Chart Pattern
Technical Analysis
What it means
A recognizable shape formed by price over time that, based on history, hints at what price may do next. Examples include head and shoulders, flags, and triangles.
Example
A head and shoulders pattern at the top of a long rally -- two smaller peaks around a taller middle peak -- is a classic hint that the up trend may be ending.
Mistake beginners make
Beginners see patterns everywhere, even in random noise. If you have to squint and redraw lines to make it fit, it is not a pattern -- it is wishful thinking.
Related terms
- Head and Shoulders — A reversal pattern with three peaks: a left shoulder, a higher head, and a lower right sho…
- Double Top — A reversal pattern where price hits the same high twice and then falls. It looks like an "…
- Triangle — A continuation pattern where price makes lower highs and higher lows, squeezing into a poi…