6. Chart Patterns Every Beginner Should Recognise

How to Read Stocks – 10 posts for beginners | Post 6 of 10

Chart patterns are recurring shapes on price charts that reflect the ongoing tug-of-war between demand and supply. They don't predict the future with certainty, but they help you think in probabilities.

Three families of patterns

  • Continuation patterns – the trend pauses, then usually resumes in the same direction.
  • Reversal patterns – the trend loses strength and may change direction.
  • Bilateral patterns – the price coils up and can break out in either direction.
Three families of patterns

Continuation patterns

  • Flag – after a sharp move, the price drifts in a small rectangle sloping against the trend, usually on falling volume, before resuming.
  • Pennant – similar to a flag, but the consolidation forms a small converging triangle.
  • Ascending triangle – a flat upper line with rising lows. Pressure builds against the flat level.
  • Cup and handle – a rounded "U" shaped base followed by a small dip (the handle) before the price attempts to move beyond the earlier high.
Continuation patterns

Reversal patterns

  • Head and shoulders – three peaks, with the middle one (head) highest and two lower peaks (shoulders) on either side. The line joining the lows between them is the "neckline". A decisive move below the neckline suggests the uptrend may be over. An inverse head and shoulders appears at bottoms.
  • Double top – the price reaches the same high twice and fails both times, often followed by a decline.
  • Double bottom – the price falls to the same low twice and holds, often followed by a rise.
  • Rounding bottom (saucer) – a slow, gradual change from a downtrend to an uptrend over weeks or months.
Reversal patterns

Bilateral patterns

  • Symmetrical triangle – lower highs and higher lows converging. Often seen before major events like RBI policy announcements or the Union Budget.
  • Rectangle – the price moves between two horizontal lines until it breaks out.
  • Broadening (megaphone) – swings get wider, showing rising uncertainty.

How to confirm a pattern

  • Wait for the price to close beyond the key line (breakout level or neckline), not just touch it.
  • Check volume: genuine breakouts are usually accompanied by higher volume.
  • Patterns on daily and weekly charts are generally more reliable than on very short intraday charts.
How to confirm a pattern

Patterns can fail

Every pattern fails sometimes. Market-wide events, results or policy news can override any chart setup. That is why you should always decide in advance where you would exit if the pattern does not work.

Key takeaways

  • Patterns fall into continuation, reversal and bilateral types.
  • Confirm with a closing breakout and rising volume.
  • Patterns improve the odds; they never guarantee results.

Practise it: try these ideas risk-free with virtual money on GPS-AUTOTRADE India paper trading.

Disclaimer: This post is for education only. It is not investment advice or a recommendation to trade any security. Investments in the securities market are subject to market risks; read all related documents carefully and do your own research.

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