped pattern. This pattern often indicates that the stock’s price could soon
increase. However, it should be noted that this indicator does not guarantee a
reversal in direction.
Double Bottom Chart Pattern With Target Reached
Autodetect this Chart Pattern with TradingView
Identifying a Double Bottom
To identify a double bottom chart pattern, investors should look for two distinct
lows in the security’s price that form a “W”shaped pattern. Generally, the pattern
should be visible on an intraday and daily chart. After identifying the two bottoms,
investors can look for a confirmation of a trend reversal by watching for a breakout
either above the upper resistance line or below the lower support line. If the
security price breaks out above the resistance line, it could signal that the security
has completed its reversal. In contrast, a break below the support line could signal
a resumption of the downtrend. It should be noted that further confirmation of this
stock chart pattern should not be relied upon until after prices have moved beyond
these levels.
3. Triple Bottom – 87% Success
A triple bottom chart pattern indicates the potential for a reversal of an existing
downtrend with an 87% probability of success and an average 45% price increase.
A triple bottom occurs when the price hits the bottom three times, creating a
“VVV”shaped pattern. This pattern often indicates that the asset price could soon
begin to move higher.
Triple Bottom Chart Pattern With Target Reached
Autodetect this Chart Pattern with TradingView
Identifying a Triple Bottom
To identify this stock chart pattern, investors should look for three distinct lows in
the security’s price that form a “WV”shaped pattern. Generally, the pattern should
be visible on a daily and weekly chart. After identifying the three bottoms, investors
can look for a confirmation of a trend reversal by watching for a breakout either
above the upper resistance line or below the lower support line. If the security price
breaks out above the resistance line, it could signal that the security has completed
its reversal. In contrast, a break below the support line could signal a resumption of
the downtrend.
4. Descending Triangle – 87% Success
A descending triangle chart pattern highlights the potential for a reversal or
continuation of an existing downtrend. When the price breaks up through
resistance, the is an 87% chance of success with a 38% average profit.
A descending triangle occurs when the price forms two downwardsloping trendlines
that converge towards each other, creating a triangleshaped pattern pointing
downwards. This pattern can indicate that the security’s price could soon begin to
move higher.
Descending Triangle Pattern
Autodetect this Chart Pattern with TradingView
Identifying a Descending Triangle
To identify a Descending Triangle chart pattern, investors should look for two
downwardsloping trendlines that form a descending triangle. Generally, the pattern
should be visible on intraday and daily charts. After identifying the two trendlines,
investors can look for a confirmation of a trend reversal by watching for a breakout
either above the upper resistance line or below the lower support line. If the
security price breaks out above the resistance line, it could signal that the
downtrend is now over, while a break below the support line could signal the
continuation of the trend.
A rectangular top chart pattern suggests a period of consolidation in the stock
price; when the price breaks up during a bull market, there is an 85% success rate,
with a 51% profit potential.
A rectangle top occurs when a security’s price is confined between two generally
parallel and horizontal trendlines, which indicates that it has found support and
resistance levels at similar prices. This typically occurs after an uptrend, as
investors become less aggressive in bidding the price up. A rectangular top pattern
can signify that the upward trend may soon end and could be followed by a sharp
decline. The pattern is sometimes called a trading range, flat top, or rectangular
formation.
Rectangle Top – Chart Pattern
Autodetect this Chart Pattern with TradingView
Identifying a Rectangle top
To identify a Rectangle top chart pattern, investors should look for two parallel and
horizontal lines forming a rectangle. Generally, the pattern should be visible on an
intraday and daily chart. The upper resistance line should identify when the
security’s price struggles to move higher, and the lower support line should identify
when the security’s price fails to decline further. Once these two lines have been
identified, investors can look for a breakout either above the upper resistance line
or below the lower support line. If the security price breaks above the upper
trendline, it could signal that the security is resuming its uptrend. In contrast, a
break below the lower trendline could signal a potential downtrend.
