10 chart patterns every trader needs to know

What is a chart pattern?

A chart pattern is a shape within a price chart that helps to suggest what prices might do next, based on what they have done in the past. Chart patterns are the basis of technical analysis, and they require a trader to know exactly what they are looking at, as well as what they are looking for.

There is no single 'best' chart pattern, because they are all used to highlight different trends in a huge variety of markets. Often, chart patterns are used in candlestick trading, which makes it slightly easier to see the previous opens and closes of the market. Some patterns are more suited to a volatile market, while others are less so; some are best used in a bullish market, others when a market is bearish. Knowing the right pattern for your particular market matters, because using the wrong one, or not knowing which to use, may cause you to miss an opportunity. For more on reading the underlying candles, see our guide on candlestick patterns.

You can learn more about chart patterns with us and test your skills with a demo account on the UK's number one trading platform.

Support and resistance explained

Before getting into the intricacies of different chart patterns, it's important to briefly explain support and resistance levels, because nearly every pattern is built on them. Support refers to the level at which an asset's price stops falling and bounces back up. Resistance is where the price usually stops rising and dips back down.

These levels appear because of the balance between buyers and sellers, or demand and supply. When there are more buyers than sellers, the price tends to rise. When there are more sellers than buyers, the price usually falls. An asset's price might rise because demand is outstripping supply, but it will eventually reach the maximum buyers are willing to pay, at which point demand decreases and buyers start closing positions.

This creates resistance, and the price starts to fall towards a level of support as supply begins to outstrip demand. Once the price falls enough, buyers may buy back in because the price is more acceptable, creating support where supply and demand begin to equalise. If buying continues, it drives the price back up towards resistance. Importantly, once a price breaks through a level of resistance, that level may become a level of support, and vice versa. For a deeper look, see our guide on support and resistance levels.

The three types of chart pattern

Chart patterns fall broadly into three categories: continuation patterns, reversal patterns and bilateral patterns.

• A continuation pattern signals that an ongoing trend is likely to continue
• A reversal pattern indicates that a trend may be about to change direction
• A bilateral pattern lets traders know the price could move either way, meaning the market is highly volatile

For all of these patterns, you can take a position with CFDs and spread bets, because these products enable you to go short as well as long, meaning you can speculate on markets falling as well as rising. You may wish to go short during a bearish reversal or continuation, or long during a bullish one, depending on the pattern and your market analysis. Learn more about the differences in our guide on spread betting vs CFDs.

The most important thing to remember is that chart patterns are not a guarantee that a market will move in the predicted direction. They are merely an indication of what might happen to an asset's price.

The 10 best chart patterns

1. Head and shoulders
2. Double top
3. Double bottom
4. Rounding bottom
5. Cup and handle
6. Wedges
7. Pennants or flags
8. Ascending triangle
9. Descending triangle
10. Symmetrical triangle

Head and shoulders

Head and shoulders is a pattern in which a large peak has a slightly smaller peak on either side of it. Traders use it to predict a bullish-to-bearish reversal. Typically, the first and third peaks will be smaller than the second, but all three fall back to the same level of support, known as the 'neckline'. Once the third peak has fallen back to the support level, it's likely to break out into a bearish downtrend. An inverse head and shoulders, forming at the bottom of a downtrend, signals the opposite: a bearish-to-bullish reversal.

Double top

A double top is another pattern traders use to highlight trend reversals. Typically, an asset's price will experience a peak, before retracing back to a level of support. It will then climb up once more before reversing back more permanently against the prevailing trend. It's a bearish reversal pattern, signalling the end of an uptrend.

Double bottom

A double bottom indicates a period of selling that causes an asset's price to drop below a level of support. It will then rise to a level of resistance, before dropping again. Finally, the trend reverses and begins an upward motion as the market becomes more bullish. A double bottom is a bullish reversal pattern, because it signifies the end of a downtrend and a shift towards an uptrend.

Rounding bottom

A rounding bottom can signify either a continuation or a reversal. During an uptrend, an asset's price may fall back slightly before rising once more, which is a bullish continuation. A bullish reversal rounding bottom would occur if an asset's price was in a downward trend and a rounding bottom formed before the trend reversed into a bullish uptrend. Traders often seek to capitalise by buying at the low point halfway around the bottom, benefiting from the continuation once it breaks above resistance.

Practise spotting patterns 

Test your skills with £10k in virtual funds.

