How to read chart patterns

Chart patterns are price formations that appear on Supercharts. They can signal a potential trend reversal, continuation, or uncertainty, helping traders identify support and resistance levels, entry and exit points, or even indicate that staying out of the market for a period of time until it clarifies might be a good idea.

In this article, we'll cover the essence of chart patterns and tools you can use to identify and highlight them.

CONTENTS:

What are chart patterns
Chart patterns types
Chart pattern validation criteria
Chart vs candlestick vs gap patterns
Chart pattern drawing tools
Chart pattern indicators

What are chart patterns

Visually similar repeating figures on charts are called patterns. They have a distinctive look and indicate that the price is likely to follow a particular path. For a pattern to more likely be confirmed, meaning that the price moved in the suggested direction, it needs to have supporting signals from other technical tools.

Chart patterns work for different chart types. Line and area charts; bar charts; hollow, volume, and standard candles — all have the same price patterns, signaling the same thing.

Alongside candlestick patterns, chart patterns are another category of broad technical patterns. Both of these categories have similar types, so knowing them may help you better navigate various chart types.

Chart patterns types

Patterns hold a comprehensive field of knowledge in technical analysis. Price, candlestick, and gap patterns all have three main types.

Reversal patterns: These signal a potential price direction change. Occurring at the end of a current trend, but the trick is that you never know when the trend ends.

For example, Double top is a strong reversal pattern, which means that the price was not able to break an established resistance level.

Continuation patterns: Signals that the price is likely to continue its move in the previous direction. More likely to occur during consolidation phases.

For example, if you spot a Triangle pattern, there's a chance that the price will continue its previous course.

Neutral patterns: The price may continue its move in either direction with equal chances. They have a higher probability to occur during consolidation phases.

For example, when you spot a Rectangle pattern, the future price direction is uncertain.

Chart pattern validation criteria

Patterns by themselves mean little. Each trader sees charts in their own way and may spot patterns where others may not expect them. Not everything that looks like a pattern actually is one.

Patterns don't predict — they suggest. There's nothing 100% accurate in technical analysis, as markets are influenced by many unpredictables. To minimize uncertainty, a pattern needs to meet a few conditions — each increasing chances that it might be confirmed.

However, even textbook-perfect patterns may not work out as intended, due to many reasons we can’t foresee and variables we're unable to calculate.

In the table below, you can take a closer look at different pattern validation criteria, each highly important before making decisions.

Validation criteria	Trend reversal patterns	Trend continuation patterns	Neutral patterns
Trend requirement	Strong and established trend over considerable period	Strong and established trend with clear directional momentum (rising for bullish, falling for bearish)	Sideways price movements, indecision, or conflicting signals
Volume characteristics	High volume must support the trend reversal pattern	Diminishing volume during formation, high volume on breakout	Generally lower trading volume, though gap patterns may show volume spikes during formation
Signal confirmation	Price must break pattern in opposite direction of prior trend with higher than average volume	Price breaks in trend direction, high volume on breakout	Price may break in either direction; higher volume increases reliability
Price confirmation	Session's closing price must confirm directional bias — higher or lower than pattern values
Validation process	Wait for breakout retest
Indicators' confirmation	RSI, MACD, STOCH, and other oscillators must confirm reversal signal across all pattern types
Market Context	Pattern forms after extended trend movement	Pattern forms during temporary consolidation within existing trend	Pattern forms during market uncertainty with no clear directional bias
Expected Outcome	Trend change / reversal	Trend continuation in same direction	Eventual breakout in either direction

Chart vs candlestick vs gap patterns

Chart patterns are the most common pattern type. They can be spotted on almost every chart type.

Candlestick patterns work only with candlestick chart types.

Gap patterns are unique in that they work best with the assets that are traded on classic exchanges like Nasdaq or the Bombay Stock Exchange. Such marketplaces have fixed trading hours, while charts are updated live.

After the bell rings, public trading stops, and new chart elements appear only on the market opening the next day or the next week. After such pauses, gaps are formed.

In this table, you can compare all the chart types available on TradingView in terms of their compatibility with different pattern types.

Chart pattern drawing tools

If you spot a chart pattern, you may want to highlight it for further analysis. You can do this with our drawing tools located on the left toolbar of Supercharts.

From there, you can choose one of the available drawing tools, each specifically designed for different chart patterns.

Chart pattern indicators

Identifying patterns is a time-consuming process. You can also access the automatic chart pattern indicators that recognize patterns across Supercharts and help with your market analysis.

You can find them in the "Indicators" drop-down menu on the upper toolbar. Then, go to "Technicals" and click "Patterns."

More detailed information about each pattern and indicators can be found in our Knowledge base.

The bottom line

A common approach when starting to analyze charts is looking for patterns. They may tell you more about the asset's price, its possible reversal, continuation, or that its further direction is unclear — but nothing on the markets is ever for certain.

They usually form recognizable figures, which can be spotted on various chart types available on TradingView.

Patterns themselves don’t guarantee that the price will follow the suggested path. We advise using them as a complement to your analytical approach.

For the patterns you've found, you can highlight them with drawing tools. Moreover, automatic indicators can save your time while performing your unique analysis.

We recommend avoiding relying solely on patterns and instead studying other trading instruments to gain a broader and clearer understanding of the markets.