Reversal Patterns
These patterns appear at the end of a price trend (upward or downward) and indicate a high probability of a trend reversal. They serve as a "warning signal" that the current trend may be nearing its end.
Common examples:
Head and Shoulders:
Top Head & S: A downward reversal pattern consisting of three peaks (the middle one is the highest).
Inverse Head & S: An upward reversal pattern consisting of three troughs (the middle one is the lowest).
Double Tops and Double Bottoms:
Double Top: Two close peaks separated by a support area, indicating a downward reversal.
Double Bottom: Two close troughs separated by a resistance area, indicating an upward reversal.
Triple Tops and Triple Bottoms: Similar to double patterns but with three peaks or troughs, they are less common but stronger.
Important Notes:
Volume: Trading volume plays a crucial role in confirming patterns. Volume often increases at a breakout or breakdown.
Breakout/Breakdown: The pattern is not considered complete until the price breaks a key level in the pattern (such as the neckline in the head and shoulders pattern).
Price Targets: These patterns often provide specific price targets that can be calculated based on the measurement of the pattern.