Master chart patterns in trading: cup and handle, head and shoulders, bull and bear flags, triangles, and double tops and bottoms. Learn how to identify, validate, and trade each pattern with precision using Diplyzer.
Chart patterns are among the most powerful tools in a trader's arsenal. They are repeating price formations that reflect the psychology of market participants — fear, greed, indecision, and accumulation — and they have been observed across every liquid market for over a century.
Unlike indicators, which derive from mathematical formulas applied to price data, chart patterns are price formations that emerge directly from price action itself. Learning to read them is learning to read the market's intentions.
Chart patterns work because markets are driven by human behavior, and human behavior is consistent. When a stock consolidates after a strong uptrend, traders are weighing the question: is this a pause before continuation, or the beginning of a reversal? The pattern that forms during this consolidation reflects how that battle between buyers and sellers resolves.
The same psychological dynamics play out in every market, every timeframe, every asset class. That's why a cup and handle in Apple's weekly chart and a cup and handle in Bitcoin's daily chart follow the same structural logic.
Key principle: Chart patterns don't predict the future with certainty — they identify situations where the probability of a specific outcome is elevated.
Continuation patterns form during pauses in a trend and suggest the prior trend will resume once the pattern completes.
The bull flag is one of the most reliable continuation patterns in trading. It forms when a sharp, nearly vertical upward move (the flagpole) is followed by a tight, sideways-to-slightly-downward consolidation (the flag).
Anatomy of a bull flag:
What to look for:
Ask Diplyzer:
"Scan S&P 500 stocks with positive free cash flow ($10B+ market cap) for bull flag patterns completing on the daily chart. Show me the flagpole height, current flag depth, and average volume during the consolidation."
The bear flag is the inverse — a sharp downward move followed by a slight upward bounce on declining volume, preceding further downside.
Trading the bear flag:
The cup and handle is one of the most celebrated patterns in technical analysis, popularized by William O'Neil. It represents a multi-month base formation before a major breakout.
Structure:
Quality markers:
Ask Diplyzer:
"Find Nasdaq 100 Tech stocks ($10B+ market cap) with positive 3-year revenue growth that have formed a cup and handle base on the weekly chart. Show me the cup depth, handle tightness, and where the pivot buy point is."
An ascending triangle features a flat resistance level at the top and a rising support trendline at the bottom. Each successive low is higher, indicating buyers are becoming more aggressive.
Interpretation: Buyers are willing to pay more each time the stock pulls back, while sellers remain at a fixed level. Eventually, buying pressure overwhelms the resistance and the stock breaks upward.
Ask Diplyzer:
"Is [stock] forming an ascending triangle? Show me the key resistance level, the rising lows, and the expected breakout target."
Reversal patterns form after sustained trends and signal a potential change in direction.
The head and shoulders is the most reliable reversal pattern in technical analysis, with a documented track record across decades and markets.
Structure (topping pattern):
Trading the breakdown:
Inverse head and shoulders: The same pattern upside down — a bullish reversal formation at the bottom of a downtrend.
Ask Diplyzer:
"Does [stock] show a head and shoulders pattern on the daily chart? Identify the left shoulder, head, and right shoulder, measure the neckline, and give me the technical price target on a breakdown."
A double top forms when price reaches the same resistance level twice — failing both times — creating a W-shaped reversal.
Validation requirements:
Target measurement: The distance from the trough to the peaks, projected downward from the neckline breakdown.
The mirror of the double top — a bullish reversal where price tests the same support level twice and bounces. Confirmed on a close above the middle peak.
A symmetrical triangle forms when price makes lower highs and higher lows, compressing into a tighter range. Neither buyers nor sellers are in control — until the triangle resolves.
The direction of resolution depends heavily on context — the prior trend, the broader market environment, and whether volume increases on the breakout.
A pennant is a short-term symmetrical triangle that forms immediately after a sharp move. It's functionally identical to a flag but with a triangular rather than rectangular shape. It's considered a higher-conviction pattern in the short term.
Not all patterns are equal. Apply these filters before trading any formation:
| Validation Criterion | What to Check |
|---|---|
| Volume profile | Volume should decline during consolidation, expand on breakout |
| Pattern quality | Symmetry, proper depth, handle tightness (for C&H) |
| Market context | Is the broader market in an uptrend or downtrend? |
| Relative strength | Is the stock outperforming its sector and the SPX? |
| Fundamental backdrop | Is there a business reason to own the stock? |
| Time horizon | Weekly patterns > Daily > Intraday in reliability |
A valid pattern in a bad market environment is still dangerous. The best setups occur when the pattern, market trend, sector, and fundamentals all align.
Trading every pattern you see: Quality over quantity. Trade only the cleanest, most textbook-quality patterns.
Ignoring volume: A breakout without volume expansion has a much higher failure rate. Volume is the fuel.
Missing the context: A bull flag in a bear market is a trap. Always trade patterns in the direction of the prevailing trend.
Late entries: Most patterns have a defined pivot point. Chasing a stock 10% above the breakout point dramatically reduces your risk/reward.
Moving your stops: Define your risk before entering. If price violates the pattern structure, exit.
Manually scanning for patterns across thousands of stocks is impractical. Diplyzer's pattern recognition engine identifies and ranks patterns in real time:
"Scan Nasdaq 100 Tech stocks ($10B+ market cap) with positive revenue growth for Cup and Handle or Bull Flag patterns completing on the daily chart in the last 2 weeks. Rank by pattern similarity score."
"What chart pattern is [stock] forming right now? Identify key levels, measure the pattern dimensions, and tell me the textbook breakout target."
"Find all stocks currently breaking out of a base on volume above 150% of average. Filter for those with RS ratings above 80."
| Pattern | Type | Trigger | Target |
|---|---|---|---|
| Bull Flag | Continuation | Break above flag high on volume | Flagpole height from breakout |
| Bear Flag | Continuation | Break below flag low on volume | Flagpole height downward |
| Cup & Handle | Continuation | Break above pivot on 2–3× volume | 10–20% projected from breakout |
| Ascending Triangle | Continuation | Break above flat resistance | Triangle height projected up |
| Head & Shoulders | Reversal | Break below neckline | H-to-neckline distance projected down |
| Double Top | Reversal | Break below trough | Trough-to-peak height projected down |
| Double Bottom | Reversal | Break above middle peak | Trough-to-peak height projected up |
| Symmetrical Triangle | Either | Break of either trendline | Triangle height from breakout |
Diplyzer identifies, validates, and quantifies chart patterns across thousands of stocks and multiple timeframes simultaneously.
"Give me a complete pattern analysis of [stock]. Identify any current chart formations on the weekly and daily timeframes, measure the key levels, and tell me what the textbook trade setup looks like."