Chart patterns

Price rises to resistance and gets rejected. It pulls back, tries again, and gets rejected again in the same zone: two peaks.

The level of the trough between the two peaks is called the neckline. That line is the last support buyers are holding.

When price closes below the neckline, the pattern is complete: buyers tried twice, failed, and lost their last support as well.

The mirror image: price drops to support and holds. It rises, drops again, and holds again in the same zone.

This time the neckline is the level of the peak between the two troughs: the last resistance sellers are holding.

When price closes above the neckline, the W is complete.

Picture an uptrend: higher highs, higher lows.

The left shoulder is a peak. The head is a higher peak: the trend still looks solid.

The right shoulder stays below the head: a lower high. The run of higher highs has stumbled for the first time, and that's a warning. But as you learned at the Lighthouse, the structure itself only breaks when the last trough gives way.

The neckline runs through the troughs between the shoulders. When price closes below it, the reversal is complete.

Its mirror image forms at the bottom of a downtrend: the left shoulder is a trough, the head a lower trough, and the right shoulder a trough that stays above the head.

The right shoulder is a higher low: sellers couldn't make a new low.

The neckline runs through the peaks in between, and a close above it completes the reversal.

Sometimes neither buyers nor sellers back down: each high is lower than the last, and each low is higher.

The two edges close in on each other, and price gets squeezed inside a triangle.

A triangle doesn't tell you a direction. All it says is: the balance is about to break.

If the top edge is flat and the lows are rising, it's an ascending triangle: buyers step in a little higher each time, and the pressure is upward.

If the bottom edge is flat and the highs are falling, it's a descending triangle: the pressure is downward.

The rule still doesn't change: no trade until a candle closes outside the edge.

A wedge is a squeeze whose two edges slope in the same direction.

In a rising wedge, price climbs, but each push is shorter than the last, and the lows rise faster than the highs. Like the tiring buyers you saw at the Harbor.

When the bottom edge breaks, the fatigue turns into a drop. A falling wedge is its mirror image: sellers tire out, and when the top edge breaks, a rally follows.

Picture a sharp, almost one-way move: that's the pole.

Then price rests on small candles in a shallow channel that slopes against the move: that's the flag.

If the rest is shallow and calm, the side that started the move is still in control. When the flag's edge breaks, the move usually picks up where it left off.

The cup: price drifts lower, makes a rounded bottom, and climbs back to its old high.

The handle: a small, shallow pullback just under that high. Look familiar? The handle is a flag.

When price closes above the rim of the cup, the pattern is complete.