6. Rectangle Bottom – 85% Success
A rectangle bottom chart pattern indicates the potential for a reversal of an existing
downtrend. When a price breakout occurs, there is an 85% success rate and an
average gain of 48%.
A rectangle bottom pattern occurs when the price consolidates at the bottom of a
downtrend, creating a “www”shaped pattern. This pattern can indicate that the
security’s price could soon begin to move higher or lower depending on the
direction of the breakout.
Rectangle Bottom Upward Breakout Chart Pattern
Autodetect this Chart Pattern with TradingView
Identifying a Rectangle Bottom
To identify this stock chart pattern, investors should look for at least four bounces
off the support and resistance lines. Generally, the pattern should be visible on an
intraday and daily chart.
7. Bull Flag – 85% Success
A high tight bull flag chart pattern suggests the potential for a continuation or
reversal of an existing uptrend. When the price breaks out through resistance,
there is an 85% probability of success with an average of 39% profit.
It occurs when the price of a security makes a quick and sharp rise, followed by a
period of consolidation in which prices consolidate within two parallel trendlines.
This pattern can indicate that the security’s price could soon begin to move higher
or lower depending on the direction of the breakout.
High Tight Flag Chart Pattern
Autodetect this Chart Pattern with TradingView
Identifying a High Tight Bull Flag
To identify a high tight bull flag pattern, investors should look for a sharp price rise
followed by two parallel trendlines that form an ascending triangle. Generally, the
pattern should be visible on intraday and daily charts. After identifying the two
trendlines, investors can look for a confirmation of a trend reversal by watching for
a breakout either above the upper resistance line or below the lower support line. If
the security price breaks out above the resistance line, it could signal that the
security resumed its uptrend, while a break below the support line could signal a
downtrend.
One Bull Flag Pattern Succeeds 85%, The Rest Fail
A bull flag is a popular yet widely misunderstood technical analysis pattern characterized by a rapid
upward price trend followed by parallel downslope consolidation in price. The price increase
resembles a flag pole, while the price consolidation is the flag.
8. Ascending Triangle – 83% Success
When the price breaks through the upper resistance of an ascending triangle, there
is an 83% chance of a successful trade with an average price increase of 43%.
It is important to note that ascending triangles can be either continuation or
reversal patterns, depending on the direction of the prior trend. If the market was
in an uptrend prior to the triangle forming, then a break above the upper trendline
is likely to lead to prices continuing in the direction of the prior trend. Similarly, if
the market was in a downtrend before forming an ascending triangle, then a break
below the lower trendline could signal a continuation.
Chart Pattern Success Rate Average Price Change
Ascending Triangle Chart Pattern With Target Reached
Autodetect this Chart Pattern with TradingView
Identifying an ascending triangle
The ascending triangle is formed when an upwardsloping support line and a flat
resistance line create a triangle shape with its apex pointing upwards. By watching
for breakouts either above or below these lines, investors can gain insight into
whether or not prices will continue their current trend or reverse direction.
Ascending Triangle Pattern: Apply an 83% Success Rate To
Trading
According to two decades of trading research, the ascending triangle pattern has an outstanding 83%
success rate in bull markets with an average potential profit of +43%. It’s a well‐known, reliable, and
accurate pattern that can generate good profits.
9. Rising Wedge – 81% Success
Testing shows that a Rising Wedge chart pattern suggests an average success rate
of 81% during a resistance breakout during a bull market, with an average 38%
price increase.
A Rising Wedge occurs when the price of security forms two upwardsloping
trendlines that converge toward each other, creating a wedgeshaped pattern
pointing upwards. This pattern can indicate that the security’s price could soon
begin to move lower.
