A visual formation created by the price movement of an asset on a chart over time. Traders and analysts use these patterns in technical analysis to forecast future price directions. Common patterns include head and shoulders, double tops/bottoms, triangles, and flags. Each pattern signals potential breakouts, reversals, or continuations depending on its structure. Recognising chart patterns allows traders to time entries and exits more effectively. However, they are not foolproof and should be confirmed with additional technical indicators. Chart patterns are valuable tools in momentum, trend-following, and reversal trading strategies.
Example:
A trader identifies a double-bottom formation suggesting potential reversal after a prolonged decline.
