Classic chart patterns

What it is

A chart pattern is a recognisable geometry in price that comes with a stated completion condition. The geometry alone is never the event — the completion is.

GMR names a pattern only when both the geometry and the context fit, and always states what would complete it and what would invalidate it.

How to spot it

Compression patterns — neutral until the break:

• Symmetrical triangle — lower highs and higher lows converging. Direction unknown until it breaks.
• Ascending triangle — flat resistance with rising lows. Often bullish bias, incomplete until resistance breaks and holds.
• Descending triangle — flat support with falling highs. Often bearish bias, incomplete until support breaks and holds.
• Rising wedge — both boundaries rising and converging; often warns of a weakening advance. Confirmation is a lower-boundary break.
• Falling wedge — both boundaries falling and converging; often bullish after upside confirmation.
• Rectangle — repeated horizontal boundaries. Neutral until break; do not call it accumulation or distribution without evidence.
• Flag — requires a prior sharp move (the flagpole) plus a compact counter-trend consolidation. Without the flagpole it is just a small channel.
• Pennant — flagpole plus a short converging consolidation. Distinguish from a longer symmetrical triangle.

Why people watch it

Reversal-shaped patterns, each with a specific completion condition:

• Double top — two meaningful tests of resistance with a swing low between them. It is not complete at the second high; completion normally requires a break below that intervening pivot.
• Double bottom — the mirror image; completion requires a break above the intervening swing high.
• Head and shoulders — three peaks, the middle highest. The neckline matters far more than visual symmetry. Completion is a neckline break, and necklines are often sloped.
• Inverse head and shoulders — the same structure at a potential bottom.
• Cup and handle — a rounded recovery toward prior resistance followed by a smaller consolidation. A sharp V-bottom is not a cup.
• Broadening formation — higher highs and lower lows, expanding swings. It describes rising disagreement and volatility, not a deterministic direction.
• Gaps — breakaway, continuation and exhaustion contexts. Gap fill is a tendency worth knowing, not a rule; 'all gaps must fill' is false.

Confirmation

Each pattern carries its own condition, and it is always about acceptance rather than touch. Head and shoulders: a neckline break. Double top or bottom: the intervening pivot breaking. Triangle: a break outside the convergence with acceptance. Flag or pennant: flagpole, compact consolidation, then a continuation break.

Invalidation

A pattern is invalidated when price violates the geometry that defined it — a triangle boundary breaking the other way after a signalled break, a head-and-shoulders right shoulder exceeding the head, a flag consolidating so long it stops being compact. State the invalidation before the trade thesis, not after.

Common mistakes

• Declaring a double top at the second high, before the pivot has broken.
• Calling any three bumps a head and shoulders regardless of the neckline.
• Naming a flag with no flagpole.
• Treating an ascending triangle's bullish bias as a forecast rather than a bias that still requires the break.
• Finding a pattern first and then reasoning backwards to justify it.