A chart pattern is a recognizable shape formed by price movements on a chart that traders use to predict future direction. Patterns are classified as continuation (indicating the trend will resume) or reversal (indicating the trend will change direction). Common patterns include head and shoulders, double top/bottom, triangles, flags, and wedges.
A head and shoulders pattern forms on the daily EUR/USD chart: a peak (left shoulder), a higher peak (head), then a lower peak (right shoulder). When the price breaks below the neckline connecting the two troughs, traders take short positions expecting a bearish reversal.
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