Chart patterns in trading are formations on a chart that predict future price moves. They reflect traders’ reactions to various types of information, including rumors and known market events.

Chart patterns in trading certain patterns can signal trend reversals or continuation signals. Reversal patterns include the head and shoulders, inverse head and shoulders, double top and double bottom. Other patterns, such as the rounding bottom, descending triangle and harami, are also important to recognize in order to identify market sentiment shifts.

Uptrends are indicated by a series of higher highs and lower lows, while downtrends are marked by a series of lower highs and higher lows. When a pattern forms, the market will often break out in the direction opposite to the trendline, and the trendline will then become the new support or resistance level. Symmetrical triangles are best used in volatile markets because they can be a good indication of a potential change in trend direction.

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Continuation patterns include flags, pennants and wedges. A flag, which looks like a coil or a pennant, is formed when an asset’s trendlines converge into a “flag” shape. These trendlines can slope up, down or sideways (horizontal). Generally, flags are followed by a decline in volume before springing back to life as the price breaks out of the flag.

A wedge, which resembles a U-shaped curve, forms when an asset’s prices tighten between two sloping trend lines. A rising wedge signals a potential bullish turn, while a falling wedge indicates a bearish turn.