Chart patterns consist of price movements that create recognizable shapes on a price chart, classified into two main categories: continuation patterns and reversal patterns. 

Continuation Patterns: These indicate that the current trend is likely to continue after a brief consolidation. Common continuation patterns include: 

• Flags: Small rectangles that slope against the prevailing trend, signaling a breakout in the direction of the previous trend after a period of consolidation. 

• Pennants: Similar to flags but with converging trend lines. After consolidation, the price typically breaks out in the direction of the preceding trend. 

• Triangles: Can be ascending, descending, or symmetrical. Each type indicates potential breakout directions based on its structure. 

Reversal Patterns: These signal potential trend reversals, including: 

• Head and Shoulders: Consists of three peaks (head and two shoulders), indicating a bearish reversal after an uptrend, while the inverse pattern suggests a bullish reversal. 

• Double Top and Double Bottom: A double top features two peaks at similar levels, signaling a potential bearish reversal, whereas a double bottom shows two troughs, indicating a possible bullish reversal. 

• Rounding Bottom: A long-term reversal pattern resembling a U shape, suggesting a transition from bearish to bullish sentiment. 

Using Chart Patterns in Trading 

To effectively use chart patterns, traders should combine them with other technical analysis tools, such as candlestick patterns, support and resistance levels, and volume analysis. This multi-faceted approach enhances the accuracy of trading decisions.