Charts Patterns: Reversal Patterns

Beginner

In this Master Academy educational video and article, we are looking at Charts Patterns, focusing on Reversal Patterns.

Charts Patterns

  • A chart pattern is a distinct formation on a chart that signals potential for future price movements
  • Technical Analysts use these patterns to identify current trends, trend reversals and for buy and sell signals
  • There are two types of patterns, Reversal and Continuation
  • In this article and accompanying video we will be looking at Reversal patterns

Reversal Patterns

Examples of major Reversal patterns are:

  • Double Tops
  • Double Bottoms
  • Triple Tops
  • Triple Bottoms
  • Head & Shoulders
  • Inverse Head & Shoulders

Double/Triple Tops & Bottoms

  • These patterns are formed after a sustained trend
  • They signal that the trend is about to reverse
  • These patterns are created when price tests resistance or support (twice for Double and three times for Triple) but cannot break through
  • A bottom is completed when price moves above the interim peak for a Double/Triple Bottom
  • A top is completed when price moves below the interim low for a Double/Triple Top
  • A price target is calculated by measuring between the peaks/troughs and the interim level, projected from the breakout
  • This price target is called the Minimum Price Objective or MPO

Double Bottoms

Double Bottom
Double Bottom Example

Double Tops

Double Tops
Double Top Example

Head & Shoulders Top pattern

  • A Head & Shoulders Top is a bearish reversal pattern
  • It requires a prevailing up trend
  • The Head & Shoulders Top contains three successive peaks
  • The middle peak (Head) is the highest and the two outside peaks (Shoulders) being lower and roughly equal
  • The reaction or swing lows of each peak are connected to form a “Neckline”
  • The “Neckline” can slope up, slope down or be horizontal
  • If the “Neckline” is broken, The Head & Shoulder Top is complete, and the up trend is reversed
  • The Minimum Price Objective (MPO) for the Head & Shoulder Top is the height of the Head from the Neckline, projected down from the break of the Neckline
H&STop
H&STopexample

Inverse Head & Shoulders Bottom patterns

  • A Head & Shoulders Bottom is a bullish reversal pattern
  • It requires a prevailing down trend
  • The Head & Shoulders Bottom contains three successive troughs
  • The middle peak (Head) is the lowest and the two outside peaks (Shoulders) being higher and roughly equal
  • The reaction or swing highs of each peak are connected to form a “Neckline”
  • The “Neckline” can slope up, slope down or be horizontal
  • If the “Neckline” is broken, The Head & Shoulder Bottom is complete, and the down trend is reversed
  • The Minimum Price Objective (MPO) for the Head & Shoulder Bottom is the height of the Head from the Neckline, projected up from the break of the Neckline
Inverse Head & Shoulders Bottom patterns

Editor in chief

Steve Miley is the Market Chartist and has 29 years of financial market experience and as a seasoned expert now has many responsibilities. He is the founder, Director and Primary Analyst at The Mar... Continued

Please comment below

Your email address will not be published. Required fields are marked *


Forex Brokers in your location


SIGN UP

67% of retail investor accounts lose money when trading CFDs with this provider.


SIGN UP

The vast majority of retail investor accounts lose money when trading CFDs


SIGN UP

71% of retail investor accounts lose money when trading CFDs with this provider.