Classical Patterns Introduction

Classic, traditional or common patterns refer to the same kind of patterns.
Classic chart patterns are aggregates of price drawing some well known forms.
They often form around support or resistance levels. These trend lines indicate areas where traders were interested in exchanging their assets holding and time + trades will draw these patterns.

They are believed to be great indicators of market sentiment. Let’s consider for example an ascending triangle (as illustrated on the right). As time goes on traders step in to repeatedly sell at the same given high price (the horizontal resistance) and new buyers step in to repeatedly buy at new higher prices (the ascending trendline). It shows upward pressure and an expected move is a break up of the horizontal resistance level. Keep in mind technical analysis is probabilistic and it can sometimes not break out or do a false breakout.

Some of the best known classical chart patterns are the head and shoulders pattern, the wedge pattern, the double top or triple bottom. They can form as a bullish pattern or a bearish pattern. For example a bearish reversal pattern (such as an inverted H&S) in an upper trend is a strong hint for a trend reversal to the down side. Same can apply to a bullish reversal pattern (in reverse).