Chart patterns: double bottom, head and shoulders, flag
Patterns are repeating shapes that the struggle between buyers and sellers leaves on the chart; once complete they give a target and an invalidation level.
If you see circled points in the chart above, a horizontal ‘NECKLINE’ and dashed ‘TARGET’ and ‘STOP’ lines, the system has found a chart pattern here. With the tabs above you can switch between the 4-hour and daily examples.
A double bottom is a structure where price falls to roughly the same level twice and turns back both times; the circles are marked ‘LOW 1’ and ‘LOW 2’. The horizontal line through the peak between the two bottoms is the neckline. The pattern completes when price closes above the neckline. A double top is its mirror image. Head and shoulders is a structure with a higher peak in the middle and two lower peaks on either side, telling you an advance is getting tired; the inverse version tells you a decline is getting tired. A flag is a short, narrow rest after a sharp move: the move catching its breath before it continues.
The value of a pattern does not come from being a ‘shape’ but from the plan it gives. The target is usually measured from the neckline by the height of the pattern; the stop goes where the pattern would become invalid. So before you even enter, the answer to ‘where am I right, where am I wrong?’ is clear.
Patterns can fail. Our system does not delete a pattern that price has invalidated; it greys it out and writes ‘invalidated’: a failed thesis is also a lesson. If you see a grey pattern on the evidence card, know that the shape is no longer valid.
The time frame of the pattern matters too. The same shape forms over weeks on a daily chart and is seen by many investors; on a 15-minute chart it forms in a few hours and breaks easily. That is why patterns on higher time frames give signals less often but more meaningfully.
How to read it
- Check whether the pattern is COMPLETE: in a double bottom, without a close above the neckline the pattern is still only a possibility.
- Read the target and stop from the pattern itself: the target line sits as far away as the pattern's height, the stop sits at the invalidation point.
- Look at the pattern's time frame: a double bottom on the daily chart is seen by far more people and is more meaningful than one on the 15-minute chart.
- Do not forget the context: a double bottom at the end of a downtrend is a reversal candidate; the same shape in the middle of an advance is often just an ordinary pullback.
Trap
The most common mistake is entering before the pattern completes. A second bottom is not enough for a double bottom; buying before the neckline breaks often gets caught in the continuation of the decline. The second mistake is treating the target as certain: the target is a measurement, not a promise. Price can turn halfway to the target; the plan should allow for that with scaled profit-taking or a trailing stop.
Tip
When you tap a pattern on the evidence card in the analysis screen, the other evidence fades and what the pattern means is written. If you see a greyed-out (invalidated) pattern, you can read there why the system dropped that thesis.
Glossary
- Neckline
- The level that must break for the pattern to complete.
- Double bottom
- A reversal pattern where price falls to the same zone twice and turns back both times.
- Head and shoulders
- A three-peak pattern telling you an advance is getting tired.
- Flag
- A short, narrow rest after a sharp move, sloping against that move.
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Look for pattern evidence in an analysis →For information only, not investment advice.