A chart pattern is a shape price draws that has appeared often enough for traders to give it a name and a rough expectation of what tends to happen next. A triangle, a head and shoulders, a flag — each is a snapshot of the fight between buyers and sellers, and each hints at how that fight may resolve. Patterns do not predict the future. They describe a common situation and the move that has usually, not always, followed it. That gap between "usually" and "always" is the whole story.
What it is
A pattern is the market pausing to decide. Price stops trending cleanly and starts coiling, ranging or forming symmetrical shapes while buyers and sellers work out who has the upper hand. Traders group these shapes into two families by what tends to follow. Continuation patterns suggest the existing trend will resume after a rest. Reversal patterns suggest it is ending and about to turn. Reading a pattern starts with knowing which family you are looking at.
The main patterns
A few appear again and again:
- Flags and pennants (continuation) — a short, tight pause after a sharp move, usually resolving in the same direction as the move that came before.
- Triangles (usually continuation) — price squeezing into a narrowing range as highs fall and lows rise, coiling towards a break.
- Head and shoulders (reversal) — three peaks, the middle one highest, with a "neckline" underneath. A break of the neckline signals the uptrend has turned.
- Double top and double bottom (reversal) — price twice failing at the same level, showing the trend can no longer make progress.
Each comes with a rough price target. For a head and shoulders, you measure the height from the head down to the neckline and project that distance below the break. It is an estimate, not a promise.
What they imply
Say GBP/USD has climbed for weeks and forms a head and shoulders with the head at 1.2900 and the neckline at 1.2700 — a 200-pip height. When price breaks the neckline, the pattern's rough target is 200 pips below, near 1.2500. A trader shorting the break might place a stop above the right shoulder, risking 60 pips or about £48 on a mini lot, against a target roughly three times that. The pattern gives the entry, the stop and the target their shape. Whether price honours them is another matter.
A pattern is only worth trading when it breaks and holds. Half the value is patience — waiting for the neckline or triangle edge to give way on a genuine close, not a wick — because a pattern that looks perfect can still fall apart, and the ones that fail often reverse just as hard as the ones that work.
A caution on reliability
This is where honesty matters. Chart patterns are easy to see after the event and much harder to trade live, for a few reasons:
- Hindsight flatters them. Scroll back and every clean pattern "worked". You are not seeing the dozens that formed, looked identical, and failed.
- They are subjective. Where exactly is the neckline? Is that a triangle or just noise? Ten traders will draw ten slightly different lines.
- Everyone sees the same shape. Popular patterns get front-run and faked out, as larger players push price just past the obvious break to trigger stops before reversing.
- Context decides the odds. The same triangle is worth more in a strong trend than in a choppy, directionless market.
Treat a pattern as one input that shifts the odds a little, confirmed by the break and sized so a failure costs you little. Traders who bet the account on a "textbook" pattern learn the hard way how often the textbook is wrong.
The Karnek note
An EA that trades patterns will take a run of small losses when the market is choppy and the breaks keep failing, and that is easy to miss trade by trade. Karnek reads your live terminal and shows the results and drawdown as they build, so the pattern of losses is visible early. It is read-only and can never place a trade of its own.
Written and reviewed by the Karnek Research team. Last updated August 2026.
Educational content only - not financial advice. Past performance does not predict future results. Trading carries significant risk.