Chart Patterns

Chart Patterns

While candlestick patterns focus on one to three candles, chart patterns are larger formations that develop over weeks or months. They are created by the collective behaviour of thousands of buyers and sellers, and they tend to repeat because human psychology does not change. Recognising these patterns on NSE charts can help you anticipate potential price moves.

Reversal Patterns

These patterns suggest the current trend may be about to change direction:

• Head and Shoulders — One of the most reliable reversal patterns. It consists of three peaks: a higher middle peak (the head) flanked by two lower peaks (the shoulders). A line drawn across the bottoms of the two troughs is called the neckline. When the price breaks below the neckline after forming the right shoulder, it signals a bearish reversal. The height of the pattern gives a rough target for how far the price may fall.
• Inverse Head and Shoulders — The mirror image, appearing at the bottom of a downtrend. Three troughs where the middle one is the deepest. A break above the neckline signals a bullish reversal.
• Double Top — The price rises to a level, pulls back, rises to the same level again, and pulls back once more. The two peaks at roughly the same price form an "M" shape. It signals that resistance is too strong and a decline may follow.
• Double Bottom — The inverse: two troughs at roughly the same price form a "W" shape. It signals strong support and a potential rally.

Continuation Patterns

These patterns suggest the current trend is likely to continue after a pause:

• Ascending Triangle — A flat resistance level on top with rising support (higher lows) below. The price is being squeezed upward. A breakout above resistance usually continues the uptrend.
• Descending Triangle — Flat support on the bottom with declining resistance (lower highs) above. The price is being squeezed downward. A break below support usually continues the downtrend.
• Symmetrical Triangle — Both support and resistance are converging. The price could break in either direction, but it usually continues in the direction of the prior trend.

Practical Tips

When you spot a chart pattern forming on an NSE stock:

1. Identify the pattern and what it suggests (reversal or continuation)
2. Wait for confirmation — the breakout or breakdown — before acting
3. Check volume: breakouts on high volume are more reliable
4. Use the pattern's measured move to set a price target