Chart Patterns
Chapter: 3.5 Chart Patterns Level: 1 — Recognition (MCQ, Matching, True/False with justification) Time Limit: 20 minutes Total Marks: 30
Section A — Multiple Choice (1 mark each) — 10 marks
Q1. A head and shoulders pattern is generally classified as a:
- (a) Continuation pattern
- (b) Bullish reversal pattern
- (c) Bearish reversal pattern
- (d) Neutral pattern
Q2. The line connecting the two lows (or reaction points) in a head and shoulders top is called the:
- (a) Trendline
- (b) Neckline
- (c) Baseline
- (d) Support channel
Q3. An ascending triangle typically has:
- (a) A flat top (resistance) and rising lows
- (b) A flat bottom (support) and falling highs
- (c) Two converging trendlines of equal slope
- (d) A flat top and flat bottom
Q4. A flag is best described as a:
- (a) Long-term reversal pattern
- (b) Short-term continuation pattern after a sharp move
- (c) Rounding accumulation pattern
- (d) Pattern with no defined pole
Q5. In a double bottom, the pattern is confirmed when price:
- (a) Falls below the middle peak
- (b) Breaks above the middle peak (resistance)
- (c) Touches the second low
- (d) Forms a third low
Q6. A rising wedge most often signals:
- (a) A bullish continuation
- (b) A bearish reversal/breakdown
- (c) A neutral consolidation
- (d) A bullish reversal
Q7. The cup and handle is generally a:
- (a) Bearish reversal pattern
- (b) Bullish continuation pattern
- (c) Symmetrical triangle variant
- (d) Short-term flag
Q8. For a classic head and shoulders top, the measured move (price target) equals the neckline minus the:
- (a) Distance from the head's peak to the neckline
- (b) Height of one shoulder
- (c) Width of the pattern
- (d) Distance between the two shoulders
Q9. Which of the following is a continuation pattern?
- (a) Double top
- (b) Head and shoulders
- (c) Rectangle (in a trend)
- (d) Rounding top
Q10. A symmetrical triangle is formed by:
- (a) A rising support line and a flat resistance line
- (b) Converging trendlines with lower highs and higher lows
- (c) Two parallel horizontal lines
- (d) A single sloping trendline
Section B — Matching (1 mark each) — 8 marks
Q11–Q18. Match each pattern in Column X to its correct description in Column Y. Write the letter.
| Column X | Column Y |
|---|---|
| Q11. Inverse head and shoulders | (A) Continuation, small consolidation resembling a triangle after a sharp move |
| Q12. Pennant | (B) Bullish reversal, three troughs with middle trough lowest |
| Q13. Descending triangle | (C) Bearish reversal, U-shaped/dome top formed slowly |
| Q14. Rounding top | (D) Flat support with falling highs, usually bearish |
| Q15. Triple top | (E) Sideways range bounded by horizontal support and resistance |
| Q16. Rectangle | (F) Bearish reversal, three peaks at roughly the same level |
| Q17. Falling wedge | (G) Bullish reversal/continuation, converging down-sloping lines |
| Q18. Double top | (H) Bearish reversal shaped like the letter "M" |
Section C — True/False WITH Justification (2 marks each: 1 T/F + 1 justification) — 12 marks
Q19. A pennant and a flag both require a preceding sharp price move (a "pole"). — True or False? Justify.
Q20. A descending triangle always breaks out to the upside. — True or False? Justify.
Q21. In a double top, the measured target is found by subtracting the pattern height from the breakdown point. — True or False? Justify.
Q22. A rounding bottom (saucer) is a bearish continuation pattern. — True or False? Justify.
Q23. In a rectangle, the projected move after breakout roughly equals the height of the rectangle. — True or False? Justify.
Q24. An inverse head and shoulders forms at the bottom of a downtrend and signals a potential upward reversal. — True or False? Justify.
