Chart Patterns

A pattern is a picture of who won a fight over a period of time. That is all it is, and it is more useful than it sounds.

What a candle actually records

A candlestick compresses four numbers — open, high, low, close — into one shape. The body is the distance between open and close; the wicks are how far price travelled and failed to hold. Read it as a record of a contest: a long lower wick means sellers pushed price down and buyers took it all back before the period ended.

Every named pattern below is a specific version of that contest. A doji has almost no body, meaning the period ended where it started — a stalemate, which matters most after a long run in one direction. A hammer is a long lower wick with a small body at the top: sellers tried, failed, and the close came back up. A shooting star is the same shape inverted.

An engulfing pattern is one period's body completely covering the previous one's, which says the second period reversed the first and then some. Gaps are the periods where no trade happened at all — the market reopened away from where it closed, usually on news, and the empty space becomes a reference level traders watch for a return to.

The larger formations

Head and shoulders, double tops and double bottoms, triangles and flags are the same idea over a longer horizon: repeated failures at a level, or a steadily narrowing range that has to resolve somewhere.

The useful part of these is not the shape and not the projected target. It is that they define a level where you find out whether you were wrong quickly and cheaply. A double top gives you a price above which the pattern is void — that is a stop, and a stop with a reason behind it is worth more than the pattern that suggested it.

How much to trust any of it

Less than the literature implies. Patterns are identified after the fact, they are described in language loose enough that reasonable people disagree about whether one is present, and the published success rates come from studies with well-known selection problems.

What survives scrutiny is narrower and still worth having: patterns mark levels where a lot of participants are watching the same thing, and a level a lot of people are watching tends to produce a reaction when it is reached. Use them to locate a decision point and to place a stop. Do not use them as a forecast, and be suspicious of any pattern you can only see after deciding what you wanted the chart to say.

All 8 terms in Chart Patterns

Alphabetical, each with a worked example. Every one of these is searchable from the glossary index.

Candlestick

A bar showing Open, High, Low, Close for a period. The body spans open→close; the wicks show the extremes. Green/red bodies show up/down closes.

e.g. A daily candle: open 100, high 108, low 98, close 106 → a green body from 100→106 with a small upper wick to 108.

Doji

A candle where open ≈ close (tiny body) — a tug-of-war showing indecision. At the end of a strong trend it can warn of a reversal.

e.g. After a sharp 5-day rally, a doji appears (open 250, close 250.5) → buyers and sellers are now balanced; the rally may stall.

Double Top / Double Bottom

A reversal pattern where price twice fails at the same level ('M' top, bearish) or twice holds the same level ('W' bottom, bullish).

e.g. A stock hits ₹600 twice and rejects both times (a double top 'M') → sellers are defending 600.

Engulfing Pattern

A two-candle reversal where the second candle's body completely 'engulfs' the first. Bullish engulfing after a downtrend, bearish engulfing after an uptrend.

e.g. A small red candle is followed by a big green candle that opens lower and closes above the prior open → bullish engulfing.

Gap

An empty space on the chart where price jumps between sessions (no trading in between), usually on overnight news. Gaps often get 'filled' later.

e.g. A stock closes at ₹300 and opens at ₹330 on strong results (a gap-up); weeks later it drifts back to fill the ₹300–330 gap.

Hammer / Shooting Star

Single-candle reversal signals with a small body and one long wick. A hammer (long lower wick) after a fall is bullish; a shooting star (long upper wick) after a rise is bearish.

e.g. After a slide, a candle dips to ₹95 but closes back at ₹104 (long lower wick) → a hammer, hinting at a bounce.

Head and Shoulders

A three-peak reversal pattern (a higher middle 'head' between two 'shoulders'). A break of the 'neckline' signals a trend reversal — inverse version is bullish.

e.g. Peaks at 500, 540, 505 with a neckline at 470; a close below 470 confirms the top and targets ~430.

Triangle / Flag

Continuation patterns where price consolidates before resuming the trend. Triangles narrow into an apex; flags are short counter-trend pauses.

e.g. After a strong run-up, price drifts sideways-down in a tight flag for a few days, then breaks out and continues higher.

Definitions are written for people learning to read a market screen, not as legal or regulatory definitions, and nothing on this page is investment advice — see the disclaimer. Spotted something wrong or unclear? Tell us.