Autodetect this Chart Pattern with TradingView
Identifying a Rising Wedge
To identify this stock chart pattern, investors should look for two upwardsloping
trendlines that form an ascending triangle. Generally, the pattern should be visible
in intraday and daily charts. After identifying the two trendlines, investors can look
for a confirmation of a trend reversal by watching for a breakout either above the
upper resistance line or below the lower support line. If the security price breaks
out above the resistance line, it could signal that the uptrend is continuing, while a
break below the support line could signal a reversal of the trend and that prices are
likely to move lower.
10. Head & Shoulders Top – 81% Success
A head and shoulders top stock chart pattern suggests a reversal of an existing
uptrend. While there is an 81% success rate, the average price move is only 16%
during a bull market.
A head and shoulders top occurs when the asset price peaks three separate times,
with two peaks forming the “shoulders” and the third higher peak forming the
“head.” This pattern can indicate that the security’s price could soon begin to move
lower.
Head & Shoulders Top Chart Pattern
Autodetect this Chart Pattern with TradingView
Identifying a Head & Shoulders Top
To identify this stock chart pattern, investors should look for three distinct peaks in
the security’s price that form a head and shoulders pattern on intraday, daily, and
the security’s price that form a head and shoulders pattern on intraday, daily, and
weekly charts. After identifying the three peaks, investors can look for a
confirmation of a trend reversal by watching for a breakout either above the upper
resistance line or below the lower support line.
If the security price breaks out below the support line, it could signal that the
security has completed its reversal. In contrast, a break above the resistance line
could signal a resumption of the uptrend. It should be noted that further
confirmation of this stock chart pattern should not be relied upon until after prices
have moved beyond these levels.
11. Bearish Rectangle Bottom – 76% Success
A bearish rectangle bottom chart pattern with a downward break out indicates the
continuation of an existing downtrend with a 76% probability with an average gain
when shorting of 16%.
when shorting of 16%.
Bearish Rectangle
76% 16%
Bottom
Rectangle Bottom Downward Breakout Chart Pattern
Autodetect this Chart Pattern with TradingView
Identifying a Rectangle Bottom
The rectangle bottom occurs when the price of a security forms two nearly flat
trendlines that form a rectangleshaped pattern, with one trendline connecting the
highs and one connecting the lows. This pattern is found during a downtrend; if the
price breaks lower through the resistance line, the downtrend will continue. While a
bearish rectangle has a solid success rate, the inverse cup and handle pattern is
even better for short sellers.
Rectangle Chart Pattern: Trade an 85% Success Rate
A rectangle is a well‐established technical analysis pattern with a predictive accuracy of 85%. The
pattern is flexible, can break out up or down, and is a continuation or reversal pattern.
12. Falling Wedge – 74% Success
A falling wedge stock chart pattern suggests the potential for reversing an existing
downtrend with a 74% success rate and an average 38% price increase.
The Falling Wedge occurs when the price forms two converging trendlines, with the
lower line being more steeply angled than the upper, creating a wedgeshaped
pattern pointing downwards. This pattern can indicate that the security’s price could
soon begin to move higher.
Autodetect this Chart Pattern with TradingView
Identifying a Falling Wedge
To identify a Falling Wedge stock chart pattern, investors should look for two
converging trendlines that form a descending triangle. Generally, the pattern should
be visible on intraday and daily charts. After identifying the two trendlines,
investors can look for a confirmation of a trend reversal by watching for a breakout
either above the upper resistance line or below the lower support line. If the
security price breaks out above the resistance line, it could signal that the security
has completed its reversal. In contrast,e a break below the support line could signal
the continuation of the downtrend.
Warning – Avoid the Pennant Pattern
A pennant continuation pattern identifies a trend continuation but is an extremely
bad indicator. Although many tout the Pennant pattern, Tom Bulkowski warns
against using it, as it has only a 46% chance of success and a meager 7% average
profit.
The Pennant occurs when the price of a security forms two converging trendlines
that create a symmetrical trianglelike pattern, often referred to as a “pennant.”
This pattern can be seen as an indication that the security’s current trend is likely
to continue.