Answer keyMark scheme & solutions
Section A — MCQ (1 mark each)
| Q | Ans | Why |
|---|---|---|
| Q1 | (c) | H&S top forms after an uptrend and reverses it downward — a bearish reversal. |
| Q2 | (b) | The neckline connects the reaction lows; its break confirms the pattern. |
| Q3 | (a) | Ascending triangle = horizontal resistance + rising support (higher lows), bullish bias. |
| Q4 | (b) | A flag is a brief counter-trend consolidation that continues the prior move. |
| Q5 | (b) | Confirmation of a double bottom is the break above the intervening peak (resistance). |
| Q6 | (b) | Rising wedge typically resolves downward — bearish. |
| Q7 | (b) | Cup and handle is a bullish continuation/accumulation setup. |
| Q8 | (a) | Target = neckline − (head peak to neckline distance). |
| Q9 | (c) | A rectangle within a trend usually acts as a continuation (pause). Others are reversals. |
| Q10 | (b) | Symmetrical triangle = lower highs + higher lows converging. |
Section B — Matching (1 mark each)
| Q | Pattern | Ans | Description |
|---|---|---|---|
| Q11 | Inverse H&S | B | Bullish reversal, three troughs, middle lowest |
| Q12 | Pennant | A | Continuation, small converging consolidation after a sharp move |
| Q13 | Descending triangle | D | Flat support, falling highs, bearish |
| Q14 | Rounding top | C | Slow dome-shaped bearish reversal |
| Q15 | Triple top | F | Three peaks same level, bearish reversal |
| Q16 | Rectangle | E | Horizontal support/resistance range |
| Q17 | Falling wedge | G | Converging down-sloping lines, bullish |
| Q18 | Double top | H | "M" shape, bearish reversal |
(Award 1 mark each; no partial marks.)
Section C — True/False with Justification (1 + 1 marks)
Q19. TRUE. (1) Justification (1): Both flags and pennants are continuation patterns that form after a steep, near-vertical move known as the flagpole/pole; the pole is essential for measuring the subsequent target.
Q20. FALSE. (1) Justification (1): A descending triangle has a bearish bias and most often breaks downward through horizontal support; it does not "always" break up (breakouts can occasionally fail/reverse, but the typical/expected break is down).
Q21. TRUE. (1) Justification (1): The measured move for a double top = breakdown (neckline) level − pattern height (peak-to-neckline distance), projected downward.
Q22. FALSE. (1) Justification (1): A rounding bottom (saucer) is a bullish reversal pattern that forms at the end of a downtrend, signalling gradual accumulation and a shift upward.
Q23. TRUE. (1) Justification (1): The measured move for a rectangle equals the vertical height (distance between support and resistance) added to (or subtracted from) the breakout point.
Q24. TRUE. (1) Justification (1): An inverse H&S is the mirror image of the H&S top; it forms at the bottom of a downtrend and, on a neckline break, signals a bullish reversal.
Worked numeric illustration (supports Q8/Q21/Q23 logic)
- Q8/Q21 (H&S / double top): If head peak = 120, neckline = 100 → height = 20 → target = 100 − 20 = 80.
- Q23 (rectangle): Support 50, resistance 60 → height = 10 → upside breakout target = 60 + 10 = 70; downside = 50 − 10 = 40.
- Q19 (flag pole): Pole from 30 → 50 = 20; breakout at 48 → target = 48 + 20 = 68.
[
{"claim":"H&S/double-top target = neckline - height (120 head,100 neckline -> 80)","code":"head=120; neck=100; height=head-neck; target=neck-height; result = (target==80)"},
{"claim":"Rectangle upside target = resistance + height (50 support,60 res -> 70)","code":"sup=50; res=60; h=res-sup; up=res+h; down=sup-h; result = (up==70 and down==40)"},
{"claim":"Flag target = breakout + pole (pole 20, breakout 48 -> 68)","code":"pole=50-30; breakout=48; target=breakout+pole; result = (target==68)"}
]