At the end of a trend, there is a typically a reversal pattern indicating to us that the trend is about to reverse. There are 3 main patterns that you NEED to know.
1. Double Top/Double Bottom
A double top/bottom pattern is a chart pattern that consists of 2 consecutive peaks of similar height indicating that there is not enough buying/selling pressure to surpass the extremes of the price. This leads to a reversal in trend.
Double top is a bullish to bearish trend reversal.
Double bottom is a bearish to bullish trend reversal.
For a safe entry, entry would be after the break of the neck line (the last swing point) which is a confirmation that the it is a valid double top/bottom pattern.
Double Top:
2. Rising Wedge/Falling Wedge
A rising/falling wedge is a chart pattern that occurs when price is making higher highs and higher lows (in an uptrend – rising wedge) and lower lows and lower highs (in a downtrend – falling wedge). As the pattern progresses in the wedge, the range of the price contracts and is confined between 2 lines which get closer. Price eventually breaks out of the wedge and creates a reversal.
Rising wedge is a bullish to bearish trend reversal.
Falling wedge is a bearish to bullish trend reversal.
For a safe entry, wait for a breakout of the wedge to confirm the validity of the wedge pattern.
Rising Wedge:
3. Head & Shoulders/Inverse Head & Shoulders
A head and shoulders pattern is a chart pattern that appears as a baseline with three peaks. The outside two peaks (shoulders) are close in height and the middle is highest.
A normal head and shoulders is a bullish to bearish trend reversal.
An INVERSE head and shoulders is a bearish to bullish trend reversal.
For a safe entry, it is often advised to enter on the break of the neckline as that would be confirmation of the head and shoulder pattern.
Inverse Head & Shoulders:
Do your best to find them in your analysis!
1. Double Top/Double Bottom
A double top/bottom pattern is a chart pattern that consists of 2 consecutive peaks of similar height indicating that there is not enough buying/selling pressure to surpass the extremes of the price. This leads to a reversal in trend.
Double top is a bullish to bearish trend reversal.
Double bottom is a bearish to bullish trend reversal.
For a safe entry, entry would be after the break of the neck line (the last swing point) which is a confirmation that the it is a valid double top/bottom pattern.
Double Top:
2. Rising Wedge/Falling Wedge
A rising/falling wedge is a chart pattern that occurs when price is making higher highs and higher lows (in an uptrend – rising wedge) and lower lows and lower highs (in a downtrend – falling wedge). As the pattern progresses in the wedge, the range of the price contracts and is confined between 2 lines which get closer. Price eventually breaks out of the wedge and creates a reversal.
Rising wedge is a bullish to bearish trend reversal.
Falling wedge is a bearish to bullish trend reversal.
For a safe entry, wait for a breakout of the wedge to confirm the validity of the wedge pattern.
Rising Wedge:
3. Head & Shoulders/Inverse Head & Shoulders
A head and shoulders pattern is a chart pattern that appears as a baseline with three peaks. The outside two peaks (shoulders) are close in height and the middle is highest.
A normal head and shoulders is a bullish to bearish trend reversal.
An INVERSE head and shoulders is a bearish to bullish trend reversal.
For a safe entry, it is often advised to enter on the break of the neckline as that would be confirmation of the head and shoulder pattern.
Inverse Head & Shoulders:
Do your best to find them in your analysis!
