Every pattern should be translated into three concrete things:
- Trigger: the event that activates the pattern, usually a break of the neckline / side of the pattern with a close.
- Invalidation (stop): the point that proves the pattern has failed — this is where the stop loss goes.
- 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.
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