Pennant Patterns (Avoid) 46% 7%
The Pennant Chart Pattern Has The Worst Success Rate of All Chart Patterns
Autodetect this Chart Pattern with TradingView
Due to its poor performance, I do not recommend using the bullish or bearish
pennant chart pattern for trading.
Summary: The Best Chart Patterns for Profits
Thanks to this research, we have proof chart patterns work. Each of these ten
reliable and profitable chart patterns has a greater than 80% chance of success
with an average profit potential of 38% to 51%.
Believe it or not, there are few chart patterns with even better success and
profitability track records. Also, I have discussed only the success rate of these
patterns in bull markets, but what about bear markets? All the research is revealed
in Tom Bulkowski’s Encyclopedia of Chart Patterns. Incredible detail and a visual
listing of these patterns are available at ThePatternSite.com.
Learn the Success Rates of 65 Chart Patterns
Get it on Amazon
12
Accura
te
Chart
Pattern
s
Proven
Profita
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Reliabl
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The Encyclopedia of Chart Patterns by Tom Bulkowski details the reliability and
success rates of 65 chart patterns and shows you how to trade them. It is an
indispensable resource for traders and investors looking to increase profitability by
taking advantage of stock chart patterns. This comprehensive reference book
contains indepth explanations and detailed illustrations of more than 65 pattern
types, including Head and Shoulders, Double Tops, Wedges, Flags, Gaps, and many
more.
The book begins with an introduction to charting basics, including recognizing
trends, support, resistance levels, and other technical analysis tools. It then dives
into a discussion of the various pattern types, offering clear descriptions of how to
identify them in the markets and practical advice on when it is appropriate to act.
Complete with decades of chart pattern testing, The Encyclopedia of Chart Patterns
is a critical resource for trading success.
Get This Great Book on Amazon
Frequently Asked Questions
Do chart patterns really work?
Yes, chart patterns really work. According to decades of research, chart patterns
work between 50 and 89 percent, depending on the pattern and the market. For
example, a double bottom pattern in a bull market is predictive, with an accuracy of
88 percent and an average price change of +50 percent.
What are chart patterns?
Chart patterns are visualizations of market price moves created by supply and
demand. These patterns identify potential price breakouts, reversals, and
continuation moves. Chart patterns such as a triangle or head & shoulders are
naturally formed by market buying and selling.
What is the most successful chart pattern?
The head and shoulder bottom pattern is proven to be the most successful chart
pattern in a bull market, with an 88 percent accuracy rate and an average price
change of +50 percent. Other successful patterns include the double bottom (88
percent) and the ascending triangle (83 percent).
How do I use chart patterns?
Chart patterns are used to identify potential trading opportunities. When a chart
pattern is formed, you should watch closely for the pattern to break out. If the
asset price breaks out through the resistance, it is a buy; if it breaks down through
support, it is a sell.
How important are chart patterns?
Chart patterns are incredibly important for traders in stocks, foreign exchange,
ETFs, and cryptocurrencies. Many traders use chart patterns but do not understand
the probabilities of specific chart pattern success. For example, an ascending
triangle has an 83 percent chance of success.
What is the most reliable pattern in trading?
According to decades of testing, one of the most reliable patterns in trading is the
rectangle top, with an 85 percent chance of success and an average of 51 percent
profit in a bull market. This pattern has been tested and documented in the
Encyclopedia of Chart Patterns by Tom Bulkowski.
What is the psychology behind chart patterns?
Chart patterns reflect the psychology of market participants and how they perceive
a security's value. Chartists use these patterns to determine when buyers or sellers
are in control, which can be used to identify potential reversals or breakouts.
Chartists are looking for trends in price and volume that signify the current state of
market sentiment.
How do you trade chart patterns?
Trading chart patterns is all about timing and spotting when the market turns. A
trader should look for the signs of a pattern forming, such as volume spikes or
narrowing price movements. Once a pattern has been identified, traders can
execute trades based on their interpretation of the data.
