A chart pattern is simply a visual representation of the prices buyers and sellers bought and sold in the past. There is no magic in a chart pattern they just show you what happened in the past and what has a higher probability of happening in the future. 

A chart pattern can show that a stock is in a range with defined resistance and support. A chart could also show an uptrend of higher highs and higher lows are a downtrend of lower highs and lower lows. 

The most popular use of chart patterns is for breakout trading signals as the probability increases of a move in a specific direction after a price breakout of a previous support or resistance. 

Chart patterns can be bullish, bearish, or show a price reversal depending on the direction of the momentum. They can also be used as risk management tools showing where to set stop losses if a breakout fails or set profit targets for a continuation. 

A chart pattern is a visual tool for seeing which direction a market is moving in. 

chart patterns cheat sheet

For a full explanation behind the principles of these patterns check out The Ultimate Guide to Chart Patterns. 

 


By Steve Burns

After a lifelong fascination with financial markets, Steve began investing in 1993 and trading his accounts in 1995. It was love at first trade. After more than 30 successful years in the markets, Steve now dedicates his time to helping traders improve their psychology and profitability. New Trader U offers an extensive blog resource with more than 4,000 original articles, online courses, and best-selling books covering various topics.