Stock chart patterns often indicate switch reversals between upward and downward trends. Once the price pattern indicates a reversal in the trend direction, it is called a reversal pattern; the continuation pattern predicts that the pattern will continue in its existing direction, possibly after a brief pause. There are many patterns used by traders, and here's a little more about how patterns are formed and some of the most commonly used. Because price patterns are found using a series of lines or curves, it will be helpful to learn about trend lines and how to plot them. Trendlines help technical analysts recognize areas of support and resistance on a price chart. Trendlines are straight lines drawn on a chart by connecting a series of descending peaks, or high, or a series of ascending troughs, or low. An upward trendline slopes up when there are higher highs and higher lows in prices. The up trendline is drawn connecting the ascending lows. A down trendline that slopes downward occurs when there are lower highs and lower lows in prices. There are different schools of thought about what portion of the price bar should be considered, and often, the body of the candle bar-not the thin wicks on either side of the body is taken to be where the lion's share of price action occurred, and therefore, it is the most precise point for the drawing of the trend line, especially on an intraday chart where outliers could be expected. A continuation pattern refers to a short-term respite from an ongoing trend; it is a type of price pattern. A continuation pattern can be considered to be a slight pause in the trend that is going on. It refers to when the bulls take their breath at a certain point during the uptrend or when the bears catch their breath during the downtrend. Until such time that the price pattern is complete, there's no way of knowing whether the trend will continue or if it reverses. Thus, much attention needs to be paid to the trend lines used to draw the price pattern and whether the price breaks above or below the continuation zone. Technical analysts would normally assume that a trend will continue until proven it has reversed. A reversal pattern is a price pattern signaling a change in the prevailing trend. Such patterns indicate a stage where the bulls or bears have used up their energy. The trend, established so far, will stall and continue in a different direction as new impetus comes from the other side (bull or bear). For example, an uptrend sustained by the enthusiasm from the bulls can stall and mark the signal that there was even pressure from both bulls and bears, before finally yielding to the bears. This leads to a trend reversal to the bearish direction. Reversals that occur at market tops are termed distribution patterns since the trading instrument is more enthusiastically sold than bought. On the other hand, reversals that occur at market bottoms are termed accumulation patterns where a trading instrument becomes more actively bought than sold. Pennants are continuation patterns drawn with two trend lines that eventually converge. One of the most notable characteristics of pennants is that the trend lines move in two directions-one will be a downtrend line and the other an up trend line. The following figure depicts an example of a pennant. Normally, the volume declines during the formation of the pennant and increases thereafter when the price finally breaks out. Such formations are visible patterns in a stock's price chart that offer the possibility of finding hidden patterns in the market or reversals. A bullish pennant is a flag pattern that indicates a price with an upward trending trend—the flagpole is on the left of the pennant. Flags are continuation patterns built using two parallel trend lines that can slope up, down, or sideways (horizontal). Wedges are continuation patterns like pennants because they are drawn using two converging trend lines except that a wedge is marked by both lines trending in the same direction either upwards or downwards. A down-trending wedge indicates a consolidation during an uptrend; an up-trending wedge is a temporary interruption in a falling market. Like triangles and flags, volume often declines while the pattern builds, then increases when the price breaks above or below the wedge pattern. Unlike triangles and pennants, the edges of a wedge reflect only the upward and downward price movements, so the wedge often appears angled. A head and shoulders pattern is a reversal pattern that occurs as a series of three pushes at the market top or bottom: one push is formed followed by a larger second push, and a third push similar to the first is formed. In such cases, when the uptrend is interrupted by a head and shoulders top pattern, it may result in the trend reversing and turning into a downtrend. On the other hand, a head and shoulders bottom (an inverted head and shoulders) will likely experience a reversal of the trend to the upside. The volume may decline as the formation matures and rebound when the price breaks above (for a head and shoulders bottom formation) or below (for a head and shoulders top formation) the trendline.