10 Chart Patterns Every Swing Trader Must Know

Chart patterns are formations created by price movements that often signal what will happen next. Learning to identify these patterns gives swing traders an edge in predicting future price direction. In this guide, we cover the ten most important chart patterns you need to know.

Why Chart Patterns Work

Chart patterns work because they reflect the psychology of market participants. A double top, for example, shows that buyers tried to push price higher twice but failed both times. This failure often leads to selling as traders realize the uptrend has stalled. Patterns repeat because human emotions repeat.

Reversal Patterns

Reversal patterns signal that the current trend may be ending and a new trend is beginning.

1. Head and Shoulders

This is one of the most reliable reversal patterns. It forms at the end of an uptrend and signals a potential downtrend.

• Left shoulder: Price makes a high and pulls back
• Head: Price makes a higher high, then pulls back to the same support level (neckline)
• Right shoulder: Price makes a lower high than the head, then drops

2. Inverse Head and Shoulders

The bullish version of head and shoulders. It forms at the end of a downtrend and signals a potential uptrend. The pattern is the same but upside down.

3. Double Top

A double top forms when price reaches the same resistance level twice and fails to break through. It looks like the letter "M" on the chart.

• First top: Price hits resistance and pulls back
• Second top: Price returns to the same level and fails again
• Confirmation: Price breaks below the support level between the two tops

4. Double Bottom

The bullish version of a double top. Price tests the same support level twice and bounces. It looks like the letter "W" on the chart. Buy when price breaks above the resistance level between the two bottoms.

5. Triple Top and Triple Bottom

Similar to double tops and bottoms, but with three tests of the level. These patterns are less common but more reliable because the level has been tested more times.

Continuation Patterns

Continuation patterns form during a trend and signal that the trend is likely to continue after a brief pause.

6. Bull Flag

A bull flag forms during an uptrend. Price makes a sharp move up (the flagpole), then consolidates in a tight downward channel (the flag), before breaking out higher.

7. Bear Flag

The bearish version of a bull flag. Price drops sharply (flagpole), consolidates in an upward channel (flag), then breaks down to continue the downtrend.

8. Symmetrical Triangle

A symmetrical triangle forms when price makes lower highs and higher lows, creating a triangle shape. The market is undecided, and a breakout in either direction can follow.

• Draw a line connecting the lower highs (resistance)
• Draw a line connecting the higher lows (support)
• Price gets squeezed into a tighter range
• Trade the breakout in whichever direction it goes

9. Ascending Triangle

An ascending triangle has a flat resistance level and rising support (higher lows). This is typically a bullish pattern. Buyers are getting more aggressive (higher lows), and once resistance breaks, price usually moves higher.

10. Descending Triangle

A descending triangle has flat support and falling resistance (lower highs). This is typically a bearish pattern. Sellers are getting more aggressive, and once support breaks, price usually drops.

How to Confirm Pattern Breakouts

Not all breakouts follow through. Here is how to increase your odds:

• Volume confirmation: Breakouts should occur on higher than average volume. Low volume breakouts often fail.
• Close above/below the level: Do not trade an intraday breakout. Wait for a close beyond the pattern boundary.
• Retest: Price often retests the breakout level. This gives you a second chance to enter with lower risk.
• Context matters: Patterns that form in the direction of the larger trend are more reliable.

Pattern Failure: What to Do

Patterns fail. A double top can break out higher instead of lower. Here is how to handle it:

• Always use a stop loss: Place it on the opposite side of the pattern. If wrong, your loss is limited.
• Do not fight the market: If the pattern fails and reverses, respect it. The failed pattern often leads to a strong move in the opposite direction.
• Consider trading the failure: A failed head and shoulders, for example, can be a bullish signal because trapped shorts will cover.

Best Practices for Pattern Trading

• Look for patterns on higher timeframes: A head and shoulders on a daily chart is more reliable than one on a 15-minute chart.
• Measure the pattern for targets: Most patterns have a measuring technique. Use the height of the pattern to project the target.
• Wait for confirmation: Do not anticipate the breakout. Wait for price to actually break the pattern boundary.
• Check volume: Volume should decline during pattern formation and increase on the breakout.
• Trade with the trend: Continuation patterns in the direction of the trend are more reliable than reversal patterns against the trend.

Summary

Chart patterns are essential tools for swing traders. Reversal patterns like head and shoulders and double tops signal trend changes. Continuation patterns like flags and triangles signal that the trend will continue. Always confirm patterns with volume, use stop losses, and remember that patterns work because they reflect market psychology. Master these ten patterns, and you will have a significant edge in your swing trading.

Ready to apply these patterns? Check out our guides on entry techniques and exit strategies for swing trading.