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Reversals and fakeouts are two of the most critical concepts in trading. A reversal occurs when the market changes direction, while a fakeout is a false signal that can lead to losses. In this article, we'll explore how to predict reversals and fakeouts, helping you make more informed trading decisions.
*Reversal Patterns*
Reversal patterns are formations that indicate a potential change in market direction. Here are a few key patterns to look out for:
1. *Head and Shoulders*: A bearish reversal pattern characterized by a peak (head) followed by a lower peak (shoulders).
2. *Inverse Head and Shoulders*: A bullish reversal pattern with a trough (head) followed by a higher trough (shoulders).
3. *Double Tops and Bottoms*: Formations where the market tests a level twice before reversing.
*Fakeout Patterns*
Fakeouts are false signals that can trap traders. Here are a few patterns to watch out for:
1. *Bull Trap*: A false breakout above resistance, followed by a sharp decline.
2. *Bear Trap*: A false breakdown below support, followed by a rapid rebound.
3. *Stop Hunts*: Price movements designed to trigger stop-loss orders, often followed by a reversal.
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