16. Chart patterns – double tops, head and shoulders, triangles and flags
Candlestick patterns are 1–3 candles. Chart patterns are bigger shapes made over many candles. They show a longer battle between buyers and sellers.
There are two families:
- Reversal patterns – the trend may be ending.
- Continuation patterns – the trend is pausing before continuing.
16.1 Double top and double bottom
Double top: price hits a high, pulls back, rallies to the same high again – and fails. Then it breaks below the low between the two peaks (the neckline). Buyers tried twice and failed. A reversal from up to down.
Double bottom is the mirror image – two lows at about the same price, then a break above the neckline. It often looks like the letter W.
16.2 Head and shoulders
Three peaks: a left shoulder, a higher head, and a lower right shoulder. A line through the lows between them is the neckline. A close below the neckline completes the pattern.
Why it works: the right shoulder is a lower high. Buyers could not even reach the head again. Structure is breaking.
The inverse head and shoulders is the bullish version at a bottom.
16.3 Triangles
Price makes smaller and smaller swings, squeezing into a point.
- Ascending triangle – flat top, rising lows. Buyers keep buying higher. Usually breaks up.
- Descending triangle – flat bottom, falling highs. Sellers keep selling lower. Usually breaks down.
- Symmetrical triangle – both lines converge. Direction is decided by the breakout.
16.4 Flags
After a sharp, almost straight move (the pole), price drifts slightly against the move in a small, tidy channel (the flag). Then the move resumes. Flags are continuation patterns – a short rest during a run.
In a 4×100 m relay, runners sprint, then pass the baton in a small zone where they slow slightly, then sprint again. The baton change is the flag. The race is not over – it is just a handover.
16.5 Measuring a target
A simple method: measure the height of the pattern and project it from the breakout point.
Example: a double bottom with lows at ₹400 and a neckline at ₹460. Height = ₹60. On a breakout above ₹460, a rough target is ₹460 + ₹60 = ₹520.
Targets are a guide, not a promise. Many traders book part profit near the target and trail the rest.
Patterns tabhi kaam karte hain jab woh "obvious" hon. If you have to tilt your head and squint to see a head and shoulders, it is not there. The best patterns jump out at you – and they appear at important levels.
Until the neckline breaks, it is only a possible pattern. The close below the neckline confirms it.
Height = ₹30. Add it to the breakout point: ₹230 + ₹30 = ₹260.
Rising lows show buyers getting more aggressive against a fixed ceiling. It more often breaks up – but always wait for the actual breakout.
- Reversal patterns: double top/bottom, head and shoulders (and inverse).
- Continuation patterns: flags, and often triangles.
- Patterns are confirmed by a breakout of the neckline or boundary, ideally with volume.
- Measure the pattern height and project it for a rough target.
- Trade only clear, obvious patterns at important levels.
- Ek line mein: Pattern itna saaf hona chahiye ki dekhte hi dikh jaaye – aur confirmation neckline ke tootne pe hi milta hai.