Education · Stage 3 · 03
Chart patterns
A pattern is a name for a shape that turns up often enough to be worth naming. That is the whole of it. The name describes what happened; it never explains why, and it certainly does not know what comes next — which is exactly how most people are taught to use it.
Mak · 4 min read · Stage 3, article 3 of 4
Why some shapes actually do recur
Patterns are not magic and they are not nothing. Some recur because the same situation keeps producing the same behaviour, and the shape is what that behaviour looks like from far away.
The clearest example is the one where the mechanism is fully visible, so it is worth walking through properly.
An obvious high sits on the chart — yesterday's high, the high of the morning. It is obvious to everyone, which means a lot of people have placed orders just above it: stops from those who are short, entries from those waiting for a break. Those orders are not opinions. They are instructions that become market orders when touched.
So price reaching that level produces a burst of buying that has nothing to do with anyone deciding the market is worth more. If enough sellers are waiting up there to absorb it, the burst is spent, nothing is left to push higher, and price falls back — leaving a long wick above an obvious level. That shape has a name. The name is not why it happened.
Learn the mechanism and the pattern becomes a useful label. Learn only the label and you are matching shapes to a picture in a book.
The vocabulary
Worth knowing so you can follow a conversation. Each one is a description of a sequence.
| Name | What the shape is describing |
|---|---|
| Liquidity sweep | An obvious level is exceeded briefly and price closes back inside it. |
| Flag or pennant | A fast move, then a narrow pause, on less and less activity. |
| Ascending / descending triangle | One side pressing repeatedly against a flat barrier held by the other. |
| Double top / bottom | The same level reached twice, and not passed. |
| Head and shoulders | A higher high that fails, followed by a lower one. A structure that stopped making progress. |
Notice that every one of those is a sentence about what price did. None of them contains a claim about tomorrow, and every honest use of them keeps it that way.
The right edge problem
This is the single most important thing in this article, and it is the reason pattern trading disappoints people who studied it carefully.
Every pattern in every book is finished. You are shown the completed shape, with the outcome attached, drawn in the middle of a chart where you can see what came after. Live, you are always at the right edge, holding half a shape that has not decided what it is.
Two consequences follow, and both are worth accepting early.
- You will see patterns that never complete, and they are not counted anywhere. The shapes that failed do not get circled in a book.
- You will find whichever pattern you are looking for. Charts are noisy enough to contain most shapes if you are willing to be generous about the edges, and everybody is generous when they already want to trade.
The rule that makes them usable
There is one, it is short, and it comes from the playbook this site is built on:
Never read a pattern on its own. A shape is worth attention only where something else had already told you to pay attention.
A shape in the middle of nowhere is noise with a name. The same shape at a level that mattered before, at an hour when participants are present, with the flow underneath agreeing — that is a different thing entirely, and it is not the shape doing the work.
Which is really the argument of this whole path, arriving early: patterns are the visible surface of behaviour. The stages after this one go underneath and look at the behaviour itself, and once you have seen it, the shapes stop being rules and become what they always were — convenient names for things you can now explain.