How to Read Chart Patterns for Beginner Traders

The common patterns used to trade that beginner trades should know are explained below. These chart pattern are grouped into reversal chart patterns and continuation patterns.

Reversal Setups

The widely used reversal chart patterns are:

Double Tops

Double tops chart pattern is an M shaped 2 tops or 2 peaks pattern setup that forms on the price chart during a upward trend.

Double tops setup is a bearish pattern that forms when price reaches a resistance level.

The price will move upward and then dip slightly then turn up and move upward to the top level where it had reached or slightly below this level then move downward again forming what is known as a double tops chart setup.

Double Bottoms

Double bottom setup is a W shaped 2 bottoms or 2 lows setup that forms on the price chart during a downwards trend.

Double bottom setup is a bullish pattern that forms when price reaches a support level.

The price will move downward in then move up slightly then turn downwards & move downward to the bottom level where it had reached or slightly above this level then move up again forming what is known as a double bottom chart setup.

Head & Shoulders Pattern

Head & Shoulders pattern setup is a bearish reversal chart setup that forms after a upward trend.

There is an initial peak which is the first shoulder then a slight dip in price, then the second higher peak which is the head then another price dip followed by last peak in price which is the second shoulder.

The lowest points between the 2 gold price lows forms the neckline & the reversal signal from this head and shoulders chart pattern is confirmed once price moves below this neckline.

Reverse Head & Shoulders Pattern

Reverse Head and Shoulders pattern setup is a bullish reversal chart setup that forms after a downwards trend.

There's an initial dip that is the first reverse shoulder then a moderate peak in price, then a second lower trough which is the reverse head and then another price peak followed by last price dip in price which is the second inverse shoulder.

The highest points between the 2 gold price peaks forms the neckline and the reversal signal from this reverse head and shoulders chart pattern is confirmed once price moves above this neckline.

Continuation Chart Setups

Continuation trading patterns are:

Rising Wedge or Ascending Wedge

Rising wedge is a continuation pattern that forms during an upwards trend & this patterns looks like a triangle consolidation pattern that has a rising slope that is moving upward.

Rising wedge chart pattern has rising sloping support and resistance levels and this setup highlights that prices keep moving higher & once prices move out of this rising wedge pattern the upward trend is likely to continue.

Falling Wedge or Descending Wedge

Falling wedge is a continuation pattern that forms during a downwards trend & this patterns looks like a triangle consolidation pattern that has a descending slope that's heading downward.

Falling wedge chart pattern has descending sloping support & resistance levels and this setup highlights that prices keep moving lower & once prices move out of this descending wedge pattern the downward trend is likely to continue.

Bullish Pennant or Bearish Flag

Bullish Flag is a setup with parallel support & resistance levels that forms during a upward trend & a continuation signal is generated when the price moves above the bullish flag pattern and the upward trend continuation signal is generated by continuation bullish flag pattern.

Bearish Pennant or Bearish Flag

Bearish Flag is a setup with parallel support & resistance levels that forms during a downward trend and a continuation signal is generated when the price moves below the bearish flag pattern and the downward trend continuation signal is generated by continuation bearish flag pattern.

How to Read Chart Patterns for Beginner Traders