Basic Reversal PatternsTechnical Analysis
Reversal patterns occur before the major trend reverses. An existing trend will begin to weaken, losing momentum. The reversal pattern will consist of multiple attempts to continue in the prior trend direction. After making consistent effort, traders resign from pushing the trend in the existing direction. Price begins a new trend in the opposite direction.
A downtrend will form if an uptrend previously existed. The reversal pattern will be marked by multiple peaks. These are bearish reversal patterns, signifying a death of an uptrend. It’s confirmed by new lower peaks in price action.
An uptrend will form if a downtrend previously existed. The reversal pattern consists of multiple troughs. The reversal pattern is bullish, indicating the death of the downtrend. New higher troughs in price action confirm the death of the downtrend.
Reversal patterns are stronger if accompanied by divergences pointing in the potential reversed trend direction. As you receive candle signals like engulfing candlesticks, they become stronger. Exits from overbought or oversold zones are also another signal that can be used in tandem with reversal patterns to indicate potential pattern confirmations. You should also look for rising volume on the completion of the pattern as price moves in the reversal direction.
Double Tops & Triple Tops
Head & Shoulders
Double Tops & Triple Bottom
Inverse Head & Shoulders
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International Economic Analysis:
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