Share price movement patterns in modern markets

5^th March 2025

The editorial unit

The editorial unit

5 March 2025

Understanding chart patterns has become essential for successful equity trading in today’s fast-paced financial markets. Analysing mvis stock and similar securities reveals that share price movements aren’t entirely random but often form recognisable patterns that repeat with remarkable consistency. These patterns generally fall into three categories –continuation patterns, reversal patterns, and bilateral patterns – each offering unique insights into potential future price movements. For UK investors, mastering these formations can significantly enhance decision-making capabilities.

Understanding trendlines: The foundation of pattern recognition

Trendlines serve as the essential building blocks for identifying chart patterns in equity markets. These tools help traders visualise market direction by connecting a series of price points. Uptrends form when prices create higher highs and higher lows, while downtrends appear when prices make lower highs and lower lows. Consolidation occurs when prices move sideways between parallel trendlines.

When drawing trendlines, precision matters. On daily charts, UK traders typically connect closing prices rather than intraday extremes. For intraday charts, connecting candlestick bodies rather than wicks provides more reliable signals by filtering out momentary price spikes.

Key aspects of effective trendline analysis include:

• Connecting appropriate price points (closes for daily charts, bodies for intraday)
• Ensuring at least three contact points for maximum validity
• Recognising that broken trendlines often become reverse support/resistance

Continuation patterns: Signals of temporary pauses

Continuation patterns represent temporary interruptions in established price trends. These formations appear when the dominant market force pauses briefly before resuming the original direction. During these consolidations, prices typically move sideways or against the trend before continuing their previous trajectory.

Continuation patterns are especially valuable for UK investors seeking optimal entry points in the direction of the prevailing trend. They offer lower-risk opportunities to join existing momentum. The longer these patterns take to develop and the larger the price movement within them, the more significant the subsequent breakout move tends to be.

Pennants and flags: Compact continuation signals

Pennants and flags rank among the most common continuation patterns, forming after sharp price movements as brief consolidation periods. Pennants create small symmetrical triangles with converging trendlines. Flags form with parallel trendlines creating small channels that slope against the prevailing trend.

UK traders can calculate potential price targets by measuring the height of the initial “flagpole” move and projecting that same distance from the breakout point. These compact formations typically resolve quickly, often within 1-3 weeks, making them particularly useful for shorter-term trading strategies.

Trading tactics for pennants and flags:

• Enter positions when price breaks through the pattern boundary in the trend direction
• Set stop-losses just beyond the opposite boundary of the pattern
• Look for confirmation through increased volume on breakout

Triangles: Multi-directional continuation indicators

Triangle patterns provide valuable insights into potential price direction through their distinctive shapes. Ascending triangles form with a flat upper resistance line and an upward-sloping lower support line, typically resolving with an upward breakout. Descending triangles display the opposite structure, usually resulting in a downward breakout.

Symmetrical triangles form with converging trendlines where neither buyers nor sellers dominate. These bilateral patterns can break in either direction, requiring UK investors to wait for confirmation before positioning.

Reversal patterns: Signals of trend changes

Reversal patterns signal the potential end of an existing trend and the beginning of a new one in the opposite direction. These formations appear when the dominant market participants exhaust their momentum and the opposing force takes control. At market tops, selling pressure overcomes buying interest. At market bottoms, buying enthusiasm surpasses selling pressure.

The psychology behind reversals involves shifting sentiment. After extended trends, traders positioned in the trend direction begin taking profits while countertrend traders see opportunities, creating the characteristic reversal formations.

Characteristics that distinguish genuine reversal patterns:

• Formation after extended trends (not during sideways markets)
• Increasing volume on breakout in the new direction
• Decisive breaking of key support or resistance levels

Head and shoulders: The classic reversal formation

The head and shoulders pattern remains one of the most reliable reversal formations, often appearing at market tops. This pattern consists of three peaks, with the middle peak (the head) rising higher than the two shoulder peaks. The neckline connects the troughs between these peaks and serves as the critical support level.

The inverse head and shoulders forms at market bottoms with three troughs, where the middle trough dips lower than the shoulder troughs. UK investors can calculate minimum price targets by measuring the vertical distance from the head to the neckline, then projecting that same distance from the breakpoint.

Double tops and bottoms: Clear reversal signals

Double tops and bottoms signal potential trend changes through failed breakout attempts. A double top resembles the letter “M” and forms when price rises to a resistance level, pulls back, then rises again to approximately the same level before declining. This indicates sellers overwhelmed buyers twice at the same price level.

Double bottoms form the letter “W” when price drops to a support level, rebounds, then falls back to near the same level before rising again. This suggests buyers overcame sellers twice at the same price. The psychological underpinnings involve market memory—traders remember previous reversal points and place orders accordingly.

*Based on studies of FTSE 100 patterns, 2015-2023

Practical application of chart patterns for UK investors

Implementing chart pattern analysis effectively requires combining theoretical knowledge with practical application. Pattern recognition should never exist in isolation—use complementary indicators for confirmation. Trend-following indicators help validate continuation patterns, while momentum oscillators can confirm potential reversals.

Context matters tremendously when interpreting chart patterns. Patterns forming at key market levels typically demonstrate higher reliability than those appearing in random areas. Similarly, patterns aligned with broader market trends generally produce better results than those fighting the prevailing direction.

Several UK trading platforms offer specialised pattern recognition tools that automatically identify common formations. However, developing your own pattern recognition skill remains invaluable, as algorithm-identified patterns often require human judgment for context.

Best practices for UK equity pattern traders:

• Maintain a trading journal documenting pattern successes and failures
• Start with larger timeframes before moving to shorter intervals
• Apply consistent risk management with appropriate position sizing

Remember that even the most perfect-looking patterns fail regularly. Professional UK traders focus less on individual pattern outcomes and more on maintaining positive expectancy across many trades. This probabilistic approach characterises successful pattern traders in the challenging UK equity markets.

The editorial unit