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Failed pattern

A chart pattern that triggers and then immediately reverses, often producing a stronger move in the opposite direction than the pattern predicted.

Failures matter because everyone who traded the pattern is now offside with a stop in an obvious place. A head-and-shoulders that breaks its neckline and then reclaims it traps every short at once, and covering can drive a sharp rally.

Some traders build strategies explicitly around failures rather than patterns, on the argument that a failed pattern gives both a clear trigger and a clear supply of forced participants. failed-breakdown and bull-trap are specific cases of the same idea.

The general lesson is that no pattern is a prediction. Deciding in advance what price action would prove the pattern wrong, and being willing to act on that, is more valuable than memorising more shapes.

Related: false-breakout, failed-breakdown, bull-trap, bear-trap, reversal-pattern

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