How to Think About Price Patterns

Every pattern should be translated into three concrete things:

1. Trigger: the event that activates the pattern, usually a break of the neckline / side of the pattern with a close.
2. Invalidation (stop): the point that proves the pattern has failed — this is where the stop loss goes.
3. Target (measured move): a distance projection based on the height of the pattern.

Two broad categories

• Continuation patterns — a brief pause before the trend continues (flags, pennants, some triangles, rectangles).
• Reversal patterns — a shift in control at the end of a trend (double tops/bottoms, head & shoulders, some wedges).

Key points

• A pattern without an invalidation level and a target is just a picture.
• The direction of the bigger trend determines which patterns deserve more trust.