Reversal chart patterns

  • 5627
  • 0
Reversal chart patterns announce a reversal of the current trend. The exit of the pattern is theoretically in the opposite direction to the movement preceding the chart pattern’s formation. In a bullish trend, a reversal pattern signals a bullish movement. On the other hand, in a bearish trend, it also announces a bullish movement.

It is important not to anticipate the exit of the pattern. A reversal chart pattern is validated only when the price line exits the pattern (breakage of the neck line or the bearish downward/bullish upwards slant). For example, a chart can show a double bottom but this reversal chart pattern can be transformed into a triple bottom or a range, hence the need to wait for the bullish/bearish signal.

Reversal chart patterns are often very relevant primarily with H&S (and inverted H&S) and wedges (consult the classification of chart patterns). They suggest that there is a good chance for the trade to be successful. Each reversal pattern gives a theoretical price objective. This objective is not always achieved. It is therefore very important to follow the movement with a stop loss close to the pattern’s exit. Remember that it gives an against the trend signal. However, the most relevant reversal chart patterns are often those that are in line with the medium/long term trend of the asset. A reversal pattern may be against the trend in the short term but in the direction of the underlying trend.

In the case where the reversal pattern exits in the direction of the tracked chart’s trend, the chart pattern is invalidated and a continuation signal is then given.

Here is a list of the reversal chart patterns:


- Rising wedge / Falling wedge
rising and falling wedge
- Ascending broadening wedge / Descending broadening wedge
ascending and-descending broadening wedge
- V bottom / V Top
v bottom and top
- Double Bottom / Double Top
double bottom and top
- Triple bottom / Triple top
triple bottom and top
- Diamond bottom / Diamond top
diamond bottom and top
- H&Si / H&S
head and shoulder patterns
- Rounding Bottom / Rounding top
rounding bottom and top
- Broadening bottom / Broadening top
Broadening bottom and top
- Right-angled ascending broadening wedge / Right-angled descending broadening wedge
Right angled ascending and descending broadening wedge

About author

  • 20
  • 42
  • 60
  • 5

Add a comment

no pic

Comments

0 Comments