Cup and handle

The cup and handle is a bullish continuation pattern used to show a period of bearish sentiment before the overall trend continues upward. The cup appears similar to a rounding bottom, and the handle is similar to a wedge. Following the rounding bottom, the price enters a temporary retracement, known as the handle because it's confined between two parallel lines. The asset eventually reverses out of the handle and continues with the overall bullish trend.

Wedges

Wedges form as an asset's price movements tighten between two sloping trend lines. There are two types. A rising wedge is caught between two upwardly slanted lines of support and resistance, where the support line is steeper than the resistance. It generally signals that an asset's price will eventually decline, confirmed when it breaks through support. A falling wedge occurs between two downwardly sloping levels, where the resistance line is steeper than the support, and usually indicates a price will rise and break through resistance. Both are reversal patterns: rising wedges are bearish, falling wedges are bullish.

Pennants or flags

Pennant patterns, or flags, are created after an asset experiences a period of sharp movement, followed by a consolidation. Generally there's a significant move during the early stages of the trend, before a series of smaller upward and downward movements. Pennants can be either bullish or bearish, and can represent a continuation or a reversal, which makes them a form of bilateral pattern. While a pennant may seem similar to a wedge or triangle, wedges are narrower, and a wedge is always ascending or descending while a pennant is always horizontal.

Ascending triangle

The ascending triangle is a bullish continuation pattern signifying the continuation of an uptrend. It's drawn by placing a horizontal line along the swing highs (the resistance) and an ascending trend line along the swing lows (the support). Ascending triangles often have two or more identical peak highs, which allow the horizontal line to be drawn. The trend line signifies the overall uptrend, while the horizontal line indicates the historic resistance level.

Descending triangle

In contrast, a descending triangle signifies a bearish continuation of a downtrend. Typically a trader will enter a short position during a descending triangle, possibly with CFDs or spread bets, in an attempt to profit from a falling market. Descending triangles generally shift lower and break through support because they indicate a market dominated by sellers. They can be identified from a horizontal line of support and a downward-sloping line of resistance.

Symmetrical triangle

The symmetrical triangle can be either bullish or bearish, depending on the market. In either case it's normally a continuation pattern, meaning the market usually continues in the same direction as the overall trend once the pattern has formed. Symmetrical triangles form when the price converges with a series of lower peaks and higher troughs. However, if there's no clear trend before the triangle forms, the market could break out in either direction, which makes it a bilateral pattern best used in volatile markets where there's no clear indication of direction.

How to confirm a chart pattern

One of the biggest differences between novice and experienced technical traders is that experienced traders rarely act on a pattern alone. A pattern suggests a probability, not a certainty, and confirmation helps filter out false signals.

The most widely used confirmation is a decisive break of the relevant support or resistance level, ideally accompanied by a rise in volume, which suggests genuine conviction behind the move rather than a temporary fluctuation. Many traders also wait for a candle to close beyond the level rather than acting the moment it's breached, since prices often poke through a level intraday before snapping back. Some combine patterns with indicators such as the RSI or MACD to check that momentum supports the expected move. For more on combining these tools, see our guide on technical vs fundamental analysis.

Common mistakes to avoid

Forcing a pattern that isn't there. It's easy to see a head and shoulders or a triangle in random price movement. If you have to squint to see it, it probably isn't a reliable signal.

Ignoring the wider trend. A bullish pattern in the middle of a strong downtrend is a lower-probability trade. Patterns work best when they align with the broader market context.

Entering before confirmation. Acting the instant a pattern appears to complete, before the level is convincingly broken, is one of the most common ways traders get caught out by false breakouts.

Neglecting risk management. No pattern is guaranteed. Using stops and limits to define your risk on every trade matters more than the pattern itself.

How to trade chart patterns with us

You can trade all of the patterns above across more than 15,000 markets with us, using spread bets or CFDs. Because both let you go long or short, you can trade bullish and bearish patterns with the same tools. Our platform includes drawing tools to help you map support, resistance and trend lines directly onto the chart, along with the technical indicators you need to confirm a pattern before you act.

If you're still building confidence, our demo account lets you practise identifying and trading patterns with £10,000 in virtual funds before you commit real capital.

Chart patterns summed up

All of the patterns explained here are useful technical indicators that can help you understand how or why an asset's price moved in a certain way, and which way it might move in future. This is because chart patterns highlight areas of support and resistance, which can help you decide whether to open a long or short position, or whether to close an open position in the event of a possible trend reversal. Remember that they indicate probability rather than certainty, and work best when combined with confirmation signals and sound risk management.