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Trading Learning Hub

Learn market patterns with practical examples

This page is designed for beginner to intermediate traders. Each pattern includes structure, confirmation, entry, stop-loss, and target logic.

Trend continuationReversal setupsRisk-first execution

Flag (Bullish)

Continuation

A strong rally pauses in a small pullback channel before continuing upward.

How it works (step-by-step)

  1. Identify the impulse move (flag pole).
  2. Wait for a controlled pullback channel.
  3. Enter after breakout close above channel resistance.
  • How it forms: Impulse pole followed by a mild downward consolidation channel.
  • Entry: Breakout close above the upper channel or a successful retest.
  • Stop-loss: Below channel support or recent swing low.
  • Target: Project pole length from breakout level.
  • Confirmation: Strong breakout candle plus rising volume.
Example: If price rallies from 100 to 115, then forms a flag around 111-114, breakout at 114.5 with stop at 110.8 projects toward 129.5.

When to avoid: Avoid weak-volume breakouts and setups against the broader market trend.

Wedge (Bullish Breakout)

Reversal / Continuation

Price compresses inside converging lines and breaks up as selling pressure fades.

How it works (step-by-step)

  1. Draw converging boundaries and confirm compression.
  2. Wait for close-based breakout to reduce false signals.
  3. Enter with predefined stop and measured target.
  • How it forms: Converging trendlines with lower highs and lower lows.
  • Entry: On close above the upper wedge line.
  • Stop-loss: Below wedge low or last higher low.
  • Target: Project the widest wedge width upward.
  • Confirmation: Bullish divergence and solid follow-through candles.
Example: If wedge breakout closes at 248 and wedge low is 238, stop at 237.5 and a 12-point width projects near 260.

When to avoid: Avoid if price quickly re-enters the wedge after breakout.

Ascending Triangle

Continuation

Flat resistance and rising lows indicate increasing demand pressure.

How it works (step-by-step)

  1. Mark two or three equal highs at resistance.
  2. Confirm higher lows on the support trendline.
  3. Trade breakout and optionally add on retest.
  • How it forms: Horizontal resistance with ascending support.
  • Entry: Decisive breakout above resistance.
  • Stop-loss: Below the most recent higher low.
  • Target: Add triangle height to breakout level.
  • Confirmation: Multiple resistance tests and rising breakout volume.
Example: If resistance at 500 holds three times and lows climb from 470 to 488, breakout at 503 with stop at 487 gives a projection near 533.

When to avoid: Avoid if support breaks before resistance breakout.

Pennant (Bullish)

Continuation

A sharp impulse pauses in a tight pennant before trend continuation.

How it works (step-by-step)

  1. Locate the impulse leg first.
  2. Confirm a tight converging pause with lower volume.
  3. Enter on upper boundary breakout.
  • How it forms: Strong pole followed by small converging consolidation.
  • Entry: Breakout above pennant resistance.
  • Stop-loss: Below pennant low.
  • Target: Measured move equal to pole length.
  • Confirmation: Volume expansion on breakout.
Example: If price moves 320 to 345, then forms a pennant near 341-344, breakout at 344.5 with stop at 340.8 projects toward 369.5.

When to avoid: Avoid using pennant setups without a clear prior impulse.

Cup and Handle

Bullish Reversal

A rounded base forms, then a shallow handle, followed by breakout.

How it works (step-by-step)

  1. Let the rounded cup complete.
  2. Identify a shallow handle pullback.
  3. Enter after breakout above the cup rim.
  • How it forms: U-shaped cup with a brief handle near resistance.
  • Entry: Close above rim resistance.
  • Stop-loss: Below handle low.
  • Target: Add cup depth to breakout level.
  • Confirmation: Strong breakout candle after a shallow handle.
Example: If cup low is 180 and rim is 210, with handle low at 203 and breakout at 211, stop at 202.5 projects near 241.

When to avoid: Avoid deep handles that retrace too much of the cup.

Inverse Head and Shoulders

Bullish Reversal

A three-trough reversal where the middle trough (head) is the deepest.

How it works (step-by-step)

  1. Validate left shoulder, head, and right shoulder.
  2. Draw neckline across reaction highs.
  3. Enter after neckline breakout close and manage retest.
  • How it forms: Left shoulder, deeper head, right shoulder, then neckline break.
  • Entry: On neckline breakout close.
  • Stop-loss: Below right shoulder low.
  • Target: Project head-to-neckline distance upward.
  • Confirmation: Volume expansion on neckline breakout.
Example: If head is 72 and neckline is 82, breakout at 83 with stop 78.8 projects near 93.

