Chart patterns: double tops, head and shoulders, triangles, flags

Chart patterns are recurring shapes that price traces as buyers and sellers push against each other: a market failing twice at the same high, a trend pausing in a tight flag, a range narrowing into a triangle. They are useful because they organise what you see into a few familiar stories. They are not formulas, and every one of them fails regularly.

Reversal patterns

Double top and double bottom

A double top forms when price rallies to a high, pulls back, rallies to roughly the same high again and fails. The low between the two peaks is the neckline. The pattern is only complete when price closes below that neckline; before then it is just two highs at a resistance zone. The double bottom is the mirror image at support.

What it means: buyers had two chances to break higher and could not. What it does not mean: that price must now fall. Many "double tops" turn into a third test that breaks out upwards.

Head and shoulders

The head and shoulders has three peaks: a left shoulder, a higher head, and a right shoulder that is lower than the head and roughly level with the left shoulder. The lows between them form the neckline, which can be flat or tilted. As with the double top, the pattern completes on a decisive close through the neckline. The inverse head and shoulders is the bullish version at the bottom of a downtrend.

In market structure terms, the right shoulder is the first lower high after a series of higher highs, and the neckline break is the break of structure. The pattern is a picturesque name for a trend running out of steam.

Continuation patterns

Triangles

A triangle forms when the range of swings narrows:

• Symmetrical: lower highs and higher lows converge. Neither side is clearly winning.
• Ascending: a flat top and rising lows. Buyers are pressing against a fixed ceiling.
• Descending: a flat bottom and falling highs. Sellers are pressing against a fixed floor.

Triangles are often called continuation patterns because they frequently resolve in the direction of the prior trend, but symmetrical triangles in particular break both ways often enough that direction should never be assumed.

Flags and pennants

After a sharp move (the "pole"), price drifts in a small, tight channel against the move (the flag) or a small symmetrical triangle (the pennant). The idea is a pause for breath before the trend continues. Flags are short-lived: a "flag" that lasts as long as the pole before it is no longer a flag, just a new range.

The measured move

Most patterns come with a classic projection called the measured move:

• Double top / head and shoulders: the height from the peak (or head) to the neckline, projected downward from the neckline.
• Triangles: the height of the widest part, projected from the breakout point.
• Flags: the length of the pole, projected from the breakout of the flag.

Treat this as a rough sense of scale, not a target price. Moves often fall short, overshoot, or reverse before getting anywhere near the projection.

A worked example

On USD/CHF, M5, price rallies to 0.8842, pulls back to 0.8820, rallies again to 0.8840 and turns down. That is a possible double top with a neckline at 0.8820. The pattern height is 0.8842 − 0.8820 = 22 pips.

• While price stays above 0.8820, there is no pattern — only resistance near 0.8840.
• If an M5 candle closes at 0.8814, the double top is complete. The measured move would suggest a decline toward roughly 0.8798 (0.8820 − 22 pips).
• Often price returns to the 0.8820 neckline from below before deciding — the familiar retest.
• If price instead climbs back above 0.8842, the pattern has failed outright. Failed patterns can produce sharp moves in the opposite direction, because everyone who traded the pattern is exiting at once.

Patterns on short expiries

Patterns need several swings to form, so they mostly live on M1 and above. On S5 or S10 the "double tops" appear every few seconds and mean very little. A pattern on M5 can take an hour to form and another half hour to reach its measured move; a 1-minute trade opened on the neckline break only covers the first moments of that. Expect the break to be followed by pullbacks, and remember that the very first candle beyond a neckline is where false breakouts concentrate.

Reliability caveats

There is no trustworthy universal success rate for any chart pattern, and figures quoted online usually come from untested claims or narrow samples. Some honest caveats instead:

• Patterns are recognised after the fact. In hindsight they look obvious; in real time, the right shoulder might be a new high in the making.
• Confirmation costs you price. Waiting for the neckline break is safer than guessing, but much of the move may already be gone.
• It is easy to see what you want. If you are hoping for a reversal, every pair of highs will start looking like a double top.
• Context matters more than shape. A double top at a major higher-timeframe resistance is more meaningful than one in the middle of a range.
• OTC charts are generated. On Sky Trade, OTC prices come from the server's random-walk model and do not track any real market; patterns appear there by chance and carry no predictive weight.

How to mark patterns in the Sky Trade terminal

Use trend lines for necklines and triangle edges, and the horizontal level tool for flat tops and bottoms; the rectangle tool works well for flags and for marking the measured-move area. Support and resistance levels drawn beforehand make the patterns easier to judge.