Reversal Chart Patterns

Price chart analysis starts with chart patterns. When you track price movements you may often see that these movements have predictable configurations, which are called chart patterns. Chart patterns are tools used to predict trend reversal or trend continuation.

Head and Shoulders

«Head and Shoulders» is the most recognizable reversal pattern.

Head line is the key one when specifying this pattern. Head line is a trend line which joins two bottoms between highs. This line breakout after forming of the second shoulder signals that this is a «Head and Shoulders» pattern. This pattern has a very interesting feature for traders. The thing is that by the size of the pattern we may specify approximate (minimum) reversal movement of the market. That is, we can specify the target of the market movement as the height of the Head from the Head line, drawn from the point of the breakout in an opposite way.

In order to confirm the «Head and Shoulders» pattern the volume patterns are used.

Triple and Double Tops and Bottoms

These are also reversal patterns. Though they are weaker than the «Head and Shoulders» pattern and less reliable as give a lot of false signals. That is why it is important to make a parallel analysis of oscillators convergence / divergence and market volume.

V-Reversal Pattern (Spike)

Mostly V-Reversal patterns (or Reversal Spikes) are formed subsequent to a rapid previous trend. There are many gaps on the chart, and support and resistance levels are indefinable. The only possible signal is a break through a very abrupt trend line. It is really difficult to find the right moment to enter the market if there is a formation of a spike. The best strategy in this circumstances is to be square (no open positions).