What is a Pattern Chart: A Complete Guide for Beginner Traders to Understand Price Patterns

Meaning and Principles of Chart Pattern

Chart Pattern or also known as Chart Pattern is the study of the changing characteristics of an asset’s price over a specified period. Based on the principle that the price movement patterns that occur frequently tend to repeat themselves, allowing investors to read signals and predict the future direction of the price.

In fact, the price that appears reflects the battle between (Demand) from buyers and (Supply) from sellers at all times. When one side wins, the price moves in that direction. Therefore, when you understand chart patterns well, it’s equivalent to understanding market sentiment and being able to forecast upcoming changes.

Classification of Chart Patterns into 3 Main Types

There are many types of chart patterns observed in the market, but they can be broadly divided into 3 groups that cover almost all patterns.

First Group: Reversal Patterns (Reversal Pattern)

This type of pattern appears when a long-standing trend reaches its end and is ready to reverse direction. It most often occurs at the highest or lowest points of a cycle, during intense battles between buyers and sellers.

For example, when the price is in an uptrend, the appearance of Double Top or Head and Shoulders indicates that sellers are starting to weaken and may push the price down soon.

Second Group: Continuation Patterns (Continuation Pattern)

This pattern indicates a pause in the ongoing trend. It is not a reversal but a breathing space to accumulate energy before continuing in the same direction.

It occurs when some traders decide to take profits or cut losses, causing the price to stall. Since the main driving force remains, the price does not change direction but only slows down.

Third Group: Bilateral Patterns (Bilateral Pattern)

When this pattern appears, the market is still uncertain about which way to go. The balance between buyers and sellers is nearly equal, so a breakout is needed to determine the direction.

10 Chart Patterns Every Beginner Trader Must Know

1. Head and Shoulders (Head and Shoulders)

This is a famous reversal pattern that occurs at the end of an uptrend. It forms as a left shoulder, then a new high (head), followed by a right shoulder.

When the price breaks below the Neckline, it indicates a trend reversal and the price will move downward.

Target measurement: The distance from the head to the Neckline multiplied by the same factor, then measured from the breakout point.

2. Double Top (Double Top)

Similar to Head and Shoulders but simpler, as it has only two peaks instead of three.

It indicates that buyers attempted to push the price higher twice but failed, causing sellers to start taking control.

Target measurement: High - Neckline = distance to the target from the breakout point.

3. Double Bottom (Double Bottom)

A mirror image of Double Top but occurs at the end of a downtrend. It indicates that selling power is waning and buyers are returning.

When the price breaks above the Neckline, it confirms a trend reversal to an uptrend.

4. Rounding Bottom (Rounding Bottom)

A more curved reversal pattern where the price gradually declines without a clear low point, then slowly changes direction upward.

Signals from this pattern are relatively weak, but for some assets, it can indicate a long-term recovery.

5. Cup and Handle (Cup and Handle)

A continuation pattern where the price rounds out into a cup shape, then attempts to break out but fails, forming a handle.

Buyers place limit orders in anticipation, while sellers may reduce margin calls.

When the final breakout occurs, the target price is the distance from the bottom of the cup to the Neckline.

6. Wedge (Wedge)

Price moves within a narrowing range, forming a wedge pattern, which can appear at the end of an uptrend or downtrend.

Rising Wedge: Appears at the end of an uptrend, often signaling a reversal.
Falling Wedge: Appears at the end of a downtrend, indicating accumulation by buyers.

7. Flag and Pennant (Flag and Pennant)

Continuation patterns where the price consolidates after a strong move in one direction, then resumes the trend.

Flags: Rectangular shapes
Pennants: Triangular shapes

8. Ascending Triangle (Ascending Triangle)

Occurs in an uptrend. Buyers are aggressive, sellers try to resist, but the lows keep rising, showing buyer strength.

When the price breaks above the resistance, it continues upward.

9. Descending Triangle (Descending Triangle)

The opposite of the Ascending Triangle, occurring in a downtrend. The highs keep getting lower, indicating dominance by sellers.

When the price breaks below support, it continues downward.

10. Symmetrical Triangle (Symmetrical Triangle)

Forms when the market is uncertain, with buyers and sellers having similar strength, creating a neat triangle shape.

When the price breaks out, follow the direction, as market decisions can be quite loose.

Important Cautions When Using Chart Patterns for Trading

High Subjectivity: Traders may interpret the same pattern differently, especially if not confirmed by other indicators.

Shorter Timeframes Are Riskier: Patterns on 5-minute or 15-minute charts are more prone to distortion than longer timeframes.

Volume Analysis: Low volume may render a pattern false. Simply analyzing the chart is not enough; confirmation with volume is necessary.

Don’t Rely Solely on Chart Patterns: Experienced traders often combine them with other indicators like RSI, MACD, Moving Averages to increase certainty.

Summary

Chart patterns are powerful and not overly complicated analysis tools, making them suitable for beginners. Success does not come from knowing mathematical formulas but from practice and patience.

The best way is to start by studying real examples on your trading platform, establish support and resistance levels, and test with small amounts of money. Greater profits will follow as you gain experience.