Chart patterns
Reversal patterns are chart formations that traders read as a sign an existing trend may be ending, as opposed to continuation patterns, which suggest a pause. The best known are the head and shoulders and its inverse, double tops and bottoms, and rising and falling wedges. Each is considered confirmed only when price breaks a defined level.
Each has a bullish and a bearish form, and each has a level whose break confirms it.
| Pattern | After | Confirmed by |
|---|---|---|
| Head and shoulders | An advance | A close below the neckline |
| Inverse head and shoulders | A decline | A close above the neckline |
| Double top (M) | An advance | A close below the trough between the peaks |
| Double bottom (W) | A decline | A close above the peak between the lows |
| Rising wedge | An advance | A close below the lower line |
| Falling wedge | A decline | A close above the upper line |
A continuation pattern - a flag, pennant or many triangles - is read as a pause before the trend resumes. The same shape can be either: a rising wedge inside a downtrend is usually read as continuation, and at the top of an uptrend as reversal. What precedes the pattern decides which it is taken to be.
Most shapes that look like the start of a reversal pattern never complete. Waiting for the confirming break gives up some of the move in exchange for filtering out many of those failures. Even confirmed patterns fail, which is why every pattern also needs an invalidation level. Divergence is often used alongside them as evidence the trend is losing momentum.
Step by step
Treat a reversal pattern as a hypothesis until its level breaks.
Worked example
An illustrative sequence in words, with round numbers standing in for price. It is not taken from any real instrument or date.
The shape never confirmed, so a trader who waited for the break below 104 never entered. One who sold the second peak was stopped out above 110.
Common mistakes
Most candidate reversals do not complete.
Trends pause often without ending.
A reversal on a low timeframe may be a small pullback in a larger trend.
Limitations
No chart concept predicts price. These are the limits worth keeping in view.
In an evaluation
On a $100,000 simulated account the daily loss limit is $3,000 on Instant or $5,000 on 1 Step and 2 Step. Pattern stops are often wide, so size from the stop distance first - risking something like $500 a trade - rather than from how clean the pattern looks.
Questions
Keep learning
Chart and candlestick patterns
Inverse Head and Shoulders Pattern
Three troughs with the lowest in the middle, a neckline across the rallies between them, and a break above it - the pattern and its limits.
Chart and candlestick patterns
Double Top Pattern (the M Pattern)
Two failed attempts at the same high - how the M pattern is drawn, what confirms it, the double bottom mirror, and its limits.
Chart and candlestick patterns
Ascending Wedge (Rising Wedge) Pattern
Two rising, converging trendlines that are usually read as a weakening advance - how a wedge differs from a triangle, and how it resolves.
Chart and candlestick patterns
Bullish and Bearish Candlestick Patterns
The candlestick patterns traders name most often - single, two- and three-candle, bullish and bearish - and what each is taken to show.
Sources
Educational content only, not investment advice or a recommendation to trade. Chart concepts describe what price has done; none of them predicts what it will do, and trading any strategy can lose money. Get Funded Now accounts are simulated and trade virtual funds. Last reviewed 22 September 2026.
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