Each pattern in this playbook follows the same review sequence. How is it recognized? What confirms it's actually playing out? Where does it get invalidated? How do traders conventionally estimate a target? What commonly goes wrong? This page walks through six major formations, Triangles, Harmonic patterns, Head and Shoulders, Rectangles, Cup and Handle, and VCP, using that same structure for each, so you can compare them directly rather than learning six unrelated frameworks.
This page assumes you already understand what a pattern is, how to spot genuine structure on a live chart, and why context matters, covered in earlier guides in this series. Here, the focus narrows to specific, named formations, what each one conventionally looks like in practice, and how it's typically traded from formation through to invalidation or target.
Triangles
A triangle forms when price consolidates between two converging boundaries, narrowing from a wider range into a tighter one. The three common variants are the symmetrical triangle, converging from both sides with no directional lean, the ascending triangle, flat resistance with rising support, and the descending triangle, flat support with falling resistance.
How is it recognized?
At least two touches on each boundary, with the range visibly narrowing over time, typically over several weeks on a daily chart. The pattern should form within a clear context, mid-trend for a continuation read, or after an extended move for a potential reversal read.
What confirms it?
A close beyond one boundary, ideally on rising volume compared to the quiet volume typical of the narrowing consolidation itself.
Where is invalidation?
If price closes beyond the boundary opposite the breakout direction, or breaks out and quickly closes back inside the triangle, the setup is generally considered invalidated.
How are targets conventionally estimated?
A commonly used technique measures the triangle's height at its widest point and projects that distance from the breakout point. This is a convention some traders use for planning purposes, not a guaranteed outcome, price frequently falls short of or exceeds a measured-move projection.
Common mistakes
Entering before the boundary actually breaks, based on an assumption about which way it "should" go. Treating a symmetrical triangle as having a directional lean it doesn't structurally have.
Worked example
A stock trades between a rising support line and flat resistance at ₹500 for six weeks, an ascending triangle. It closes above ₹500 on volume 1.8 times its recent average. The triangle's widest point measured ₹40. Using the measured-move convention, a trader might note a reference target near ₹540, while placing a stop below the most recent higher low inside the triangle, treating a close back below ₹500 as invalidation.
Harmonic patterns
Harmonic patterns use a five-point structure, labeled X-A-B-C-D, where each leg is expected to fall within specific Fibonacci retracement or extension ratios of the prior leg. The Gartley pattern is the most commonly referenced example: point B typically retraces around 61.8% of the XA leg, point C retraces a portion of AB, and point D, the pattern's completion point, typically falls near a 78.6% retracement of XA. Other named variants, Bat, Butterfly, Crab among them, use different specific ratio combinations and require separate, dedicated study beyond this overview.
How is it recognized?
By measuring the actual retracement and extension percentages between the X, A, B, C, and D swing points and checking whether they fall within the specific ratio ranges defined for that harmonic type. This is a more precise, measurement-driven recognition process than most other patterns in this playbook.
What confirms it?
A price reaction, a reversal candle or clear rejection, actually occurring once price reaches the D point, referred to as the Potential Reversal Zone. Arrival at the zone alone is not confirmation.
Where is invalidation?
If price moves through the D point and the Potential Reversal Zone without any reversal reaction, the pattern is generally considered invalidated.
How are targets conventionally estimated?
Fibonacci retracement levels of the completed XA or AD leg, commonly the 38.2% and 61.8% levels, are conventionally used as reference targets. As with all target conventions in this playbook, these are commonly used reference points, not guaranteed levels.
Common mistakes
Forcing a "close enough" ratio match when the actual measured percentages fall meaningfully outside the pattern's defined ranges. Entering at the D point without waiting for an actual confirming reaction.
Worked example
A stock's XA leg runs from ₹400 to ₹600, a ₹200 move. Point B retraces down to roughly ₹476, close to a 61.8% retracement of that XA leg, consistent with a Gartley structure. Point D completes near ₹443, close to a 78.6% retracement of XA. A trader notes a bullish reversal candle forming at that zone before considering an entry, with a stop placed just beyond the X point extreme.
Head and Shoulders
A left shoulder, a higher head, and a right shoulder roughly similar in height to the left shoulder, connected by a neckline drawn across the two reaction lows between the peaks. The inverse version mirrors this with troughs instead of peaks, typically following a downtrend.
How is it recognized?
Three peaks (or troughs), the middle one clearly more extreme than the two flanking it, forming after an established prior trend, with a neckline connecting the points between them.
What confirms it?
A close beyond the neckline, ideally with volume expanding on the break compared to the pattern's formation, where volume often declines from the left shoulder through the head.
Where is invalidation?
If the right shoulder exceeds the head's extreme, or price fails to hold beyond the neckline after breaking it, the pattern is generally considered invalidated.
