In 1932, Richard Schabacker published the first systematic study of chart patterns — formations that appeared before major market moves. Ninety years later, the same patterns still appear on every chart in every market, because they are not random shapes. They are the visual signature of human psychological cycles: greed, fear, uncertainty, and capitulation playing out in price action. Once you see them, you cannot unsee them.
Chart patterns are recurring price formations that signal either trend continuation (price is pausing before continuing) or trend reversal (the trend is about to change direction). They work because they represent specific crowd psychology phases that repeat across all markets and timeframes.
Reversal patterns
Head and Shoulders:
Three peaks — higher middle peak (head) flanked by two lower peaks (shoulders). Neckline connects the two troughs. Break below neckline = uptrend reversed. Measured move target = head height projected below neckline.
Double Top / Double Bottom:
Two roughly equal highs (double top) or lows (double bottom) at a key level. Break of the "neckline" confirms. Double bottoms are strong buy signals after downtrends.
Continuation patterns
Bull Flag / Bear Flag:
Sharp impulse (the pole) followed by narrow counter-trend channel (the flag). Breakout from the flag in the original direction. Target = pole height from breakout.
Ascending Triangle:
Horizontal resistance with series of higher lows compressing toward it. Bullish breakout expected when price finally pierces the horizontal resistance.
Bull flag on EUR/USD:
120-pip bullish impulse: 1.0800 → 1.0920 (the pole).
Price consolidates in a downward channel: 1.0920 → 1.0880 (the flag, 8 candles).
Breakout above the upper flag trendline at 1.0895.
Entry: 1.0898 · Stop: 1.0875 (below flag) · Target: 1.1015 (pole height added to breakout)
Risk: 23 pips · Reward: 117 pips · R:R: 1:5.1
NGX parallel: ACCESS BANK formed an ascending triangle in Q4 2023 — horizontal resistance at ₦20, higher lows compressing toward it over 6 weeks. The breakout above ₦20 on heavy volume was the entry. Target: ₦4 (pole height) added to ₦20 breakout = ₦24. NGX blue chips regularly form these patterns on weekly charts due to their institutional ownership base.
Entering a pattern before the breakout is confirmed. "It looks like it is forming a head and shoulders" is not a trade — the neckline break is the trade. Many traders enter early, the pattern fails, and they take an unnecessary loss. Wait for the break, ideally plus a retest.
Volume is your pattern validity checker. A strong breakout on significantly higher-than-average volume confirms institutional participation. A breakout on thin volume is suspicious — often fakes out and reverses. If your broker shows volume data, use it. If not, candle body size is a reasonable proxy.
Chart patterns provide pre-defined entries, stops, and targets — a flag tells you exactly where to enter (breakout), where to stop (below the flag), and where to take profit (pole height target) before you place a single order.