How many chart patterns are there?
According to the Encyclopedia of Chart Patterns by Tom Bulkowski, 82 distinct chart
patterns across bull and bear markets have been identified, documented, and
tested. You can try to learn each chart pattern or use pattern recognition software
to perform the work for you.
Which timeframe is best for chart patterns?
The best timeframes for chart patterns are 1 hour, 1 day, and 1 week. Research
suggests that the longer the timeframe, the more reliable and accurate the chart
pattern. Chart patterns on shorter timeframes from 1 to 10 minutes can be less
accurate due to the outsize impact of larger trades.
Which chart pattern is most bullish?
The rectangle top chart pattern is the most bullish pattern during a bull market.
The rectangle top is the most bullish because it has an average 51 percent upside
potential and an 85 percent chance of success, according to the Encyclopedia of
Chart Patterns by Tom Bulkowski.
Is pattern trading profitable?
Yes, pattern trading can be profitable when done properly. Pattern traders must
recognize the pattern, wait for the breakout, understand the probability of success,
and set a realistic target. These steps balance the risk (success probability) and
reward (price target). These steps establish a solid framework for the trade.
Who invented chart patterns?
Traders have used chart patterns for centuries. However, modern chart patterns
were made popular by early technical analysts such as Charles Dow, born 1851,
and Richard Wyckoff, born 1873. As trading technology progressed, so did the
development of automated chart pattern recognition software to help traders
identify trends.
Why are charts more effective?
Charts are an effective way to analyze and interpret data due to their visual nature.
A chart can quickly convey a great deal of information in an easytodigest format,
allowing traders to make decisions quickly and accurately. Furthermore, chart
patterns often repeat themselves, so they can help predict future price movements
once identified.
Why do patterns fail in trading?
Successful patterns fail in trading because market sentiment can change quickly.
Even though a pattern is progressing perfectly, the impact of breaking financial
news can disrupt the market and cause a pattern to fail. Even a successful pattern
can fail if there is market moving new, such as Federal Reserve interest hikes or an
industryimpacting announcement.
Which trading style is most profitable?
The least risky and most profitable trading style is longterm investing in broad
market ETFs or profitable growth stocks with healthy cash flows. Day trading can be
profitable, but the Standard and Poors SPIVA report suggests that 93 percent of
active fund managers failed to beat the market.
Which trading strategy has the highest probability of success?
The trading strategy with the highest probability of success is based on sound
principles such as risk management, position sizing, and proper selection of stocks.
Applying these principles, traders can minimize losses and maximize returns. By
following trends in the market and not trying to pick tops or bottoms, it's possible
to be successful.
Is there a perfect trading system?
No, there is no perfect trading system. Every trader has different risk tolerance and
objectives, so the best trading system will depend on the individual's goals.
Furthermore, markets constantly change, and adaptability is key to successful
trading. As Richard Dennis said, "The market is never wrong opinions often are."
What is the easiest pattern to trade?
The easiest pattern to trade is the rectangle or Darvas Box. This is a chart pattern
where the stock makes a series of highs and lows within a boxed price range. When
the stock breaks out of this range, it can signal either an uptrend or a downtrend.
Experienced traders look for volume expansion when trading these patterns to
confirm that the breakout is legitimate.
Which chart patterns are most reliable?
Some of the most reliable stock chart patterns do not occur often. The head and
shoulders bottom has a reliability of 89 percent in a bull market, but it does not
occur often. However, the double bottom chart pattern has a reliability of 88
percent and occurs regularly.
Barry D. Moore CFTe
https://www.liberatedstocktrader.com/about
Barry D. Moore is a Certified Market Technical Analyst with the International Federation of Technical
Analysts with over 20 years of investing experience. Previous lives include holding key executive roles in
Silicon Valley corporations. Connect With Me on TradingView Our Review Winning Trading Platform.
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