How are targets conventionally estimated?
A commonly used technique measures the distance from the head to the neckline and projects that distance from the point where the neckline breaks. Again, a planning reference, not a guarantee.
Common mistakes
Labeling a pattern "head and shoulders" before the right shoulder has actually formed. Ignoring the volume pattern that typically accompanies a genuine formation.
Worked example
A stock forms a left shoulder near ₹520, a head near ₹560, and a right shoulder near ₹525, with a neckline near ₹490. It closes below ₹490 on rising volume. The head-to-neckline distance measures ₹70. A trader might reference a target near ₹420 using the measured-move convention, with invalidation defined as a close back above the neckline.
Rectangles
Price bounces between a horizontal support level and a horizontal resistance level, forming a defined trading range.
How is it recognized?
At least two clear touches on both the support and resistance boundaries, with price contained between them over a meaningful period, not just a brief pause.
What confirms it?
A close beyond either boundary, with volume ideally expanding on the actual break.
Where is invalidation?
This is also the direct distinction between a genuine breakout and a failed one: if price closes beyond a boundary but then closes back inside the range shortly after, the breakout is considered failed, and the rectangle is treated as still active rather than resolved.
How are targets conventionally estimated?
The rectangle's height, measured from support to resistance, projected from the breakout point, following the same measured-move logic used across this playbook.
Common mistakes
Trading every touch of a boundary as an automatic bounce without waiting to see whether the range actually holds. Treating a brief, single-candle poke beyond a boundary as a confirmed breakout.
Worked example
A stock ranges between ₹300 support and ₹340 resistance for five weeks. It closes at ₹345, appearing to break out, but closes back at ₹335 the next session, back inside the range, a failed breakout by the definition above. Two weeks later it closes at ₹348 and holds above ₹340 for three sessions. The ₹40 range height, projected from ₹340, gives a reference target near ₹380.
Cup and Handle
A rounded, U-shaped recovery, the cup, followed by a smaller pullback near the cup's right-hand rim, the handle, typically following a prior uptrend.
How is it recognized?
A gradual, rounded decline and recovery, not a sharp V-shaped drop, followed by a shallower pullback forming in the upper portion of the prior range, the handle, before any breakout attempt.
What confirms it?
A close above the handle's resistance, roughly the cup's rim level, ideally with volume expanding on the move.
Where is invalidation?
If the handle's pullback retraces too much of the cup's prior advance, or price breaks down below the handle's low, the setup generally stops qualifying as a valid Cup and Handle.
How are targets conventionally estimated?
The cup's depth, measured from rim to bottom, projected upward from the breakout point, the same measured-move logic applied to this pattern's specific structure.
Common mistakes
Mistaking a sharp, V-shaped recovery for a valid cup, the gradual, rounded shape is a defining structural feature, not a minor detail. Entering during handle formation, before the actual breakout confirms.
Worked example
A stock declines from ₹800 to ₹640 over six weeks, then gradually recovers back to ₹790, a rounded cup roughly ₹160 deep. It pulls back modestly to ₹740, the handle, before closing at ₹795. The ₹160 cup depth, projected from the breakout point, gives a reference target near ₹955, with the handle's low near ₹740 serving as the invalidation level.
VCP (Volatility Contraction Pattern)
A base characterized by a series of pullbacks, each one shallower than the last, often accompanied by declining volume as the contractions tighten. This concept is closely associated with trader and author Mark Minervini's momentum-based trading methodology.
How is it recognized?
Multiple successive pullbacks within a base, commonly two to four, each contracting by a smaller percentage than the one before it, with volume typically drying up as the range tightens toward the final, smallest contraction.
What confirms it?
A breakout from the final, tightest contraction, referred to as the pivot point, ideally on a clear surge in volume relative to the quiet volume seen during the contractions themselves.
Where is invalidation?
A pullback that's deeper than the one preceding it breaks the defining "progressively smaller" structure and generally invalidates the pattern as a VCP specifically. A decisive break below the base's overall support is also treated as invalidation.
How are targets conventionally estimated?
VCP doesn't carry as standardized a measured-move convention as the patterns above. It's more commonly traded as a continuation launch point, with position management handled through trailing stops as the move develops, rather than a single fixed target set in advance.
Common mistakes
Counting a deeper pullback as a valid part of the contraction sequence when it actually breaks the pattern. Entering before the final, tightest contraction has actually formed.
Worked example
A stock bases after an advance, pulling back 15%, then 9%, then 4%, each contraction shallower than the last, with volume declining through each pullback. It then breaks out from the final, tight ₹4 range on volume double its recent average, the pivot point. A trader might enter near the breakout, with a stop just below the final contraction's low, managing the position with a trailing stop as the move develops rather than a fixed measured target.