Trading glossary
A chart pattern is a recognizable shape formed by price movement over time that technical analysts study to interpret possible upcoming market behavior.
A chart pattern is a distinctive shape that price traces out over time on a chart. Technical analysts catalog these formations because similar shapes have historically preceded similar tendencies in price. Patterns are usually grouped by what analysts associate with them, and they are read as descriptions of the ongoing balance between buyers and sellers rather than as predictions.
Analysts often sort patterns into two broad families. Continuation patterns, such as flags and triangles, are associated with a pause before a prior move potentially resumes. Reversal patterns, such as the head and shoulders or double top, are studied for signs that a trend may be changing direction. The same shape can be interpreted differently depending on where it appears and what surrounds it.
Chart patterns are interpretive, and identifying them involves judgment, so two analysts may not agree on the same chart. A pattern that looks complete can still fail to play out as expected. For this reason, traders commonly combine patterns with other tools like volume, trendlines, or momentum, and treat any pattern as one input rather than a standalone signal. This material is educational and not personalized investment advice; markets involve risk, including the loss of capital.
Continuation patterns are studied for signs that an existing trend may resume after a pause, while reversal patterns are watched for indications a trend could change direction. Context determines which interpretation applies.
Chart patterns describe tendencies observed in the past, not guarantees. They are interpretive, can be identified inconsistently, and may fail to unfold as expected, so traders use them alongside other analysis.