Chart Patterns: The Complete Guide for CMT Candidates
Chart patterns are visual formations on price charts that help predict future price movements. They're heavily tested on both CMT Level 1 and Level 2.
Reversal Patterns
Head and Shoulders
The classic reversal pattern consists of three peaks:
- Left shoulder, head (highest), right shoulder
- Neckline break confirms the pattern
- Measured move target = head height below neckline
Double Top and Double Bottom
- Double Top: Two peaks at similar levels — bearish reversal
- Double Bottom: Two troughs at similar levels — bullish reversal
Continuation Patterns
Triangles
- Ascending: Flat top, rising bottom — bullish
- Descending: Falling top, flat bottom — bearish
- Symmetrical: Converging trendlines — direction of breakout matters
Flags and Pennants
Small consolidation patterns that appear after sharp moves. They typically resolve in the direction of the prior trend.
Volume Confirmation
Volume should confirm pattern breakouts. A breakout on high volume is more reliable than one on low volume.
Common Exam Questions
- Measuring price targets from pattern breakouts
- Identifying patterns on provided chart exhibits
- Understanding volume's role in pattern confirmation
- Distinguishing between reversal and continuation patterns