No matter what stage you are at in your trading journey, this simplified guide to reversal patterns will boost your strategy and confidence. Let’s break it down.
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1️⃣ Head and shoulders
What it means: Signals a reversal from a bullish uptrend to a bearish downtrend.
How to spot it: Three peaks — the middle one (head) is higher, surrounded by two smaller peaks (shoulders). Watch for a breakout of the neckline.
Best move: Sell (short) when the price falls below the neckline.
Tip: Increasing volume during a decline confirms a trend change.
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2️⃣ Double top
What it means: Marks the end of an uptrend, signaling a bearish reversal.
How to detect it: The price forms two peaks at the support, then falls.
Best move: Sell when support is broken.
Tip: Confirm oversold conditions with RSI for stronger signals.
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3️⃣ Double bottom
What it means: Indicates the end of a downtrend, signaling a bullish reversal.
How to detect it: The price reaches support twice, forming two valleys, then rises.
Best move: Buy (long) when resistance is broken.
Tip: Use MACD divergence to confirm bullish momentum.
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4️⃣ Double top
What it means: Strong bearish reversal signal.
How to detect it: The price forms three peaks at similar levels, then falls.
Best move: Sell after breaking the support level.
Tip: Use longer time frames for more reliable signals.
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5️⃣ Double bottom
What it means: Strong bullish reversal signal.
How to spot it: The price forms three valleys at similar levels, then rises.
Best move: Open a bullish position after breaking through resistance.
Tip: Watch for increased volume during the breakout for added confidence.
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6️⃣ Rounded top
What it means: Signals a gradual bearish reversal.
How to spot it: The price curves downward, resembling an inverted bowl, indicating decreasing momentum.
Best move: Sell when support is broken.
Tip: Decreasing volume often accompanies this pattern.
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7️⃣ Rounded bottom
What it means: Indicates a slow bullish reversal.
How to spot it: The price curves upwards, forming a bowl shape, signaling increasing demand.
Best move: Buy after breaking resistance.
Tip: Ideal for swing trades and long-term uptrends.
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8️⃣ Bowl with handle
What it means: A bullish continuation pattern leading to a breakout.
How to spot it: A U-shaped bowl followed by a small decline (handle) before a breakout to the upside.
Best move: Open a bullish position after the handle breaks.
Tip: Wait for the handle to retract to 50%-61.8% of the bowl height for optimal entry.
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Maximize your success with these tips
🔍 Combine tools: Combine patterns with indicators such as MACD, RSI or Bollinger Bands for better confirmation.
📏 Choose the right timeframe: Higher timeframes (4H, daily) yield more reliable patterns.
📊 Focus on volume: Strong reversals are often supported by noticeable changes in volume.
🚦 Manage risk: Always set stop loss levels near key support/resistance points.
Mastering these patterns can transform your trading strategy. Stay disciplined, practice, and watch the results!