Chart patterns

Recognizable chart formations can flag a coming breakout well before it happens, giving you time to position for the move rather than chase it after the fact.

Formed when price makes both lower highs and higher lows, converging toward a point, neither buyers nor sellers can push price decisively in one direction, so the market consolidates. As the two converging trend lines tighten, a breakout becomes increasingly likely (direction unknown). A common approach is to place entry orders both above the descending upper line and below the rising lower line, cancelling whichever doesn't get triggered once the other does.

Price makes a series of higher lows against a flat resistance ceiling, buyers are gradually gaining strength but can't yet clear a specific level. More often than not the resistance eventually gives way and price breaks upward, though not always, so it's still sensible to place entry orders on both sides of the pattern.

The mirror image: a series of lower highs against a flat support floor. More often than not support eventually breaks and price falls, though again, orders on both sides hedge against the alternative outcome.

A reversal pattern following an extended uptrend: price hits a level, pulls back, rallies to retest that same level, and fails to exceed it, two "tops" that can't break through, suggesting buying pressure is exhausted. Traders typically place a short entry below the "neckline" (the low point between the two tops), anticipating a reversal.

The mirror image, following an extended downtrend: two "bottoms" that can't break below a shared level, suggesting selling pressure is exhausted. Traders typically place a long entry above the neckline connecting the high point between the two bottoms.

Another reversal pattern: a peak (left shoulder), followed by a higher peak (head), followed by a third, lower peak (right shoulder) that fails to match the head. A "neckline" connects the low points between the peaks. Traders typically enter short below the neckline once it breaks, with a rough price target measured as the distance from the head's peak down to the neckline, projected below the breakout point.

The upside-down mirror image, following a downtrend: a trough, a lower trough (the head), and a third, higher trough that doesn't match the head. Traders typically enter long above the neckline, with the target measured the same way, distance from the head to the neckline, projected upward.

A general note on chart-pattern price targets: when a target is hit, take the win. There are more advanced techniques for partially locking in profit while letting a portion of the position run, but chasing every last pip past a validated target is how a good trade turns into a round trip.