Chart Patterns and Candlesticks
24 articles · 15 glossary terms
Reading price directly: the anatomy of a candle, where support and resistance come from, and the shapes traders have named.
Foundations
Start here if the subject is new.Reading a Candlestick
A candlestick shows a period's open, high, low and close. The body spans open to close and the wicks reach the extremes. Reading the body and the wicks is the highest-return skill in chart reading.
Support, Resistance and Breakouts
Support is a price area where buying has repeatedly stopped a decline; resistance is where selling has stopped an advance. A breakout is a move through one. The mechanism is order flow and memory.
Trendlines and Channels
A straight line through successive highs or lows, describing the slope of a move. Useful, and more subjective than almost anything else on a chart.
Intermediate
Assumes the foundations above.The Bull Flag
A bull flag is a continuation pattern: a sharp advance (the pole) followed by a shallow, orderly pullback (the flag). Its defining quality is what the pullback does not do.
The Flat Base
A tight sideways range that holds after an advance rather than giving it back. Its virtue is that it is boring, which is exactly what makes it informative.
The Cup and Handle
A cup and handle is a rounded recovery back to a prior high, followed by a small drift (the handle) before that high is tested. The shape describes a supply problem being worked through.
The Ascending Triangle
An ascending triangle is a flat ceiling met by a rising series of lows. Buyers pay up earlier each time while a fixed supply sits overhead, and the narrowing space means the shape has to resolve.
Double Bottoms and Double Tops
A double bottom is two lows at about the same price with a rally between them, confirmed only when price clears that rally's high. A double top is the mirror image.
Head and Shoulders
Head and shoulders is a reversal pattern of three peaks, the middle one highest, measured against the neckline joining the troughs between them. It is the most recognizable reversal shape and the most over-identified.
Gaps
A gap is a space on a chart where a bar opens away from the prior close and nothing traded in between. Many gaps fill and many do not; the cause matters more than the shape.
Reversal Candles: Hammer, Engulfing, Doji and Shooting Star
A doji, hammer, engulfing or shooting star candle describes a session's balance between buyers and sellers. Their meaning depends on where they appear; the word reversal promises more than they deliver.
Volume Confirmation
The idea that a price move backed by heavy participation carries more information than the same move on light volume. It is the most durable principle in pattern work.
Rising and Falling Wedges
Two converging lines that both slope the same way. The convergence is the observation; the direction attached to it in the folklore is a separate claim.
Pennants and Rectangles
Two continuation shapes that differ only in whether the pause is converging or flat. Both describe a period in which nothing was decided.
Descending and Symmetrical Triangles
The other two triangles. All three describe a narrowing range, and the labels differ only in which boundary is flat.
Rounding Bottoms and Tops
A gradual curve rather than a sharp reversal. It describes a slow change in the balance between buyers and sellers, and it takes a long time to become visible.
Morning and Evening Stars
A three-bar sequence: a strong bar, a small indecisive one, and a strong bar the other way. The middle bar is where the description lives.
Harami and Engulfing Patterns
Two two-bar relationships that are mirror images: one bar contained inside the previous one, or one bar covering it entirely.
Piercing Lines and Dark Cloud Covers
Two-bar patterns defined by how far the second session recovers into the first. The threshold is a convention, and the degree is the information.
Three White Soldiers and Three Black Crows
Three consecutive strong sessions in the same direction. The pattern is a description of persistence, and persistence is exactly what momentum research measures.
Measured Moves and Targets
A pattern's price target is usually a measured move: the pattern's height added to the price where it completed. Every named pattern scales the expected move to the size of the structure this way.
Advanced
Detail, edge cases and methodology.Volatility Contraction
A volatility contraction pattern (VCP) is a series of successively shallower pullbacks, each on lighter volume. It is less a shape than a process, and the process is supply being absorbed.
Failed Patterns, and What They Tell You
A failed pattern breaks the wrong way after appearing to complete, such as a breakout that falls back into its range. Most patterns fail, and a failure carries information because of who it traps.
Island Reversals
A cluster of bars separated from everything around it by gaps on both sides. Rare, unambiguous to identify, and about the population of holders trapped inside it.
Terms Defined in This Subject
Open one for its definition, and the article that explains it in full.
Frequently Asked Questions
How do you read a candlestick?
A candlestick shows four prices for one period: the open, the high, the low and the close. The body spans the open to the close and is colored by direction; the wicks reach the high and the low. A long wick records a price that traded and was rejected before the period ended.
Read the full article: Reading a CandlestickWhat are support and resistance?
Support is a price area where buying has repeatedly been strong enough to stop a decline, and resistance is an area where selling has repeatedly stopped an advance. They come from real orders and from traders remembering past prices. A breakout is a decisive move through one of those areas.
Read the full article: Support, Resistance and BreakoutsWhat is a bull flag?
A bull flag is a continuation pattern: a sharp advance, called the pole, followed by a shallow, orderly pullback or sideways drift, called the flag. Traders typically read a move above the top of the flag as the pattern completing and a break below its low as the pattern failing.
Read the full article: The Bull Flag