Chart Patterns and Measured Moves

What you will learn

• The structure of flags, triangles, head and shoulders, and double tops and bottoms.
• How to calculate a measured-move target.
• Why many patterns fail and how to define invalidation.
• How to combine patterns with structure and zones.

Explanation

A chart pattern is a repeated shape in price that shows a pause or a change in the balance between buyers and sellers. Patterns are not signals by themselves. They are a way to organise structure you already learned.

Continuation patterns

• Flag: a strong move (the pole), then a small, slightly counter-trend channel. The trigger is a close out of the channel in the direction of the pole.
• Triangle: price makes smaller swings between two converging lines. In an ascending triangle the top is flat and lows rise; in a descending triangle the bottom is flat and highs fall; a symmetrical triangle has both lines sloping toward each other.

Reversal patterns

• Head and shoulders: three peaks, the middle one (the head) highest. The neckline connects the lows between the peaks. A close below the neckline is the trigger. An inverse version exists at bottoms.
• Double top / double bottom: two peaks (or troughs) at about the same price, with a trough (or peak) between them. The trigger is a close beyond that middle point.

The measured move

A measured move projects the height of the pattern from the breakout point. It gives an orientation for a target, not a forecast. Price often stops earlier at an opposing zone, or runs further.

Why patterns fail

• Patterns are easy to see after the fact. In real time, many shapes never complete.
• Obvious breakout levels attract stop orders; price can push through them and then reverse. This is a false breakout.
• A pattern against the higher-timeframe bias has less support.

So every pattern trade needs an invalidation point: where the pattern idea is clearly wrong.

Worked example

Hypothetical example with three patterns in $. Fees, spreads and taxes are excluded.

1. Head and shoulders: head at $120, neckline at $110.

1. Height: $120 − $110 = $10
2. Target: neckline − height = $110 − $10 = $100
3. Invalidation: a close back above the right shoulder, for example $116.

2. Bull flag: pole from $50 to $60, flag drifts down to $57, breakout at $58.

1. Pole height: $60 − $50 = $10
2. Target: breakout + pole = $58 + $10 = $68

3. Double top: tops at $80, trough between them at $75.

1. Height: $80 − $75 = $5
2. Target: $75 − $5 = $70

Before trading the head and shoulders, the trader checks: is there a demand zone at $104? If so, the realistic target is $104, not $100.

Common mistake

Practice activity

Hypothetical double bottom in €: two lows at €40, peak between them at €46. Calculate the measured-move target. Then name a sensible invalidation level and one reason the target might not be reached.

Key takeaways

• Patterns organise structure; they are not signals on their own.
• Wait for a close beyond the trigger line (neckline, flag edge, middle point).
• The measured move projects pattern height from the breakout; check opposing zones first.
• Define invalidation for every pattern, because many patterns fail.

Next step

In the next lesson you will go deeper into moving averages: how they are calculated, how they lag and how to use them as dynamic support.