Chart patterns in stock market

Major Stock Market Chart Patterns

1. Head and Shoulders Pattern

The Head and Shoulders pattern is a reliable reversal chart pattern that consists of three peaks: a higher peak (the "head") between two lower peaks (the "shoulders"). A neckline connects the lows of the two troughs. It signals a reversal in an uptrend when the price breaks below the neckline. The Inverse Head and Shoulders is the opposite, signaling a reversal in a downtrend.

• Head: The tallest peak in the center.
• Shoulders: Two lower peaks on either side of the head.
• Neckline: The support level connecting the troughs between the head and shoulders.
• Signal: A break below the neckline confirms a bearish reversal. In the inverse pattern, a break above the neckline confirms a bullish reversal.

2. Double Top and Double Bottom

These are reversal patterns indicating a change in trend direction. The Double Top resembles the letter "M," while the Double Bottom resembles the letter "W."

• Double Top: Two peaks at similar price levels, separated by a trough. It indicates a bearish reversal when the price breaks below the trough.
• Double Bottom: Two troughs at similar price levels, separated by a peak. It indicates a bullish reversal when the price breaks above the peak.

3. Triangle Patterns

Triangle patterns are continuation patterns, but the breakout direction determines whether the trend continues or reverses. The price consolidates between two converging trendlines before breaking out.

• Symmetrical Triangle: Both trendlines converge symmetrically. A breakout can occur in either direction.
• Ascending Triangle: A horizontal resistance line and an ascending support line. It often breaks upwards, signaling a bullish continuation.
• Descending Triangle: A horizontal support line and a descending resistance line. It often breaks downwards, signaling a bearish continuation.

4. Wedge Patterns

Wedges are reversal or continuation patterns. The price moves within converging trendlines, either upwards or downwards, before breaking out.

• Rising Wedge: Converging trendlines slanted upwards. It typically signals a bearish reversal with a break to the downside.
• Falling Wedge: Converging trendlines slanted downwards. It typically signals a bullish reversal with a break to the upside.

5. Cup and Handle

This is a bullish continuation pattern. It consists of a rounded bottom (the "cup") followed by a small consolidation (the "handle"). When the price breaks above the handle, it often signals further upward movement.

• Cup: The U-shaped rounded bottom formed after a downtrend.
• Handle: A consolidation or slight pullback near the highs of the cup.
• Signal: A breakout above the handle suggests a continuation of the bullish trend.

6. Pennant and Flag

These patterns appear after sharp price movements, indicating short-term consolidation before the trend resumes in the same direction.

• Pennant: A small symmetrical triangle that forms after a strong price move. The breakout direction usually follows the prior trend.
• Flag: A rectangular consolidation pattern after a strong move. The breakout typically follows the prior trend.

7. Rounding Bottom (Saucer)

This is a long-term reversal pattern where the price gradually transitions from a downtrend to an uptrend. The rounded bottom shows a weakening bearish sentiment and increasing buying pressure.

• Signal: A breakout above the U-shaped bottom signals a bullish reversal.

8. Triple Top and Triple Bottom

The Triple Top and Triple Bottom are reversal patterns that resemble the Double Top and Double Bottom but with an additional peak or trough.

• Triple Top: Three peaks at similar price levels, separated by troughs. A break below the lowest trough signals a bearish reversal.
• Triple Bottom: Three troughs at similar price levels, separated by peaks. A break above the highest peak signals a bullish reversal.

9. Rectangle Patterns

The Rectangle pattern forms when the price moves between parallel support and resistance levels. It is a continuation pattern, with the breakout occurring in the direction of the prior trend.

• Bullish Rectangle: A continuation pattern in an uptrend, where the price breaks out above the resistance level.
• Bearish Rectangle: A continuation pattern in a downtrend, where the price breaks below the support level.

10. Hammers, Dojis, and Engulfing Patterns

These are candlestick patterns that signal potential reversals in the market.

• Hammer and Shooting Star: Single-candlestick patterns that signal a reversal (hammer after a downtrend, shooting star after an uptrend).
• Doji: Indicates market indecision. It forms when the opening and closing prices are nearly the same, signaling a potential reversal.
• Bullish/Bearish Engulfing: A two-candlestick pattern where the second candlestick completely engulfs the previous one, signaling a reversal.