Below is a step-by-step explanation of some of the most popular and advanced chart patterns.​

1. Head and Shoulders (Reversal Pattern)

Characteristics:

• Head and Shoulders (Bearish Reversal): Signifies the reversal of an uptrend.

  • Left Shoulder: A peak, followed by a small decline.
  • Head: A higher peak, followed by another decline.
  • Right Shoulder: A lower peak, indicating weaker bullish sentiment.

• Inverse Head and Shoulders (Bullish Reversal): Signifies the reversal of a downtrend.

  • Left Shoulder: A trough, followed by a rally.
  • Head: A deeper trough, followed by a rally.
  • Right Shoulder: A higher trough, indicating bullish momentum.

Step-by-Step:

1. Identify the uptrend (for Head and Shoulders) or downtrend (for Inverse Head and Shoulders).
2. Look for the left shoulder, head, and right shoulder formation.
3. Draw the neckline connecting the lows in a Head and Shoulders or the highs in an Inverse Head and Shoulders.
4. A breakout below (for Head and Shoulders) or above (for Inverse Head and Shoulders) the neckline confirms the pattern.
5. Target: The height from the head to the neckline is projected downwards (for Head and Shoulders) or upwards (for Inverse Head and Shoulders) to estimate the price target.

2. Cup and Handle (Continuation Pattern)

Characteristics:

• Resembles a teacup shape and is a bullish continuation pattern.
  • Cup: A rounded bottom that forms after a pullback.
  • Handle: A small consolidation (pullback) after the cup formation, before the breakout.

Step-by-Step:

1. Identify an uptrend followed by a U-shaped cup.
2. The cup should form over a period of time, indicating consolidation.
3. After the cup, a handle forms with a slight pullback or sideways movement.
4. A breakout from the handle confirms the continuation of the uptrend.
5. Target: Measure the depth of the cup and project that distance upwards from the breakout point for the price target.

3. Triangles (Continuation or Reversal Patterns)

Types of Triangles:

• Ascending Triangle: Bullish continuation pattern with a flat top (resistance) and rising lows (support).
• Descending Triangle: Bearish continuation pattern with a flat bottom (support) and falling highs (resistance).
• Symmetrical Triangle: Neutral pattern with converging trendlines; could break out in either direction.

Step-by-Step:

1. Identify Trendlines: Connect at least two highs and two lows to form the triangle.
   • Ascending Triangle: Horizontal resistance with rising support.
   • Descending Triangle: Horizontal support with falling resistance.
   • Symmetrical Triangle: Both support and resistance are converging.
2. Wait for price to consolidate inside the triangle.
3. A breakout occurs when the price moves outside the triangle, either through resistance (bullish) or support (bearish).
4. Target: Measure the height of the triangle (from the widest part) and project that distance in the direction of the breakout.

4. Double Tops and Double Bottoms (Reversal Patterns)

Characteristics:

• Double Top: Indicates a bearish reversal after an uptrend.
  • Two peaks form at roughly the same level, with a pullback in between.
• Double Bottom: Indicates a bullish reversal after a downtrend.
  • Two troughs form at roughly the same level, with a rally in between.

Step-by-Step:

1. Identify two distinct peaks or troughs, with a significant pullback or rally in between.
2. Draw the neckline connecting the lowest point between the two peaks (for Double Top) or the highest point between the two troughs (for Double Bottom).
3. A breakout below the neckline (for Double Top) or above the neckline (for Double Bottom) confirms the pattern.
4. Target: Measure the height from the peaks (for Double Top) or troughs (for Double Bottom) to the neckline and project that distance from the breakout point.

5. Wedge Patterns (Continuation or Reversal Patterns)

Types of Wedges:

• Rising Wedge: Bearish pattern, usually signaling a reversal after an uptrend. Price action narrows as highs and lows converge upwards.
• Falling Wedge: Bullish pattern, usually signaling a reversal after a downtrend. Price action narrows as highs and lows converge downwards.

Step-by-Step:

1. Rising Wedge: Connect higher highs and higher lows to form the wedge. The slope of the support line is steeper than that of the resistance line.
   • A breakout below the support line signals a bearish reversal.
2. Falling Wedge: Connect lower highs and lower lows to form the wedge. The slope of the resistance line is steeper than that of the support line.
   • A breakout above the resistance line signals a bullish reversal.
3. Target: Measure the height of the wedge and project that distance from the breakout point to determine the target.

6. Rectangle Pattern (Continuation or Reversal)

Characteristics:

• Rectangle patterns indicate a period of consolidation between parallel support and resistance levels.
  • A bullish rectangle suggests the continuation of an uptrend.
  • A bearish rectangle suggests the continuation of a downtrend.

Step-by-Step:

1. Draw two parallel horizontal lines connecting the highs and lows of the consolidation range.
2. Wait for a breakout above resistance (bullish rectangle) or below support (bearish rectangle).
3. Target: Measure the height of the rectangle (from support to resistance) and project that distance from the breakout point.

7. Flag and Pennant Patterns (Continuation Patterns)

Characteristics:

• Flag: Appears as a small rectangle or parallelogram that slopes against the prevailing trend. A flag indicates a brief consolidation before the trend continues.
• Pennant: Similar to the flag but is characterized by converging trendlines, forming a small triangle.

Step-by-Step:

1. Identify a strong impulse move (upward or downward) before the pattern.
2. For a flag, look for parallel trendlines that slope slightly against the trend.
3. For a pennant, look for converging trendlines.
4. A breakout from the flag or pennant in the direction of the original trend confirms the continuation.
5. Target: Measure the length of the flagpole (the initial impulse move) and project that distance from the breakout point.

8. Descending and Ascending Channel (Continuation or Reversal Patterns)

Characteristics:

• Descending Channel: Consists of lower highs and lower lows, representing a bearish trend. The breakout above the channel signals a bullish reversal.
• Ascending Channel: Consists of higher highs and higher lows, representing a bullish trend. The breakout below the channel signals a bearish reversal.

Step-by-Step:

1. Draw two parallel trendlines connecting the highs and lows of the price action.
   • Ascending Channel: Upward-sloping trendlines.
   • Descending Channel: Downward-sloping trendlines.
2. Price generally oscillates between the trendlines until a breakout occurs.
3. Target: Measure the height of the channel and project that distance in the direction of the breakout.