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Glossary

Trend Reversal Patterns

A Trend Reversal Patterns occur when a market trend changes direction. Spotting a potential reversal benefits a Trend Trader as it tells him or her to exit a trade once conditions become unfavorable. Reversal signals may also herald in new trades, as it may cause the start of a new trend. Discussed briefly below are examples of reversal patterns: Double Bottom This is a sign of existing downtrend reversal. Prices are expected to begin a rally after its occurrence. Double Top This formation precedes existing trend reversal. It is usually formed in an uptrend and is expected to be followed by a drop in prices. Diamond The brilliant graphical price pattern serves for existing trend reversal confirmation in case of its occurrence on the chart. Traditionally it appears in an uptrend. Inverse Head and Shoulders The inverse head and shoulders graphical price pattern serves as a sign of trend reversal and is expected to be followed by change in direction of the asset’s price. It is typically formed in a downtrend. Reverse Head and Shoulders The Head and shoulders graphical price pattern signals the end of trend and the following change in direction of the asset’s price. It is typically formed in an uptrend. Triple Top The triple top is a price pattern generally formed in an uptrend suggesting following reversal and a drop in prices. Triple Bottom The triple bottom price pattern is formed in a downtrend being a sign of a following reversal and a rise in prices.
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