When to avoid: Avoid if right shoulder breaks below the head low.

Flag (Bearish)

Continuation

A strong drop pauses in a weak upward channel before continuing lower.

How it works (step-by-step)

  1. Identify the bearish impulse (pole).
  2. Wait for a weak recovery channel.
  3. Enter on breakdown below channel support.
  • How it forms: Bearish pole plus mild rising consolidation.
  • Entry: Breakdown below lower channel line.
  • Stop-loss: Above channel high.
  • Target: Project pole size from breakdown level.
  • Confirmation: Strong bearish candle and increasing sell volume.
Example: If price drops 410 to 385 and flags in 389-394, breakdown at 388 with stop 395.5 projects near 363.

When to avoid: Avoid fresh shorts directly into major support without confirmation.

Wedge (Bearish Breakdown)

Reversal / Continuation

A rising wedge often breaks down when momentum weakens.

How it works (step-by-step)

  1. Watch higher highs with fading momentum.
  2. Track pressure near lower wedge line.
  3. Enter after close below wedge support.
  • How it forms: Converging rising trendlines with weakening push.
  • Entry: Close below lower wedge line.
  • Stop-loss: Above recent swing high.
  • Target: Project widest wedge width downward.
  • Confirmation: Bearish divergence and failed highs.
Example: If wedge support near 920 breaks with a close at 914, stop at 928 and 20-point width projects near 894.

When to avoid: Avoid oversized shorts in strong bullish macro trend.

Descending Triangle

Continuation

Flat support gets pressured repeatedly by lower highs.

How it works (step-by-step)

  1. Confirm repeated tests on support.
  2. Validate descending highs.
  3. Trade breakdown and failed retest.
  • How it forms: Horizontal support with descending resistance.
  • Entry: After support breakdown.
  • Stop-loss: Above recent lower high.
  • Target: Subtract triangle height from breakdown point.
  • Confirmation: Breakdown plus failed support retest.
Example: If support at 260 is tested repeatedly while highs fall from 285 to 270, a break at 258 with stop at 268 projects near 233.

When to avoid: Avoid wick-only breakdowns without close confirmation.

Pennant (Bearish)

Continuation

A steep selloff pauses in a tight pennant, then continues downward.

How it works (step-by-step)

  1. Mark the selloff as the pole.
  2. Identify tight converging consolidation.
  3. Enter on lower boundary breakdown.
  • How it forms: Bearish pole with compact converging pennant.
  • Entry: Break below pennant support.
  • Stop-loss: Above pennant high.
  • Target: Measured move equal to pole length.
  • Confirmation: Breakdown with expanding volume.
Example: If price falls from 150 to 136, then consolidates 137-139, breakdown at 136 with stop 139.6 projects near 122.

When to avoid: Avoid if consolidation becomes too long and loses pennant shape.

Inverse Cup and Handle

Bearish Reversal

A rounded top forms, then a weak handle bounce fails into a downside break.

How it works (step-by-step)

  1. Allow the inverted cup to complete.
  2. Identify weak handle retracement.
  3. Enter after handle support breaks.
  • How it forms: Inverted cup followed by small upward/sideways handle.
  • Entry: On break below handle support.
  • Stop-loss: Above handle high.
  • Target: Subtract cup depth from break level.
  • Confirmation: Failed retests and weak rebound candles.
Example: If top is near 600 and base break around 560, with handle high 572 and breakdown 558, stop at 573 projects near 518.

When to avoid: Avoid around high-impact events and news spikes.

Head and Shoulders

Bearish Reversal

A classic topping reversal with three peaks and neckline breakdown.

How it works (step-by-step)

  1. Define left shoulder, head, and right shoulder.
  2. Draw neckline precisely.
  3. Enter after neckline break and close.
  • How it forms: Three-peak top with the head as highest point.
  • Entry: On close below neckline.
  • Stop-loss: Above right shoulder high.
  • Target: Project head-to-neckline distance downward.
  • Confirmation: Weak right shoulder and decisive neckline break.
Example: If head is 1240 and neckline is 1180, breakdown at 1175 with stop at 1210 projects near 1115.

When to avoid: Avoid holding if neckline is reclaimed with strong momentum.

Quick playbook (apply to every pattern)

  1. Always check higher timeframe trend first (Daily + 4H/1H).
  2. Wait for breakout candle close, avoid wick-only triggers.
  3. Look for volume confirmation above average.
  4. Keep risk per trade fixed (for example 1% of account).
  5. Target a minimum reward-to-risk ratio of 1:2.
Important: No pattern has a 100% success rate. Control position size and follow your risk plan.