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Whale Trading

Chart Pattern Overview: Structure, Context, and Failure

In the candle pattern series,
we focused on psychology compressed into one or a few candles.

Now we zoom out and look at larger structures such as:

  • Triangles
  • Wedges
  • Double tops/bottoms
  • Head & Shoulders
  • Dead cat bounces
  • Elliott waves, harmonic patterns, Dow theory

But the core perspective stays the same:

It is not “this shape means price must go up/down”,
but rather
“what kind of flow and battle of forces
is summarized by this structure, at this location?”

1. Candle patterns vs chart patterns: different granularity

First, let’s clarify how they differ.

  • Candle patterns

    • Focus on a very small group of candles
    • Allow for very tight entries and stops
    • But are more vulnerable to noise

  • Chart patterns

    • Look at the structure over many candles
    • Help you understand “Is this a correction or the start of a new trend?”
    • But take time to form and often morph while forming

In practice, a common workflow is:

  • Use chart patterns (big picture) to gauge
    which side has a structural advantage, then
  • Use candle patterns (fine detail) inside that structure
    to refine entries and stops.

2. What you must always pair with chart patterns

Chart patterns are almost meaningless if you strip them from context.
At minimum, you want to view them together with the following four elements:

  1. Support and resistance

    • As covered in Support & Resistance basics,
    • For any triangle or wedge, “where it sits relative to major levels” is crucial.
    • For example, a rising wedge right under a long-term monthly resistance
      is very different from a wedge in the middle of a noisy range.

  2. Swing vs correction

    • From Swing vs Correction,
    • The same double top means something different if it forms:
      • at the end of a long up-swing, or
      • inside a large range as just another fluctuation.

  3. Timeframe

    • As discussed in Timeframes,
    • A head & shoulders pattern on a 5-minute chart
      might be just a small wick on the daily.
    • It often makes sense to:
      • first identify structures on 4h / daily or higher, then
      • use lower timeframes for precise execution.

  4. Volume

    • Adding Volume to the picture:
      • Is volume drying up inside a triangle?
      • Does it expand on the breakout?
      • How does volume look when the breakout fails?

In short,
don’t look at shape alone.
Always bring Level + Structure + Volume
into the same frame.

3. What this series will cover

In this section we’ll group chart patterns broadly into three buckets.

3-1. Trend continuation patterns

Structures that suggest a trend may pause and then continue.

We’ll look at:

  • how highs and lows contract or expand inside the pattern,
  • whether volume contracts or holds inside the range, and
  • which styles of breakout tend to be healthier.

3-2. Trend reversal patterns

Structures that suggest an existing trend may be weakening or ending.

We will focus on:

  • where the trend’s swing structure first breaks,
  • where the critical boundary is (neckline, range low/high),
  • and what happens when that boundary is broken briefly
    and then reclaimed (failed pattern).

3-3. Wave / complex structure patterns

These offer a more abstract view of market structure.

Here, the focus is less on memorizing shapes and more on
“How well does this structure summarize a cycle of crowd psychology?”

4. Common pitfalls when using chart patterns

Chart patterns can be powerful tools,
but misused, they can lock you into theory-driven trading.

A few common pitfalls:

  1. Fitting patterns after the fact

    • After price has already moved, it’s easy to say
      “It was a double top here” or “That was a triangle”.
    • This can be useful for review,
      but it doesn’t directly help with real-time execution.

  2. Over-believing the pattern name

    • “It’s a Head & Shoulders, so a big drop must follow” is a dangerous mindset.
    • In live markets, you’ll see:
      • clean Head & Shoulders that only break the neckline slightly and then recover, and
      • double tops that end up breaking to new highs.

  3. Ignoring invalidation

    • Each pattern should have a clear
      “Beyond this price, I’ll no longer treat it as this pattern” invalidation level.
    • Without that, you essentially have no stop-loss logic.

  4. Ignoring the position in the swing

    • The same triangle means something different when it forms:
      • early in a new trend,
      • in the middle of a healthy swing, or
      • after a long, stretched move in a late-stage, overextended trend.
    • swing-vs-correction is key:
      always ask, “Is this early/mid/late in the current swing?”

5. Suggested learning path for this section

The more you try to memorize everything at once,
the easier it is to get confused.

A gentle progression might look like this:

  1. Review the basics

  2. Read this overview (current page)

    • Just to see “what patterns exist and how they’re grouped”.

  3. Continuation patterns

  4. Reversal patterns

  5. Wave / complex structures

6. A minimum checklist for live trading

When a chart pattern catches your eye,
it’s useful to answer at least these questions before planning a trade:

  1. “What is the dominant higher timeframe trend?”

    • On daily / 4h, is the market:
      • trending up,
      • trending down, or
      • ranging?

  2. “Where does this pattern sit inside that trend?”

    • Early / middle / late in the swing?

  3. “What are the key levels?”

    • Neckline, range high/low,
    • well-tested weekly/monthly support or resistance, etc.

  4. “Where is the pattern invalidated?”

    • If price moves here,
      you stop treating it as this pattern and stop defending the idea.

  5. “How will you place entry, stop, and target?”

In each of the following articles,
the focus will not be:

  • “What is the textbook definition of this pattern?”

but rather:

  • “What kind of market situation does this structure summarize,
    and what decisions are traders likely to make inside it?”

If you keep thinking in terms of structure + psychology,
chart patterns will become tools for framing scenarios,
not rigid templates that you feel forced to trade.